Datasets:

shipWr3ck

/

gov_report_test_cleaned

like 0

gao_GAO-20-167

gao_GAO-20-167_0

<1. Background> After it is extracted, natural gas a colorless, odorless fossil energy source is stored in three types of underground geologic formations: salt caverns, depleted aquifers, and depleted oil and gas reservoirs. Two physical characteristics govern the suitability of each type of geologic formation for storage, including: (1) its capacity to hold natural gas for future use and (2) the rate at which natural gas can be withdrawn to meet demand. As of July 2019, about 80 percent of the approximately 400 natural gas storage sites in the United States are depleted natural gas or oil reservoirs because they are available in greater numbers than other types of formations, according to EIA. Underground salt caverns and depleted aquifers each account for about 10 percent of the sites. Natural gas storage sites are located in 31 states. California, Louisiana, Michigan, Pennsylvania, and Texas together contain natural gas storage sites that provide more than half of the natural gas storage capacity in the United States. Figure 1 illustrates the types of geologic formations used for natural gas storage and the locations of natural gas storage sites in the United States. The wells that inject natural gas into, or withdraw it from, the underground storage sites can extend thousands of feet underground. According to information from PHMSA, about 17,000 wells are used to inject and withdraw gas at approximately 400 natural gas storage sites, ranging from a few wells per site to more than a hundred wells at some larger sites. Wells are constructed with multiple layers of steel pipe, called casing, which are cemented in place. The layers of steel casing are intended to isolate the internal portion of the well from the outlying geological formations, which may include underground drinking water supplies. As a well is drilled deeper, progressively narrower casing is inserted further down the well and cemented in place. The wells at natural gas storage sites can be constructed to prevent leaks by installing multiple control points at each well, according to API. If a well is not constructed with such multiple points of control, it could be subject to a single point of failure, in which the failure of a single component, such as a casing or a safety valve, can lead to a large release of natural gas a factor that contributed to the Aliso Canyon incident, according to PHMSA officials. <1.1. Aliso Canyon Underground Storage Facility Leak> From October 23, 2015, through February 11, 2016, the Aliso Canyon Underground Storage Facility in Los Angeles County, California, experienced a large and uncontrolled natural gas leak. The Aliso Canyon natural gas storage site is a depleted oil field that was converted into a natural gas storage reservoir in the 1970s and that is near the Porter Ranch community, a residential community of about 30,000 people. It provides natural gas to the Los Angeles region for residential heating and cooling, commercial and industrial uses, and as fuel for electric power plants. According to the Energy Information Administration, the Aliso Canyon site has the fourth largest capacity among the approximately 400 underground natural gas storage sites in the United States. The leak reportedly was caused by damage to a well casing approximately 500 feet underground. California state government officials identified the damage as being caused by the aging infrastructure of that well, which had been drilled in 1953, and a lack of redundant safety valves at the well that prevented the leak from being stopped. Across a 4-month period, the site operator made multiple attempts to stop the leak. About 8,000 families near the Aliso Canyon leak were temporarily relocated in November 2015 due to ongoing odors and symptoms including headaches or migraines; nausea, vomiting, stomach aches, or diarrhea; nosebleeds; respiratory or breathing problems; chest tightness, coughing, or palpitations; and light-headedness and dizziness. Various agencies, including public health and regulatory agencies from state and local governments such as the Los Angeles County Public Health Department and California s Office of Environmental Health Hazard Assessment, responded to the leak. Additionally, several studies about the leak have been conducted or are planned. CCST, a nonpartisan, nonprofit organization established in response to a California state legislative resolution, published an independent review of the viability of underground natural gas in California, including an analysis of the health effects from stored natural gas releases. An interagency task force established pursuant to federal law, led by DOE and PHMSA, studied the Aliso Canyon incident and in 2016 provided a report to relevant congressional committees with recommendations to enhance safety. According to the 2016 interagency task force report, natural gas stored in geologic formations is under high pressure, which can force the gas through underground fissures or unplugged oil and gas wells and allow the gas to find its way to the surface. Leaks can also occur if the wells lose integrity because of cracking of the cement used to seal them, among other factors. Older wells used for natural gas storage were often drilled for other reasons, such as oil and gas production, and are more likely to have age-related degradation. As part of its work, the interagency task force chartered a Public Health and Environment Subgroup, led by EPA, to summarize the actions taken by local, state, and federal agencies to monitor and mitigate impacts to public health and the environment. The subgroup was to also recommend actions to prepare local, state, and federal agencies if a release from a natural gas storage facility should occur in the future. <1.2. Safety Regulations and Enforcement for Underground Natural Gas Storage Sites> When the Aliso Canyon leak occurred in 2015, federal safety regulations applied to conventional surface pipelines and above-ground equipment at all natural gas storage sites. Only state safety regulations applied to underground natural gas storage sites at that time. The PIPES Act of 2016 significantly changed the regulation of natural gas storage. It requires, among other things, that DOT establish minimum safety standards for all natural gas storage sites. Within DOT, PHMSA's mission is to protect people and the environment by advancing the safe transportation of energy and other hazardous materials, and because natural gas storage is a part of this mission, PHMSA is responsible for natural gas storage safety. In response to the act s requirement, PHMSA issued an interim final rule in December 2016 that took effect in January 2017. The rule included minimum safety standards based largely on recommended practices from API and generally required compliance by natural gas storage sites by January 2018. PHMSA provided for a public comment period, and after reviewing the public comments received on the interim final rule, PHMSA may modify aspects of the interim final rule by issuing a final rule. In August 2019, PHMSA officials told us they planned to issue a final rule in October 2019. PHMSA's interim final rule contains four different reporting requirements for operators of all natural gas storage sites, including an annual report with gas storage volumes, gas storage pressures, well depths, gas injection and withdrawal rates, and maintenance information that is conducted to ensure the safety of a facility. The interim final rule also requires operators to develop emergency response plans, but the required elements for such plans vary depending on the type of natural gas storage site. While PHMSA has authority for oversight of underground natural gas storage facilities, the PIPES Act also authorizes states to participate in such oversight by annually obtaining certification from or entering into an agreement with PHMSA (which we refer to as partnering with PHMSA). Authorized states are responsible for inspecting intrastate underground natural gas storage facilities on sites fully within their borders. According to PHMSA officials, 25 of the 31 states where underground natural gas storage sites are located have such intrastate sites, and PHMSA expected to partner with these 25 states by granting them oversight authorization, according to PHMSA officials. In addition, the PIPES Act requires PHMSA to set and charge user fees for operators of underground natural gas storage sites. The act restricts the use of these fees to activities related to natural gas storage site safety. The act also prohibits PHMSA from collecting fees unless the expenditure of these fees is provided in advance in an appropriations act; as a result, PHMSA can only collect fees up to the amount provided in advance in an appropriations act. <1.3. Public Health and Environmental Effects from Hazardous Chemicals> Human health can be affected by breathing hazardous chemicals in the air; drinking water contaminated by such chemicals; or making skin contact with contaminated soil, dust, or water. Chemicals that can affect human health include several types of hazardous materials that pose a risk to human health and safety. Environmental effects of chemicals can include greenhouse gas emissions and groundwater contamination. Several federal agencies have a role in assessing the public health and environmental effects from exposure to hazardous chemicals, although these efforts may not be specifically related to underground natural gas storage as described in this report. For example, the Toxic Substances Control Act authorizes EPA to review the environmental and health effects of certain chemicals and regulate those that pose unreasonable risks to human health or the environment. According to EPA's July 2018 Report on the Environment, relationships between environmental exposures and health outcomes can only be established through well- designed epidemiological, toxicological, and clinical studies. Developing evidence that environmental contaminants cause or contribute to the incidence of adverse health effects can be challenging, particularly for effects that occur in a relatively small proportion of the population or effects with multiple causes. For example, there may be factors related to both the exposure and the health effect confounding factors that can make it difficult to detect a relationship between exposure to environmental contaminants and disease. In its 2018 report, EPA stated that it uses the results of scientific research to help identify linkages between exposure to environmental contaminants and diseases, conditions, or other health outcomes. These linkages, in turn, identify environmental contaminants and health outcomes of potential agency interest. Research has established a relationship between exposure and disease for some environmental contaminants, including radon and lung cancer, arsenic and cancer in several organs, and lead and nervous system disorders. OSHA established the Air Contaminants Standard to limit employees occupational exposure to more than 400 chemicals. It also established the Hazard Communication Standard, which requires employers to provide information to their employees about the hazardous chemicals to which they are exposed by means of Safety Data Sheets, among other things. Other federal agencies have responsibilities related to the human health effects of chemicals, including ATSDR and NIOSH. ATSDR has authority to, among other things, perform health assessments for releases or facilities where information was provided that individuals were exposed to a hazardous substance for which the probable source of such exposure is a release. NIOSH researches the safe use of chemicals in the workplace and provides information on how to measure chemicals in the work environment, among other things, for understanding and managing chemicals safely at work. <1.4. 2017 GAO Report Findings and Recommendations> In November 2017, we reported on PHMSA s natural gas storage program. At the time of our 2017 review, PHMSA was still establishing its program, and we reviewed its planning efforts for developing the program. We found that although PHMSA had established a strategic goal for its natural gas storage program and set a performance goal for training inspectors, it had not yet followed other leading practices for strategic planning. PHMSA officials told us that the program would be guided by one of PHMSA s existing strategic goals: to promote continuous improvement in safety performance. We found that PHMSA had not defined the level of performance to be achieved and did not have performance goals that addressed other core program activities, such as conducting inspections. We recommended that PHMSA define levels of performance, address core program activities, and use baseline data to develop performance goals for its natural gas storage program. At that time, we also found that PHMSA had not yet used initial baseline data it gathered early in the program to inform the development of its performance goal. We recommended that PHMSA use other data and information about budgetary resources as they become available to inform and refine its performance goals. PHMSA agreed with these recommendations and in May 2018 established a performance goal for inspections of natural gas storage sites. PHMSA officials told us in July 2019 that they were continuing to inform and refine agency performance goals based on budgetary information. <2. Since November 2017, PHMSA Has Not Fully Evaluated Its Workforce Needs for the Program or Established Performance Goals That Reflect Efforts to Improve Safety> After our report in November 2017, PHMSA began inspecting natural gas storage sites but has not fully assessed resource needs for its changing workload or established a performance goal that measures PHMSA s progress toward its relevant strategic goal to improve safety. First, because PHMSA has not used an analysis of its workforce needs to inform its budget requests, the agency may not have assurance that it has enough resources to meet its performance goal of inspecting all of the approximately 400 natural gas storage sites within 5 years (from early 2018 through early 2023). Second, although PHMSA has established a performance goal that focused on the number of inspections completed, the goal does not reflect the agency s contributions toward its strategic goal to promote continuous improvement in safety. <2.1. Since 2017, PHMSA Has Established and Worked toward an Inspection Performance Goal but Has Not Used a Workforce Analysis to Guide Its Resource Decisions> In November 2017, we reported that PHMSA had established a strategic goal for its natural gas storage program but had not yet set performance goals that define the level of performance officials hope to achieve or that address all core program activities, such as conducting effective inspections. PHMSA's inspections of natural gas storage sites are designed to determine the extent to which these sites meet PHMSA s 2016 minimum safety standards for natural gas storage sites, according to PHMSA officials and documents. In our November 2017 report, we stated that our prior work had identified several leading practices for strategic planning that PHMSA had not yet followed, such as setting goals that define a certain level of performance and address all core program activities. We recommended that PHMSA develop such goals, and the agency concurred. In 2018, PHMSA officials told us that the agency had established a performance goal to inspect all of the approximately 400 natural gas storage sites over 5 years (from early 2018 through early 2023), with the expectation that state partners would help PHMSA inspect the sites. The officials also told us the agency has started inspecting sites to meet that goal. Currently, 10 states have agreed to partner with PHMSA to help inspect natural gas storage sites, according to agency officials. Natural Gas Storage Site Inspections Conducted by the Pipeline and Hazardous Materials Safety Administration (PHMSA) At a PHMSA inspection of a natural gas storage site in rural Iowa, we observed PHMSA inspectors conducting visual inspections of natural gas storage wells in the field to ensure that the site operator's wells matched the operator's documentation and that the wells were operating within safe limits. During the inspection, PHMSA's inspectors also conducted a review of the storage site operator's safety procedures, such as the operator s schedule for inspecting its wells for potential leaks or pressure changes, its emergency contact protocols, and its procedures for ensuring the integrity of wells. As part of the review, PHMSA inspectors reviewed the site operator s documentation to evaluate the operator s efforts to implement the agency s 2016 minimum safety standards for natural gas storage sites. To meet its performance goal, PHMSA set targets for each of the 5 years (see app. II for details about PHMSA's annual targets for this performance goal). For example, PHMSA set a target that its inspectors and state partners would inspect a total of 41 sites in 2018. According to PHMSA officials, the agency completed 35 inspections, and its state partners inspected an additional 30 sites, for a total of 65 inspections in 2018. In future years, according to PHMSA planning documents, PHMSA s annual site inspection targets will almost double from 41 total site inspections in 2018 to 80 total site inspections in 2019. However, PHMSA's inspection workload for its natural gas storage program has increased since November 2017, which may affect its ability to meet its inspection performance goal. We reported in November 2017 that PHMSA had developed a preliminary estimate of the workforce it would need to inspect half of the approximately 400 natural gas storage sites. That estimate was based on the agency s experience from its pipeline safety program. Specifically, in 2017, agency officials said that they expected 25 state governments would partner with PHMSA to inspect about 200 of the sites and that six agency employees would inspect the remaining approximately 200 sites. Specifically, in 2017 PHMSA estimated the inspections would require about 203 work weeks of inspectors time. However, in October 2018, PHMSA officials told us that their inspectors would need more time than previously estimated to complete each natural gas storage site inspection, due to requirements for operators in the 2016 minimum safety standards. Furthermore, in its 2017 estimate, PHMSA assumed that all 25 state governments eligible to partner with PHMSA on inspections would agree to do so. However, as of June 2019, only 10 of the 25 eligible states had agreed to partner with PHMSA, according to agency officials. PHMSA officials told us that more states may decide to participate in the future. However, there are a variety of reasons why states may be reluctant to partner with PHMSA. For example, officials from two states told us that PHMSA had not offered enough funding to cover the cost of partnering with the agency. Officials from two states told us that partnering with PHMSA required some lead time to obtain funds through their states' legislative processes for such inspections. In addition, PHMSA officials told us that some states are waiting until the interim final rule is issued as a final rule before determining whether to partner. As a result, according to PHMSA data, unless additional states partner with the agency, PHMSA will need to increase the number of sites it inspects from about 200 to 322 in order for the agency to meet its performance goal of inspecting all of the approximately 400 sites by 2023. This would increase PHMSA s inspection workload by about 60 percent, as shown in figure 2. Because of the increase in its inspection workload over its preliminary estimate, PHMSA does not have assurance that it has enough resources to meet its inspection goal. Specifically, PHMSA has requested and received the same budget authority for its natural gas storage safety activities $8 million for each fiscal year from 2017 through 2019. Of the $8 million, PHMSA requested $2 million for federal employees to inspect about 200 of about 400 natural gas storage sites. PHMSA requested the remaining $6 million for grants to authorized states to conduct inspections of the remaining sites. However, of the 25 states PHMSA expected to request such authority, only 10 did so and are partnering with PHMSA to conduct inspections, according to PHMSA officials. This means that the number of sites that states could inspect is about 90 rather than about 200, as PHMSA had initially estimated. In comparison, PHMSA's workload for its natural gas storage inspection program is more than three times higher than the workload for PHMSA s pipeline inspection program. We also recommended in November 2017 that PHMSA use other data and information about budgetary resources to inform and revise its performance goals. PHMSA concurred with our recommendation. However, officials told us that as of July 2019, the agency had not yet fully addressed this recommendation to use workforce data to inform and revise its goals. In December 2018, PHMSA issued a strategic workforce plan that indicates it represents a thorough analysis of the agency s current workforce composition as of 2018 and the collective viewpoints of employees and senior leadership regarding the future. PHMSA stated in this plan that workforce planning will allow the agency to respond to emerging challenges and responsibilities and improve overall mission effectiveness and efficiency. Specifically, the plan states that PHMSA leadership recognizes that while the agency has implemented some foundational elements of workforce management and the overall workforce is staffed with skilled professionals, the agency s workforce planning has tended to be more reactive than proactive. The plan cites as evidence underdeveloped succession plans, inconsistent hiring results, increased turnover, and limited workforce analysis and forecasting. To address these gaps, the plan identifies the following three high-level strategies to supplement and expand agency capabilities: expand and enhance PHMSA s recruitment and hiring plans, conduct operational workforce planning and workload analysis by program office, and implement succession planning and develop leadership and staff. PHMSA officials said that the agency has been assessing its workforce, but they told us this assessment will not guide the agency s budget requests for its natural gas storage program. PHMSA officials told us they did not plan to change the workforce levels reflected in the agency s budget requests until 2022 or 2023. This is because although PHMSA has been collecting and assessing workforce data since March 2018, the agency does not expect to have the workforce data it needs to further inform workforce analysis until 2022 or 2023, according to PHMSA officials. The officials indicated that the additional data they have begun gathering may include variables such as the number of additional states that may partner with PHMSA in the future; resources used, by region; and the capacity of inspection teams of different sizes. In technical comments PHMSA provided on a draft of this report, PHMSA officials stated that the agency recently concluded a workforce assessment of its pipeline inspection program including its natural gas storage program covering the 5 years from 2020 through 2024. PHMSA s workforce assessment indicated that the state of Texas is likely to partner with PHMSA beginning in 2020, which would reduce the number of natural gas storage sites PHMSA would need to inspect. Based on our preliminary review of the information PHMSA officials provided, however, PHMSA s assessment does not address the reasons its inspectors workload increased by about 60 percent, such as the factors affecting states participation in inspections. Moreover, PHMSA officials did not indicate whether PHMSA would use this workforce information to guide its workforce planning or budget requests. We have reported that strategic workforce planning is an essential tool to help agencies align their workforces with their current and emerging missions and develop long-term strategies for acquiring, developing, and retaining staff. Furthermore, we have reported that existing strategic workforce planning tools and models and our own work suggest that there are certain principles that such a process should address. These principles include developing strategies tailored to address gaps in number, deployment, and alignment of human capital to enable and sustain the contributions of all critical skills and competencies. We also have reported that workforce planning should include (1) identification of the knowledge, skills, and abilities and other characteristics (i.e., competencies) needed by the future workforce; the competencies of the current workforce; and gaps between the two; (2) development of a workforce action plan designed to address these gaps; and (3) monitoring and evaluation of the workforce planning actions taken. Furthermore, we have found in our prior work that completing and regularly updating staffing models in a timely manner can help support agencies activities and decision-making. By analyzing the factors affecting states participation in inspections and analyzing the agency s workforce needs on an ongoing basis and using this information to guide its budget requests, PHMSA would have more reasonable assurance that it has the necessary staff to meet its inspection goal. <2.2. Since 2017, PHMSA Has Established a Performance Goal, but the Goal Does Not Reflect the Agency s Contributions to Its Strategic Goal of Promoting Continuous Safety Performance> PHMSA has established a strategic goal for its natural gas storage program to promote continuous safety performance but as of April 2019 had not established performance goals that reflect the agency s contributions to protecting human health and the environment. According to PHMSA officials, PHMSA s natural gas storage program is guided by the agency s strategic goal to promote continuous improvement in safety performance. PHMSA officials acknowledged that the agency s inspection performance goal provides information about activities or outputs specifically, the number of inspections. However, this goal does not provide information on the outcomes or results of PHMSA's contributions toward its strategic goal of improving safety at natural gas storage sites, consistent with leading practices under GPRA. An example of an outcome-oriented performance goal could be to measure reductions in the volume of gas released from natural gas storage wells, which could indicate that operators of natural gas storage sites are reducing safety risks through improved maintenance. Based on our previous work, measuring performance outcomes is an important management tool for agencies, and leading practices indicate that results-oriented performance goals focus on expected results to show progress toward, or contributions to, intended results. By establishing performance goals that demonstrate improvements to safety outcomes, PHMSA would have better assurance that it can show its progress toward meeting the agency s strategic goal of continuously improving safety performance. In addition to the performance goal PHMSA established, agency officials told us that DOT applied an outcome-oriented, department-wide performance goal to its natural gas storage program. Based on our review of DOT s 2018-19 Annual Performance Plan 2017 Annual Performance Report, PHMSA is responsible for meeting the department-wide performance goal of reducing incidents involving death or major injury resulting from the transport of hazardous materials by all modes, including pipelines. While PHMSA officials told us this was an outcome-oriented goal, we believe it would not provide a meaningful measure of safety improvements at natural gas storage sites because, according to PHMSA data, there have been zero incidents involving death or major injuries at natural gas storage sites since 2017, when PHMSA started tracking incidents. While no deaths or major injuries have been reported at natural gas storage sites since 2017, PHMSA reported seven incidents four in fiscal year 2017 and three in fiscal year 2018 that did not result in death or major injury. These seven incidents resulted in natural gas releases of 3 million cubic feet or more or caused estimated property damage of $50,000 or more. By tracking reductions to these incidents, PHMSA may have additional opportunities to measure outcomes in safety improvements. <3. Federal Agencies Have Documented Potential Health Effects from Chemicals that May Be Found in Stored Natural Gas> Several federal agencies including EPA, ATSDR, OSHA and NIOSH have documented potential health effects of chemicals that may be found in stored natural gas. These chemicals some at trace amounts are known to cause health effects at specific levels of exposure. Stored natural gas primarily consists of methane, and during large releases at natural gas storage sites, downwind methane concentrations can be higher than flammability or explosion limits, creating health and safety concerns, according to CCST. In addition, other chemicals occur naturally in natural gas or are residues from the storage site s previous use. For example, hydrogen sulfide, a flammable, colorless gas that smells like rotten eggs, can occur in depleted oil and gas reservoirs. Figure 3 shows a building containing a well at a natural gas storage site with a notice that warns of hydrogen sulfide, which may collect in confined spaces in amounts that are acutely toxic. Hydrogen sulfide can cause a range of human health effects, from eye irritation to serious lung injury, according to ATSDR. In addition, some chemicals may be added to natural gas, such as sulfur odorants that are added to give natural gas a distinct smell in case of leaks. The combination of such chemicals varies from one storage site to another based on the attributes of that site, such as its geologic type and the extent to which sulfur odorants are added to the natural gas before storage. Many of these chemicals have been linked to adverse health effects. However, research is limited on the health effects of exposure to stored natural gas in general and on the effects in particular from exposure to chemicals that may occur in natural gas storage leaks or be present at the storage sites. Reports linking health effects are available on specific chemicals but not in the context of natural gas storage, based on our literature review. Scientific studies are important for establishing the association between chemicals in stored natural gas and symptoms community members may experience during leaks to determine health effects. EPA, through its Integrated Risk Information System (IRIS) Program, identifies and characterizes the health hazards of chemicals found in the environment and has produced assessments on several chemicals that may be present in natural gas. EPA established the IRIS Program in 1985 to help develop consensus opinions within the agency about the health effects from lifetime exposure to chemicals. The IRIS database of chemical assessments contains EPA s scientific positions on the potential human health effects that may result from exposure to various chemicals in the environment. As of November 2018, the database included information on 510 chemicals. To conduct an assessment of a chemical, the agency follows a multi-step process that includes identifying credible health hazards associated with exposures to a chemical and characterizing the quantitative relationship between chemical exposure and each credible health hazard. The program derives toxicity values through this quantitative relationship. EPA has completed assessments on several chemicals that may be in stored natural gas, including hydrogen sulfide, benzene, toluene, ethylbenzene, and xylene. In its IRIS assessment on benzene, EPA found that, as is the case with many other organic solvents, benzene has been shown to produce neurotoxic effects in test animals and humans after short-term exposures to relatively high concentrations. ATSDR develops toxicological profiles summaries of its evaluations concerning whether, and at what levels of exposure, adverse health effects occur and levels at which no adverse effects occur for several chemicals that may be present in natural gas, including hydrogen sulfide, benzene, toluene, ethylbenzene, and xylene. For example, ATSDR has found that inhaling benzene can cause drowsiness, dizziness, and unconsciousness and that long-term benzene exposure affects the bone marrow and can cause anemia and leukemia. Also, ATSDR found that toluene may affect the nervous system and at low to moderate levels can cause tiredness, confusion, weakness, memory loss, nausea, and loss of appetite. However, these symptoms usually disappear when the exposure stops. NIOSH researches the safe use of chemicals in the workplace and provides information on how to measure chemicals in the work environment, engineering controls and personal protective equipment, risk assessments, and communication tools for understanding and safely managing chemicals at work. NIOSH publishes information on chemical hazards in the workplace to inform workers, employers, and occupational health professionals. For example, NIOSH reports on occupational exposure limits for ethylbenzene. NIOSH s Pocket Guide to Chemical Hazards provides key facts on the health effects from exposures to chemicals and recommends occupational exposure limits to chemicals that can affect human health. In addition, NIOSH helped initiate the International Chemical Safety Cards, a joint international agency effort. The cards, which provide essential safety and health information in a clear and concise way, are drafted and peer-reviewed by an international group of scientists from institutions concerned with occupational safety and health. The cards provide information about some chemicals that can occur in natural gas storage sites, including hydrogen sulfide, benzene, toluene, ethylbenzene, and xylene. OSHA collects information on chemicals and occupational health effects for workers and compiles that information into a database. OSHA accumulates information from several government agencies, including EPA, ATSDR, and NIOSH. This information includes chemical identification and physical properties, occupational exposure limits, and sampling information. OSHA s Occupational Chemical Database provides information on chemicals, including those that can be present in stored natural gas, such as hydrogen sulfide, benzene, toluene, ethylbenzene, and xylene. In addition, among other general information, OSHA regulations require employers to maintain and make available to employees Safety Data Sheets in the workplace for each hazardous chemical they use. <4. Potential Environmental Effects of Releases at Natural Gas Storage Sites Include Greenhouse Gas Emissions and Some Risks to Groundwater> Releases at natural gas storage sites are known to emit greenhouse gases mainly carbon dioxide and methane into the atmosphere, according to EPA and CCST reports. In addition, we identified two natural gas storage site releases from 2000 through 2018 that potentially impacted groundwater, but information about such releases is limited. <4.1. Reports Reviewed Indicate that Natural Gas Storage Sites Emit Greenhouse Gases> Releases at natural gas storage sites emit greenhouse gases into the atmosphere, according to data from EPA s program on greenhouse gas emissions. These can be major releases, such as the Aliso Canyon leak, or other emissions, such as leaking pipes and valves. According to the 2019 EPA annual report Inventory of U.S. Greenhouse Gas Emissions and Sinks, the main greenhouse gases released from natural gas storage sites are methane, the largest component of natural gas, and carbon dioxide, the main greenhouse gas produced by natural gas combustion. Of the two, methane makes a greater pound-for-pound contribution to climate change the comparative impact of methane is more than 28 to 36 times greater than carbon dioxide over a 100-year period, according to EPA officials who cited the Intergovernmental Panel on Climate Change. As a result, leaks such as the Aliso Canyon incident contribute to climate change, according to EPA. For example, the Aliso Canyon leak resulted in the single largest release of methane in U.S. history, with a release of 78,000 metric tons of methane in 2015 and an additional 22,000 metric tons in the first 2 months of 2016. The Aliso Canyon leak equaled the greenhouse gas emissions from approximately 529,000 passenger vehicles driven for 1 year, according to EPA data. In most years since 1995, an annual average of 15,000 metric tons of methane were released from natural gas storage, according to EPA data on greenhouse gases. In 2015, however, due to the Aliso Canyon leak, greenhouse gas emissions from all natural gas storage wells increased to more than 92,000 metric tons of methane about 6 times greater than the release for an average year according to EPA estimates. Figure 4 shows EPA s estimates of annual methane emissions from natural gas storage sites from 1995 through 2016, including the estimated emissions from the Aliso Canyon leak in 2015 and 2016. Chronic releases during routine operations at natural gas storage sites, such as small leaks from valves or from equipment exhaust, also emit greenhouse gases into the atmosphere and may persist for long periods of time. These chronic releases tend to be slow leaks from natural gas wells, such as releases from seals and valves. Slow leaks can persist for long periods because, unlike major leaks, they are less likely to be detected, according to a CCST report. Moreover, slow leaks, if identified, may not be prioritized due to a perception that they present few implications for worker safety and public health, according to CCST s report. However, the CCST report also stated that chronic releases may routinely occur, although the amount of the release is difficult to measure since it may not be known when the release started, and these chronic releases may lead to a significant release of greenhouse gas. In 2016, California conducted an assessment of all its natural gas storage wells across its 11 natural gas storage sites and found 229 chronic leaks. Methane releases from these slow, chronic leaks generally represent a small share of the statewide reported methane releases in California. However, over a 10-year period, the cumulative impact of these releases from routine operations in California can equal the amount of methane released in the Aliso Canyon leak, according to CCST, using estimates from the California Air Resources Board. <4.2. Evidence from Releases Indicates Some Risk to Groundwater from Natural Gas Storage, but Data Are Limited> In some instances, groundwater has been contaminated by the release of natural gas from storage sites, but the extent of the risk to groundwater is not known because data are limited. We identified two examples of releases from 2000 through 2018 that potentially affected groundwater: a 2003 release at the Playa Del Rey storage site in California and a 2006 release at a storage site near Fort Morgan in Colorado. Natural gas storage site releases can impact groundwater sources in different ways. For example, these releases can impact groundwater sources above the storage site when they involve the upward migration of gas and other fluids mixed with the gas. According to CCST, this occurred at the Playa Del Rey site, where stored natural gas has leaked into a freshwater aquifer for a number of years. In other cases, faulty natural gas well design and construction, such as inadequate cementing, can allow natural gas to migrate through fractures and infiltrate overlying groundwater sources or enter drinking water wells. For example, gas infiltrated an aquifer that served drinking water wells in Fort Morgan, Colorado, which led to an evacuation of about a dozen families until the release was stopped. Subsurface leaks can also result from abandoned wells in which the casings or cement have degraded over time or from improperly plugged wells. In January 2017, PHMSA started collecting data from operators on incidents, including releases of natural gas from underground storage sites that cause more than $50,000 of property damage; these incidents could include leaks that harm groundwater resources, according to PHMSA officials. Based on our review of PHMSA incident information, no reported incidents have included groundwater contamination. Moreover, PHMSA officials told us they are not aware of any incidents involving groundwater contamination that meet reporting thresholds. PHMSA does not require operators to submit information about groundwater contamination unless that contamination meets the regulatory definition of an incident. <5. Conclusions> Natural gas storage is an integral part of the nation s energy system, ensuring that energy is available to meet peak demands across the nation. PHMSA s safety program for natural gas storage fills a gap that existed in the regulation of underground storage prior to 2017. PHMSA met its inspection targets in the first year of its program, but it faces challenges in meeting its performance goal to inspect 400 storage sites by 2023 because fewer states agreed to partner with the agency on inspections than PHMSA originally envisioned. Because of the increase in its inspection workload from its preliminary estimate, PHMSA does not have assurance that it has enough resources to meet its inspection goal. PHMSA officials told us that while the agency has conducted a workforce assessment, it will not have the data to complete a workforce analysis it can use to guide its workforce allocations and budget requests until 2022 or 2023. The officials also told us that more states may decide to participate in the future. By analyzing the factors affecting states willingness to participate in inspections and analyzing its workforce needs on an ongoing basis, PHMSA would have more reasonable assurance that it has the necessary staff to meet its inspection goal. In addition, while PHMSA addressed one of the two recommendations in our November 2017 report and has established a performance goal that provides information about the number of completed inspections, this performance goal does not provide information on the outcome of PHMSA's efforts to improve safety at natural gas storage sites, consistent with leading practices under GPRA. By establishing performance goals that demonstrate improvements to safety outcomes, such as tracking reductions in incidents ranging from releases of natural gas to death or major injury, PHMSA would have better assurance that it can measure its progress toward meeting its strategic goal to improve safety. <6. Recommendations for Executive Action> We are making the following two recommendations to PHMSA: The PHMSA Administrator should analyze the factors affecting states participation in underground natural gas storage inspections and analyze its workforce needs on an ongoing basis to guide its budget requests. (Recommendation 1) The PHMSA Administrator should establish performance goals that demonstrate improvements to safety outcomes for the natural gas storage program, such as tracking reductions to incidents. (Recommendation 2) <7. Agency Comments> We provided a draft of this report to DOT for review and comment. In written comments, DOT concurred with the report s recommendations and provided additional information on steps it is taking or plans to take as part of its implementation of the underground natural gas storage program. In addition, DOT stated that it would provide a detailed response to each recommendation within 180 days of our final report s issuance. The complete comment letter is reproduced in appendix IV. If you or members of 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 V. Appendix I: Objectives, Scope, and Methodology This report (1) assesses the extent to which the Department of Transportation s Pipeline and Hazardous Materials Safety Administration (PHMSA) has further developed its natural gas storage program since our November 2017 report, (2) describes what is known about the potential health effects from chemicals in stored natural gas, and (3) describes what is known about the potential environmental effects of releases at natural gas storage sites. To address these objectives, we reviewed documents from PHMSA, the Department of Energy, and the Environmental Protection Agency (EPA) and met with officials from these agencies to understand their roles in natural gas storage safety. Since there was no comprehensive list of natural gas storage releases, we conducted a literature search for reports of incidents that occurred in the United States from 2000 through 2018. Later, we expanded our search to include reports of incidents related to mercaptan, an odorant added to natural gas, regardless of whether these incidents occurred at a natural gas storage site. We sought reports and studies from news reports and trade and peer-reviewed journals. We conducted searches in research databases such as Nexis All English Language News, Elsevier s Scopus, Ei EnCompassLIT, and Chemical Safety Newsbase. We further expanded our search to include state or county reports that had conducted studies or released reports on these issues. We also reviewed three reports referred to us by agency officials we interviewed that compiled lists of natural gas storage releases to identify those releases that occurred from 2000 through 2018 at underground natural gas storage sites in the United States. The specific reports we reviewed were: An Appraisal of Underground Gas Storage Technologies and Incidents, for the Development of Risk Assessment Methodology; Analysis of Occurrences at Underground Fuel Storage Facilities and Assessment of the Main Mechanisms Leading to Loss of Storage Integrity ; and U.S. Natural Gas Storage Risk-Based Ranking Methodology and Results. We also included a list of incidents at natural gas storage sites in 2017, the first year for which PHMSA collected and compiled these data for underground natural gas storage. From these sources, we identified 93 releases of natural gas from storage sites; these 93 releases include incidents as defined by PHMSA regulations as well as releases of natural gas that may not meet that definition. The releases we identified could include releases, leaks, explosions, or fires that occurred at natural gas storage sites, and we included these releases regardless of the severity of their impacts, such as injury, death, cost associated with release, or volume of gas released in the incident. We excluded releases at other types of storage, such as aboveground storage or oil storage. This list may not represent the complete universe of releases because not all releases may have been documented, and no federal agency or independent source cataloged all releases for this time period. We reviewed the list of releases to identify any documented examples of health or environmental effects associated with a release. We identified one example of reported health symptoms associated with a natural gas storage release at the Aliso Canyon Storage Site in 2015; the studies we identified did not empirically link the release of natural gas at Aliso Canyon to health effects. The studies also identified two examples of potential groundwater impacts from two other natural gas storage leaks. We visited natural gas storage facilities selected to represent each of the three types of underground storage for depleted fields, Aliso Canyon in California; for salt caverns, Moss Bluff in Texas; and for aquifers, Redfield in Iowa. We reviewed documentation from each site and interviewed these sites operators. We selected these sites for specific reasons: Aliso Canyon because of the 2015 leak, Redfield because it was scheduled to undergo an inspection by PHMSA at the time of our visit, and Moss Bluff because it was readily accessible from a major urban area (Houston, Texas). Our findings from the sites we visited and officials we interviewed are not generalizable to sites and officials we did not include in our review but provide illustrative examples of such sites. We also met with officials from industry groups that represent companies that operate natural gas storage sites the American Gas Association, American Petroleum Institute, and Interstate Oil and Gas Compact Commission to better understand these groups perspectives on the natural gas storage safety program. We also met with the Environmental Defense Fund to understand its perspective on natural gas storage. To examine the extent to which PHMSA has taken action since our 2017 report to continue developing its program for natural gas storage, we reviewed documents related to the program, including strategic plans, business plans, guidance and plans related to inspections, data on the number of trained inspectors and completed inspection counts, and workforce planning. We also met with PHMSA officials to discuss the program. We selected a nongeneralizable sample of seven states: four of the five states with the largest amount of working natural gas storage (Michigan, Texas, Louisiana, and California), one state in which PHMSA was conducting an inspection (Iowa), and two additional states that had considered partnering with PHMSA (Alaska and Colorado). We met with officials representing these seven states to understand their perspectives on PHMSA s natural gas storage safety program and their efforts to partner with PHMSA and conduct inspections. We compared PHMSA efforts on its natural gas storage program s workforce planning with our prior work on best practices in workforce planning. We also compared PHMSA s efforts on strategic planning with leading strategic planning practices that our past work has identified. For example, we have previously reported that requirements of the Government Performance and Results Act of 1993, as amended such as performance goals that apply at the departmental or agency level can serve as leading practices for planning at lower levels, such as component agencies, offices, programs, and projects, within federal agencies. To describe what is known about the potential health effects from chemicals in stored natural gas, we used our literature search results that identified releases from 2000 through 2018 to determine whether there were any studies that empirically linked the releases of natural gas in storage sites with health effects; we did not find any such studies. Since no list of natural gas storage site composition exists, we took steps to identify the components and chemicals that may be present in stored natural gas. First, we identified operators of natural gas storage sites that represented 49 percent of the total storage capacity of all natural gas storage sites within the United States. We identified these operators by reviewing Energy Information Administration data on natural gas storage working capacity from 2016. Next, we obtained and analyzed each operator s Safety Data Sheet for natural gas and identified the components of natural gas. Also, we reviewed the interagency task force report to identify any additional chemicals that may be present in natural gas, and we reviewed reports to identify chemicals that had been identified as present in the Aliso Canyon storage site release in 2015. We then met with and obtained documents from federal agencies that focused on public health and occupational health to determine the extent to which chemicals within natural gas storage had documented potential health effects. We reviewed databases from EPA and the Agency for Toxic Substances and Disease Registry to identify the health effects that may be caused by exposure to chemicals. We also reviewed documents from and met with officials from the Occupational Safety and Health Administration (OSHA) and the National Institute for Occupational Safety and Health (NIOSH). To examine the health symptoms associated with the Aliso Canyon storage site leak, we (1) visited the storage facility; (2) met with officials from California state agencies, including the Los Angeles Department of Public Health, Division of Gas and Geothermal Resources, and South Coast Air Quality Management District to discuss the Aliso Canyon natural gas leak; and (3) reviewed reports related to potential health effects during and after the Aliso Canyon leak, including results on community health (2016); indoor dust samples (2016); and air monitoring for methane, benzene, volatile organic compounds, and sulfur odorants. Additionally, we reviewed reports from the Public Health and Environment Subgroup of an interagency task force that studied the Aliso Canyon incident and from the California Council on Science and Technology (CCST). To describe what is known about the potential environmental effects of releases at natural gas storage sites, we reviewed documentation and data from EPA on greenhouse gas emissions in general and specifically for the Aliso Canyon natural gas leak in 2015, and we spoke with officials from EPA knowledgeable about the agency s greenhouse gas reporting program and inventory program. In addition, we obtained data from EPA estimating methane emissions from natural gas storage sites from 1995 through 2016. We assessed the reliability of these data by (1) corroborating these data with other published sources, (2) reviewing existing information about the data and the methods that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that these data were sufficiently reliable for the purposes of our reporting objectives, specifically to illustrate the relative size of the Aliso Canyon leak relative to estimated releases from natural gas sites. We identified an EPA report summarizing the amount of air emissions at the Aliso Canyon leak. For the Aliso Canyon incident in 2015, we reviewed reports that we identified through officials related to the release of methane, including results from air samples for methane taken by California agencies. We visited the Aliso Canyon storage facility and met with relevant California state agency officials. Also, through our literature search, we identified two examples of natural gas storage releases of chemicals into groundwater: the Playa Del Rey storage site in California and a storage site near Fort Morgan, Colorado. Additionally, we met with California Council on Science and Technology officials and reviewed the council s report, Long-Term Viability of Natural Gas Storage in California, to better understand how a natural gas storage incident could impact groundwater. We also reviewed recommendations made in an October 2016 report by the Interagency Task Force on Natural Gas Storage Safety. We conducted this performance audit from December 2017 to October 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Annual Inspection Targets Set to Complete the 5-Year Goal Set by the Pipeline and Hazardous Materials Safety Administration The Pipeline and Hazardous Materials Safety Administration (PHMSA) has set a goal to inspect all of the approximately 400 storage sites over 5 years, from early 2018 to early 2023, according to PHMSA officials. To meet this five-year goal, PHMSA divided its workload of approximately 400 inspections over the 5 years it planned to meet its goal. PHMSA planned that its state partners would complete about one-quarter of the inspections while its federal inspectors would complete the remaining three-quarters of inspections. PHMSA s targets for inspections, and its actual inspections according to PHMSA officials, are illustrated in table 1 below. Appendix III: Budget Request, Budget Authority, User Fee, and Obligation Information for the Underground Natural Gas Storage Program as of June 2019 The Pipeline and Hazardous Materials Safety Administration (PHMSA) funds its enforcement activities, such as inspections by PHMSA employees and grants to states, partially through user fees paid by operators of natural gas storage sites. However, PHMSA cannot collect user fees from operators unless expenditure of the fees is provided in advance in an appropriations act. Annually, prior to the start of the fiscal year, PHMSA submits a budget request to Congress that identifies the amount of budget authority it needs for the underground natural gas storage program. The annual appropriations act then provides for expenditure of a certain amount of fees and PHMSA is authorized to collect that amount in fees. PHMSA then obligates the fees it receives either (1) for federal activities, such as inspections by PHMSA employees, or (2) for grants to state governments, which carry out inspections at some natural gas storage sites. Table 2 provides details about the PHMSA s budget request, budget authority, user fees, and obligations. Appendix IV: Comments from the Department of Transportation Appendix V: GAO Contacts and Staff Acknowledgments <8. GAO Contacts> <9. Staff Acknowledgments> In addition to the contact named above, Diane Raynes and Janet Frisch (Assistant Directors), Lee Carroll (Analyst in Charge), Ellen Fried, Cindy Gilbert, Jennifer Gould, Rich Johnson, Jessica Lemke, John Mingus, Katrina Pekar-Carpenter, Rebecca Parkhurst, Jeanette Soares, Sheryl Stein, Sara Vermillion, and Kiki Theodoropoulos made important contributions to this report.

Why GAO Did This Study About 400 natural gas storage sites are important to the U.S. natural gas system, providing about 30 percent of the nation's energy. During a 2015 leak at a storage site near Los Angeles, about 8,000 families were temporarily relocated due to symptoms such as migraines, nausea, and respiratory problems. The leak raised concerns about health and safety risks from other storage sites. In 2017, GAO recommended that PHMSA take actions, including using baseline data to develop performance goals for its natural gas storage program. GAO was asked to review the health and environmental effects of activities at natural gas storage sites. This report, among other objectives, (1) assesses the extent to which PHMSA has developed its natural gas storage inspection program and (2) describes what is known about the potential health effects from chemicals in stored natural gas. GAO reviewed available documents about natural gas storage incidents from 2000 through 2018; compared PHMSA research, goals, and plans against leading planning practices; visited sites representing the three types of storage sites; and interviewed agency officials. What GAO Found In 2018, the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) set a goal for its natural gas storage inspection program to inspect all approximately 400 natural gas storage sites within 5 years, according to agency officials. PHMSA expected that all 25 eligible states would help inspect sites, but only 10 states agreed to partner with the agency. As a result, the agency's inspection workload increased by almost 60 percent from when it set its goal, according to PHMSA data. Because of the increase in its inspection workload over its preliminary estimate, PHMSA does not have assurance that it has enough resources to meet its inspection goal. Furthermore, PHMSA has not used a workforce analysis to inform its budget requests. PHMSA officials said that the agency does not expect to have enough data until 2022 or 2023 to further inform analysis of its workforce. By analyzing factors affecting states' willingness to partner with PHMSA and its workforce needs on an ongoing basis, the agency would have better assurance that it has the staff it needs to meet its inspection goal. Health effects have been reported related to chemicals that may be found in stored natural gas. Several federal agencies—including the Environmental Protection Agency and the Agency for Toxic Substances and Disease Registry—have documented potential health effects of chemicals that may be found in stored natural gas. In addition, some chemicals may be added to natural gas, such as sulfur odorants that give natural gas a distinct smell in case of leaks. The combination of such chemicals varies from one natural gas storage site to another, based on the attributes of that site such as its geologic type and the extent to which sulfur odorants are added to the natural gas before storage. Many of these chemicals have been linked to adverse health effects. However, research is limited on the health effects of exposure to stored natural gas in general and on the effects in particular from exposure to chemicals that may occur in natural gas storage leaks or be present at the storage sites. Reports linking health effects are available on specific chemicals but not in the context of natural gas storage, based on GAO's literature review. What GAO Recommends GAO is making two recommendations, including that PHMSA should analyze factors affecting states' willingness to partner with PHMSA and analyze its workforce needs on an ongoing basis. The agency concurred with the recommendations.

gao_GAO-19-605T

gao_GAO-19-605T_0

<1. Background> While the core mission of protecting federal facilities has remained constant as FPS has moved from one agency to another, its responsibilities have changed. In the 1970s, GSA created FPS as part of its Public Buildings Service (PBS). While in GSA s PBS, FPS was responsible for protecting GSA s held or leased facilities, providing both physical security and law enforcement services. To protect buildings, FPS officers developed physical security risk assessments, installed security equipment, and oversaw contract guard services. As a part of its law enforcement services, among other duties, FPS officers enforced laws and regulations aimed at protecting federal facilities and the persons in such facilities and conducted criminal investigations. Following the attacks on September 11, 2001, the Homeland Security Act of 2002 was enacted. It created DHS and moved FPS from GSA to the new department, effective in March 2003. Within DHS, FPS was placed in U. S. Immigration and Customs Enforcement (ICE), where its responsibilities grew beyond solely protecting GSA buildings to include homeland security activities such as implementing homeland security directives and providing law-enforcement, security, and emergency- response services during natural disasters and special events. In 2009, DHS proposed transferring FPS from ICE to NPPD. In explaining this transfer in DHS s fiscal year 2010 budget justification to Congress, DHS stated that having FPS and NPPD s Office of Infrastructure Protection in the same organization would further solidify NPPD as DHS s lead for critical infrastructure protection. FPS was placed in NPPD and continued to lead physical security and law enforcement services at GSA- held or GSA-leased facilities and continued its efforts in homeland security activities. In November 2018, legislation was enacted that reorganized NPPD to an organization that had a greater statutory focus on managing cyber risks and authorized the Secretary of Homeland Security to determine the appropriate placement for FPS within DHS and begin transfer of FPS to that entity. Throughout FPS s organizational placements in DHS, we have reported on persistent challenges it faced in meeting its mission to protect facilities. In 2011, we reported on FPS s challenges in transferring mission support functions from ICE to NPPD. While FPS was in NPPD, we reported on FPS s challenges related to managing and overseeing contract guards and collaborating with GSA and the United States Marshals Service (Marshals) on facility security. We made recommendations to help address these challenges and FPS has made progress on some of these recommendations. For example, in September 2018, FPS and GSA established a formal agreement on roles and responsibilities related to facility protection, as we recommended. However, in our January 2019 report, we identified challenges related to other aspects of overseeing contract guards and collaboration with other agencies on physical security that had persisted. As of June of 2019, FPS continues to work on establishing a contract guard-management system. However, FPS is unable to assess its guards capabilities across its portfolio because the system is not fully implemented nor does it interact with its training system. As of 2019, federal physical security continues to be part of our federal real-property management s high-risk area. <1.1. Key Criteria for Evaluating Placement Options> In 2002, we reported on organizational and accountability criteria for establishing DHS. From this prior work, we identified key criteria that are relevant to assessing potential placement options for FPS, as shown in table 1. <2. Considerations for FPS s Placement in DHS s Management Directorate> For our January 2019 report, we applied these key criteria for evaluating organizational placement to eight agencies that could be potential placement options for FPS. We found that none of the selected agencies met all the organizational placement criteria; thus, any of the organizational placement options could result in both benefits and trade- offs. In instances where placing FPS within DHS met our criteria (that is, instances where DHS was similar to FPS), FPS could experience benefits. In those instances where the criteria were not met, we reported it would be incumbent upon any agency to consider and address any potential trade-offs in order to ensure the decision was successful. We reviewed FPS as a standalone entity reporting directly to the Deputy Secretary of DHS and found this placement option met several key criteria. Table 2 below summarizes our analysis. For the first four criteria (1) mission, goals, and objectives; (2) responsibilities; (3) organizational culture; and (4) information sharing and coordination we determined that DHS met the criteria if the agency or its subcomponents had any similarities to FPS. For the last criterion mission support we determined that DHS met the criterion if the agency or its subcomponents had similarities to FPS or could provide FPS needed mission support. Mission, Goals, and Objectives. In January 2019, we reported that FPS s mission focused on the protection of federal facilities and the people working in and visiting those facilities. DHS was similar to FPS in that its mission statement and goals as stated in its strategic plan include an explicit focus on the protection of infrastructure or specific facilities. Our prior work found that placing an agency into an organization that has a similar mission might help ensure that the agency s mission receives adequate funding, attention, visibility, and support. Our January 2019 work reported that one of DHS s goals as noted in its strategic plan covering fiscal years 2014 to 2018 was to reduce risk to the nation s critical infrastructure. DHS and FPS share objectives that focus on mitigating risks and responding to incidents. Responsibilities. In January 2019, we reported that FPS has facility- protection and physical-security responsibilities and law-enforcement, and contract-guard oversight responsibilities. DHS was similar to FPS as it had responsibilities for physical security and performed law enforcement functions. As a part of its physical security activities, FPS conducted facility security assessments, identified countermeasures (e.g., equipment and contract guards) best suited to secure a facility, and oversaw contract guards. As a part of its law enforcement activities, FPS proactively patrolled facilities, responded to incidents, and conducted criminal investigations. FPS also provided additional operational law enforcement support, at the direction of the Secretary of Homeland Security, to address emerging threats and homeland security incidents. One of FPS s most critical activities was overseeing about 13,500 contract guards who were posted at federal facilities and were responsible for controlling access to facilities, responding to emergency situations involving facility safety and security, and performing other duties. FPS was responsible for ensuring, among other things, that these guards are performing their assigned duties and have the necessary training and certifications. DHS, however, only used a limited number of contract guards and therefore had less responsibility. At the time of our review, DHS officials told us they procured about 130 guards. Organizational Culture. In January 2019, we reported that while there are many areas relevant to organizational culture, law enforcement was a key aspect of FPS s organizational culture, according to officials we interviewed from an association of security companies and a former, high- ranking official in NPPD. DHS had a similar culture in that it was a law enforcement agency. Information Sharing and Coordination. In January 2019, we reported that Component Intelligence Programs (CIP) were organizations in DHS that collected, gathered, processed, analyzed, produced, or disseminated information related to national homeland security. In 2016, DHS designated a division within FPS as a CIP, a move that allowed FPS more access to information on threats other DHS agencies have identified and actions they plan to take. While DHS, like FPS, had access to and could share information related to national homeland security, DHS did not have joint responsibility for coordinating facility protection with FPS. Rather, FPS shared this responsibility with GSA, and these two agencies and Marshals had joint responsibility for protecting courthouses. FPS has faced challenges with coordinating with these agencies in the past. For example, in September 2011, we reported that FPS, Marshals, and other agencies involved in protecting courthouses (i.e., GSA and the Administrative Office of the U.S. Courts) faced challenges related to coordination, such as in the implementation of roles and responsibilities and the use or participation in existing collaboration mechanisms. Mission Support. In January 2019, we reported that mission support was comprised of financial management, human capital, information technology systems for financial management, and law enforcement training. FPS owned and used many of the key operational and business- related information technology (IT) systems and applications it needs to carry out its mission. However, FPS received some mission support services from other agencies in DHS, such as human capital and some aspects of information technology. We found that if FPS changed its organizational placement it would need mission support in these areas. For example, FPS did not have delegated examining authority to allow it to fill competitive civil service jobs and relied on NPPD to provide this service. DHS had the authority to fill competitive service jobs that could support FPS needs. Further, FPS used a financial management IT system owned by ICE. DHS could provide FPS access to financial management systems that can support FPS. Finally, FPS offered its own training courses and would still need access to DHS s Federal Law Enforcement Training Centers. In our January 2019 report, we did not assess FPS as a placement within DHS s Management Directorate. Further, we recommended DHS (1) identify the specific goals of a change in FPS s placement that is, what DHS expects to achieve by moving FPS to another agency, and (2) fully evaluate placement options for FPS based on what DHS expects to achieve by changing FPS s placement, an assessment of FPS s current placement, and other best practices such as an analysis of alternatives assessing the benefits and trade-offs. DHS agreed with our recommendations. In May 2019, FPS officials told us that the Acting Secretary s decision to place FPS within the Management Directorate was based upon an assessment of placement options within DHS using criteria and analyzing the trade-offs. GAO has not yet received DHS s assessment of placement options. We will assess the actions DHS has taken in response to our recommendations when we receive DHS s assessment. <3. Steps to Transition FPS> Our prior work offers valuable insights for agencies to consider when evaluating or implementing a reorganization or transformation, and can provide insights for making any transition regarding FPS. These include considering (1) key questions for consolidations and (2) leading practices when implementing an organizational change. Two sets of considerations for organizational transformations provide insights for making any FPS organizational placement. First, in May 2012, we reported on key questions for agency officials to consider when evaluating and implementing an organizational change that involves consolidation. Table 3 provides a summary of these key questions. Answering these questions would help provide FPS with assurance that important aspects of effective organizational change are addressed. Second, we reported in July 2003 on key practices and implementation steps for mergers and organizational transformations. The practices we noted are intended to help agencies transform their cultures so that they can be more results oriented, customer focused, and collaborative in nature (see table 4). In summary, the questions and practices for organizational change that we previously identified could provide insights to DHS and FPS for any transition. . Madam Chairwoman Torres Small, Ranking Member Crenshaw, 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. <4. GAO Contacts and Staff Acknowledgments> If you or your staff has any questions concerning this testimony, please contact Lori Rectanus 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 statement. In addition to the contacts named above: Amelia Bates Shachoy (Assistant Director); Roshni Dav ; George Depaoli (Analyst-in-Charge); Geoffrey Hamilton; Kelly Rubin; Sarah Veale; and Amelia Michelle Weathers made key contributions to the testimony. Other staff who made contributions to the reports cited in the testimony are identified in the source products. 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.

Why GAO Did This Study FPS conducts physical security and law enforcement activities for about 9,000 federal facilities and the millions of employees or visitors who work in or visit these facilities. Legislation enacted in November 2018 required DHS to determine the appropriate placement for FPS. The legislation also gave the Secretary of DHS authority to move FPS within DHS. In May 2019, DHS announced its decision to place FPS within the DHS Management Directorate as a direct report to the Under Secretary for Management. GAO has reported that FPS faces persistent challenges in meeting its mission to protect facilities, and, as of 2019, physical security continues to be part of GAO's federal real property management high-risk area. For example, FPS has not yet fully implemented its guard management system. Thus, FPS is unable to obtain information to assess its guards' capability to address physical security risks across its portfolio. This statement describes considerations for FPS's placement in DHS's Management Directorate based upon five key organizational placement criteria GAO identified, as well as steps to transition FPS based upon GAO's prior work on organizational change. This testimony is based on reports GAO issued from 2002 through 2019, particularly, GAO's January 2019 report on FPS's organizational placement. Detailed information on the scope and methodology for this work can be found in these published products, cited throughout this testimony. What GAO Found In its January 2019 report, GAO identified five key criteria relevant for evaluating placement options for the Federal Protective Service (FPS) within the Department of Homeland Security's (DHS) or other federal agencies. (See table.) Placing FPS, in the DHS Management Directorate was not an option GAO assessed in its January 2019 report. However, GAO did assess the option of making FPS a “standalone” entity reporting directly to the Deputy Secretary of DHS. GAO found that this placement met the first criteria ( mission, goals, and objectives ) and the third criteria ( organizational culture ) but did not completely meet the other criteria. For example, FPS had joint responsibility for coordinating facility protection with other federal agencies. DHS did not have joint responsibility for coordinating facility protection with FPS. GAO recommended DHS fully evaluate placement options for FPS. DHS concurred, and officials stated they conducted an assessment. GAO has not yet received DHS's assessment of placement options. GAO's prior work on implementing an organizational change provides valuable insights for making any transition regarding FPS. These insights include key questions to consider such as: “What are the goals of the consolidation?” “How have stakeholders been involved in the decision-making?” In addition, GAO has identified key practices for organizational transformation, practices that include ensuring that top leadership drives the transformation and establishing a communication strategy to create shared expectations, among others. These questions and practices could provide insights to DHS and FPS as they implement FPS's new placement.

gao_GAO-19-410

gao_GAO-19-410_0

<1. Background> Several bureaus within Interior are responsible for the leasing, permitting, and inspecting of mineral extraction activities on federal lands and waters. Interior s Bureau of Land Management (BLM) is responsible for onshore activities and manages approximately 700 million acres of subsurface mineral rights throughout the country, including the acreage it leases to companies for oil and gas development. At the end of fiscal year 2016, about 41,000 oil and gas leases accounted for approximately 28.2 million acres in 32 states, according to BLM data. For offshore oil and gas activities, the Bureau of Ocean Energy Management is generally responsible for leasing and resource planning and evaluation, among other functions, and the Bureau of Safety and Environmental Enforcement is generally responsible for permitting and inspecting as well as verifying production volumes on offshore leases, among other functions. Under the Outer Continental Shelf Lands Act, as amended, Interior is responsible for leasing and managing approximately 1.71 billion offshore acres. To begin the leasing process, Interior holds auctions through which companies may secure the rights to federal leases that allow them to drill for oil and gas upon meeting certain conditions. Once a company obtains a lease, it may conduct further exploration and subsequently determine whether it would like to drill a well. If a company plans to drill, it must first secure a permit from Interior. To secure a permit to drill under an onshore lease, a company must submit an application for a drilling permit to the appropriate BLM field office. BLM officials then evaluate the company s proposal to ensure that it conforms to the relevant BLM land use plan for the area as well as applicable laws and regulations, including those focused on protecting the environment. To secure a permit to drill on offshore leases, a company must submit an application for a drilling permit to the Bureau of Safety and Environmental Enforcement, where it is reviewed for completeness and whether all technical elements conform to applicable regulations. Once a company secures a permit and begins producing, oil and gas is transported to market and sold. As part of this process, companies may elect to process the natural gas into various products before its sale. Under ONRR regulations, companies may deduct certain costs associated with transportation and natural gas processing from the royalties due. Companies can continue to produce oil and gas until the lease is no longer capable of producing in paying quantities, regardless of the length of the lease. To ensure compliance with applicable laws, regulations, and other requirements, both BLM and the Bureau of Safety and Environmental Enforcement have inspection and enforcement programs that are designed to verify that companies comply with all requirements at the lease site, including those related to measuring oil and gas volumes. The authority for inspecting wells and leases for this purpose is derived from FOGRMA. The act requires the Secretary of the Interior to develop guidelines that specify the coverage and frequency of inspections. Interior has delegated responsibilities for implementing the act to BLM for onshore leases and to the Bureau of Safety and Environmental Enforcement for offshore leases. <1.1. ONRR s Role in Collecting, Disbursing, and Verifying Royalties> ONRR s oversight of federal royalties includes collecting company-paid royalties, disbursing these royalties to appropriate accounts, and verifying the company-paid royalties through its compliance activities. Collecting: Companies that obtain federal onshore or offshore oil and gas leases are typically obligated to pay royalties on any oil or gas they produce from the leases and then sell. As a condition of producing oil and gas under federal and Indian leases, companies are required to submit two key monthly reports to ONRR one specifying the total production and disposition of oil and gas and the other stating the royalties due based on production. However, because of various leasing and development arrangements made by companies, these two reports are often submitted by different companies. The companies physically developing the lease, referred to as the operators, are responsible for reporting the production volumes to ONRR in monthly production reports. The companies with a financial interest in the lease, referred to as the payors, are responsible for reporting the cash royalty owed on the federal and Indian oil and gas production in their monthly royalty reports. Each month, payors are to calculate the royalty payment owed to the federal government using the four key variables illustrated in the following equation: Royalty payment = ((volume sold x sales price) less deductions) x royalty rate Companies are to submit monthly production and royalty reports via a web-based portal to ONRR s royalty information technology (IT) system. In addition to filing the royalty report with ONRR, companies typically make the actual cash royalty payment via an electronic fund transfer to an account at the Department of the Treasury (Treasury). Disbursing: Once ONRR reconciles the self-reported royalty payment data from the monthly royalty reports with the payments to Treasury, ONRR is to disburse the royalties from the Treasury account to the appropriate federal, state, tribal, or Individual Indian Money (IIM) accounts. All these transactions are to be recorded and stored in ONRR s IT system. Verifying: ONRR is responsible for verifying royalties through its compliance program, which includes ensuring that the royalty revenues generated from the sale of oil and gas extracted from leased federal lands are accurately reported and paid. In conducting its compliance activities, ONRR is to assess the elements of the royalty equation: commodity price, volume of oil and gas, transportation and processing allowances, and royalty rate. ONRR also is to ensure that all relevant laws, regulations, and lease terms have been followed. ONRR has two key statutory requirements for its compliance program: FOGRMA and the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996 (RSFA). FOGRMA requires that ONRR establish a comprehensive auditing system to provide the capability to accurately determine oil and gas royalties. RSFA directs ONRR not to conduct audit activities if it and the relevant state determine that the cost of conducting or requiring the audit exceeds the expected amount to be collected by the activity, based on the most current 12 months of activity. ONRR s Work Planning Group identifies which companies or leases will be subject to compliance activities. The three primary levels of compliance activities ONRR conducts are audits, compliance reviews, and data mining each of which provides a varying degree of assurance that royalties are accurately paid. Audits: According to ONRR documents, an audit involves detailed examinations of companies royalty payments and corresponding reporting to ONRR. As part of an audit, ONRR staff are to assess the accuracy and completeness of the companies self-reported production and royalty data compared to third-party documents, such as sales contracts and oil and gas sales receipts from pipeline companies. According to ONRR documents, it is to design its audits to ensure that royalty payments and other obligations to ONRR are in substantial compliance with applicable lease terms, federal laws and regulations, and other policies. Compliance reviews: ONRR describes compliance reviews as an analysis designed to determine the reasonableness of company- reported production and royalty data. In contrast to audits, compliance reviews are quicker, more limited checks on the accuracy and completeness of companies self-reported data and do not include systematically examining the underlying source documentation used to generate the self-reported data. Data mining: ONRR began its data mining program in 2011 and officially organized it within the compliance program beginning in fiscal year 2018. Data mining is a partially automated activity to identify and resolve data errors prior to audits and compliance reviews. According to ONRR officials, data mining examines large sets of company- reported data for certain common errors, such as irregularities in the volume of oil or gas extracted. Officials stated that data mining generally identifies obvious data errors that ONRR staff work with companies to correct. The process companies are to follow to produce oil and gas from federal leases, bring it to market, transmit required data to Interior, and pay royalties is outlined in figure 1. <1.2. The State and Tribal Royalty Audit Committee> FOGRMA authorizes the Secretary of the Interior to enter into cooperative agreements with states to share oil and gas royalty management information and carry out inspection, audit, investigation, and enforcement activities on federal and Indian lands. Currently, the nine states that are members of STRAC have delegated authority to conduct compliance activities for federal lands in their respective state. These agreements form the framework of ONRR s relationship with states for mineral revenue compliance activities. A governor or other appropriate official with delegation authority may request that Interior enter into a cooperative agreement with a state by sending a letter to the Director of ONRR. States may also elect to end these agreements at their discretion with a 120-day notice. States have a vested interest in ensuring that all royalties are paid accurately because states receive a portion of the royalties that the federal government collects, including additional collections resulting from compliance activities identifying underpayment. ONRR also reimburses states for the costs of performing approved and eligible compliance activities, including compliance activities under the cooperative agreement. State audit offices that have entered into agreements with ONRR are to submit yearly work plans identifying the compliance activities they propose to conduct in the next fiscal year, which ONRR is to review and approve. Member states can conduct both audits and compliance reviews, and ONRR requires that the state auditors follow the procedures established in generally accepted government auditing standards and ONRR s audit and compliance review manuals. To ensure that compliance activities are conducted in accordance with generally accepted government auditing standards and relevant ONRR manuals, states are to undergo an external peer review every 3 years, during which they are assessed on their adherence to the standards and manuals and whether they provided corrective actions to any identified problems. <1.3. Performance Management Information and Controls> A key practice in results-oriented management for federal agencies is establishing agency-wide, long-term strategic goals. The Government Performance and Results Act of 1993 (GPRA), which was significantly enhanced by the GPRA Modernization Act of 2010 (GPRAMA), requires federal agencies, among other things, to develop strategic plans with long-term, outcome-oriented goals; annual goals linked to achieving the long-term goals; and annual reports on the results achieved, as assessed through the use of performance measures and targets. Federal departments and agencies must comply with these requirements and are to follow associated Office of Management and Budget guidance when developing their agency-wide strategic plans. We have reported that these requirements also can serve as leading practices for strategic planning at lower levels within federal agencies, such as planning for individual divisions, programs, or initiatives. These leading practices include defining the mission and goals of an agency or a specific program and developing and using performance measures that allow an agency to track its progress toward its mission and goals. ONRR issued a fiscal year 2017 strategic priorities document that contains the agency s mission statement: to collect, account for, and verify natural resource and energy revenues due to states, American Indians, and the U.S. Treasury. ONRR stated in the document that it planned to achieve Interior s strategic goals to (1) timely disburse 98 percent of federal and Indian revenues, (2) close 85 percent of Interior s OIG and GAO recommendations targeted for implementation in fiscal year 2017, and (3) report results of ONRR s supporting performance measures for Interior s strategic goals on total ONRR compliance collections and a 3-year average compliance return on investment. ONRR also stated that it planned to create an ONRR strategic plan. <1.4. History of Oil and Gas Royalty Oversight Challenges> In the 1970s and early 1980s, we and Interior s OIG reported on Interior s management of the oil and gas revenue collection system. Interior s OIG issued five reports critical of the program from 1969 through 1977 that raised concerns about royalty collections. In 1981, we reported that Interior was not collecting potentially hundreds of millions in royalties due from federal oil and gas leases. In response, in 1981, the Secretary of the Interior established the Commission on Fiscal Accountability of the Nation s Energy Resources, also known as the Linowes Commission, to investigate allegations of irregularities in royalty payments, among other issues. The Linowes Commission raised a number of concerns, and its 1982 report stated that management of royalties for the nation s energy resources had been a failure for more than 20 years. The report found that because the federal government had not adequately managed this multibillion-dollar enterprise, the oil and gas industry was not paying all the royalties it rightly owed. The report cited a range of problems, including the failure to verify data that companies reported as well as late payments and underpayments. Following this report, Interior and Congress took actions aimed at improving revenue collection, including reorganizing oil and gas revenue collections under a new bureau within Interior, passing FOGRMA in 1982, and passing RSFA in 1996. In December 2006, Interior s OIG analyzed ONRR s compliance processes and issued a report that made several recommendations to improve these processes and the agency s systems for tracking them. The report identified deficiencies with how ONRR maintained compliance-related information and recommended changes for how ONRR measures its compliance activities performance. In 2007, Interior s Subcommittee on Royalty Management a subcommittee of the Royalty Policy Committee issued a report that reiterated several of the findings from Interior s OIG report on ONRR and further stated that several aspects of royalty management activities required prompt and, in some cases, significant management attention. In particular, the report included over 100 recommendations for improving Interior s management of oil and gas resources, including recommendations related to audit, compliance, and enforcement. Appendix I provides a list of the subcommittee s recommendations and the status of their implementation, according to Interior documents and interviews with Interior officials. We identified several challenges with Interior s management of federal oil and gas in the 2000s. In February 2011, in part because of the challenges identified in our past work, we added Interior s management of federal oil and gas resources to our list of program areas at high risk for fraud, waste, abuse, and mismanagement. In the March 2019 update of our High-Risk List, we found that Interior had made progress improving its management of federal oil and gas resources. However, additional steps are needed to improve Interior s royalty determination and collection. <1.5. Recent ONRR Initiatives> ONRR, according to officials, has begun implementing several initiatives that seek to make the agency operate more effectively. In March 2017, ONRR initiated Boldly Go, an effort to assess its organizational structure and identify and implement potential improvements. According to ONRR officials, this initiative was in response to March 2017 comments from the Secretary of the Interior, in which he said the department, in general, should undergo a bold restructuring. ONRR officials said that the Boldly Go organizational restructuring was implemented in October 2017 and included several changes to how ONRR conducts its compliance work. Before the reorganization, audits and compliance reviews were part of the same management group referred to as the Audit and Compliance Management group. After the reorganization, audits and compliance reviews are managed separately. Audits now have their own management group, referred to as Audit Management. According to ONRR officials, the new Audit Management group conducts audits of multiple companies and properties and will attempt to identify more systemic misreporting issues common to those companies and properties. ONRR staff who conduct compliance reviews were moved into the same management group as the data mining staff in the new Compliance Management group. According to ONRR officials, the merger occurred because both groups use similar data sources to conduct less in-depth checks of the royalty data than audits. Additionally, officials stated that putting these activities under the same management could assist in better targeting companies for similar compliance issues. Prior to the reorganization, identifying and selecting cases for audits and compliance reviews was a function of the Audit and Compliance Management group. After the reorganization, this function was moved to a new Analytics and Risk Management group that is also tasked with using data analytics methods, such as computerized analysis of spatial and geographic data, to better identify noncompliant royalty payments. ONRR is also in the process of implementing a new electronic compliance case management and work paper tool referred to as the Operations and Management Tool (OMT). According to ONRR documents, OMT is to combine multiple systems into one and is intended to serve a variety of functions. ONRR documents state that OMT is designed to be a single standardized system that reduces manual data entry, creates a single system of record for ONRR case data, offers error checks to eliminate data entry errors, and provides greater transparency for outside auditors. One ONRR official stated that the agency plans to have ONRR s data mining, compliance review, and audit teams all using OMT to manage their compliance work in 2019. According to some ONRR and state audit officials, ONRR piloted OMT s electronic compliance case management system in North Dakota in 2018, and ONRR expects to offer OMT as an option to other STRAC partners for their audit and compliance review case management needs. Finally, the agency introduced a new auditor training curriculum in April 2018. Shortly after new auditors are hired, they are expected to begin ONRR s training program, and according to ONRR s training manual, they are expected to complete the training within 2 years of their hire dates. According to ONRR officials, courses will also be available to existing audit staff upon request. <2. ONRR Reported Generally Meeting Annual Royalty Program Compliance Goals, but Its Goals May Not Align with the Agency s Mission> ONRR reported generally meeting its annual royalty compliance goals for fiscal years 2010 through 2017. To meet its compliance goals, ONNR used all three levels of compliance activities audits, compliance reviews, and data mining each of which provides a different level of assurance. However, ONRR s compliance goals may not align with the agency s mission to ensure the accuracy of royalty payments and other statutory requirements. <2.1. ONRR Reported Generally Meeting Compliance Goals and Revised Its Goals Multiple Times> ONRR reported generally meeting its annual compliance goals those from Interior s strategic plan and bureau-specific goals for its royalty compliance program for fiscal years 2010 through 2017, and the agency made multiple revisions to its goals during this period. Our analysis of Interior s annual budget justifications for fiscal years 2010 through 2017 found that ONRR reported meeting its compliance goals for 6 of the 8 fiscal years we reviewed (see table 1). According to ONRR officials we interviewed, the 2 years when the agency did not report meeting its compliance goals largely resulted from a shift in the focus of its goals that created a short-term misalignment of planned work and available resources. During fiscal years 2010 through 2017, ONRR revised its annual compliance goals multiple times. These included both compliance goals supporting Interior s strategic plans covering fiscal years 2007 through 2018 and bureau-specific goals. In the revisions to its compliance goals, ONRR generally shifted from goals focused on the extent to which its compliance program was ensuring the accuracy of royalty payments to those focused on the efficiency of the program. ONRR s accuracy goals, which included conducting compliance activities to cover a specific percentage of royalties, companies, or properties, helped it assess the extent to which it was ensuring the accuracy of royalty payments. That is, by measuring the portion of, for example, royalties subject to compliance activities, it was able to quantify the percentage of royalties that were reasonably correct or accurate. ONRR s efficiency goals, which included conducting compliance activities to obtain a certain return on investment and additional amount of royalty collections, helped it assess whether resources spent on compliance activities were used cost effectively. According to ONRR officials, these revisions were made in an effort to continually improve its compliance performance. Table 2 identifies ONRR s annual compliance goals for fiscal years 2010 through 2017 and establishes two categories for these goals corresponding to ONRR s requirements under FOGRMA and the RSFA. Appendix II provides more detailed information on ONRR s annual compliance goals and the agency s reported compliance program performance. Conduct compliance activities on specified percentage of companies (coverage) <2.1.1. X> Conduct compliance activities on specified percentage of properties (coverage) <2.1.2. X> Conduct compliance activities on specified percentage of companies (coverage) <2.1.3. X> Conduct compliance activities on specified percentage of companies (coverage) <2.1.4. X> Conduct compliance activities on specified percentage of companies (coverage) <2.1.5. X> Conduct compliance activities on specified percentage of payors and operators (coverage) <2.1.6. X> Conduct compliance activities on specified percentage of payors and operators (coverage) Generate specified return on investment from compliance activities Generate specified return on investment from compliance activities Generate specified amount in total additional royalties Generate specified return on investment from compliance activities Generate specified amount in total additional royalties Legend: FOGRMA = Federal Oil and Gas Royalty Management Act of 1982, as amended; N/A = not applicable; RSFA = Federal Oil and Gas Royalty Simplification and Fairness Act of 1996; = does not apply. While it is within ONRR s purview to revise its compliance goals or targets, frequent changes may complicate management s ability to assess performance over time because consistent goals are needed as a baseline from which to assess performance. For example, for the time period we reviewed, ONRR revised its compliance goals or goal targets nearly every year. This makes it difficult to assess, for example, how variations in resource allocations to and among its compliance activities may have affected the compliance program s performance. The following are the types of compliance goals that ONRR used and revised for the period: Royalty coverage goal. Prior to fiscal year 2010, one of ONRR s compliance goals was to conduct compliance activities on a specified percentage of royalties within 3 years of the date it received payment. In December 2006, Interior s OIG issued an audit report that found, among other things, that the royalty compliance coverage goal had reduced the number of companies and properties subject to compliance work. The report stated that ONRR should consider modifying its compliance program strategy to ensure appropriate coverage of properties and companies within a reasonable time frame even if this resulted in a reduction in the overall percentage of dollars covered and recommended that ONRR develop separate performance measures for companies and properties subjected to compliance coverage. ONRR concurred with the recommendation and developed an implementation action plan. For fiscal year 2010, ONRR eliminated its royalty coverage goal in response to the OIG recommendation. Company/operator/payor and property coverage goals. For fiscal year 2010, ONRR revised its compliance goals to address company and property coverage, or conducting compliance activities including audits and compliance reviews on a certain percentage of companies and properties. ONRR s fiscal year 2010 budget justification stated that the new compliance goals would reflect the cumulative percentage of unique companies and properties covered by audits, compliance reviews, or the royalty-in-kind compliance strategy. For fiscal year 2010, ONRR s company coverage goal was to cumulatively conduct compliance activities on 57.6 percent of companies that paid royalties from fiscal years 2008 through 2012. ONRR s property coverage goal was to cumulatively conduct compliance activities for 35 percent of properties where oil and gas had been extracted and sold from fiscal years 2008 through 2012. For fiscal year 2011, ONRR revised its compliance goals, eliminating the property coverage goal. ONRR also revised its company coverage goal to cumulatively conduct compliance activities on 66 percent of companies that paid royalties for fiscal years 2011 through 2016. ONRR further revised this goal for fiscal year 2014 to consider operators and payors instead of companies. In fiscal year 2014 ONRR established a compliance goal of conducting compliance activities on 90 percent of operators and payors but dropped the goal to 52 percent for fiscal year 2015. The goal for covering a percentage of operators and payors was eliminated beginning in fiscal year 2016, which left ONRR without a compliance goal addressing its coverage of royalty payments. Agency officials we interviewed told us that they eliminated ONRR s company coverage goal because they concluded that the compliance program was reviewing too many companies and properties with smaller royalty payments, which officials deemed an inefficient use of limited compliance resources. ONRR officials added that budgetary constraints and the complexity of company bankruptcies and consolidation in the oil and gas industry also contributed to the goal s elimination. Additionally, in 2008, ONRR established a data mining program to examine large sets of operator-reported data to identify royalty and reporting errors, such as when the production volumes that payors and operators reported for the same lease did not match. This work led to additional royalty collections, but ONRR did not consider these results when calculating its annual performance measure for company and property coverage. According to officials, data mining was the responsibility of ONRR s Royalty Reporting group and was not considered compliance work. Return on investment goal. ONRR has had a goal for return on investment for fiscal years 2010 through 2017 that measured the efficiency of the compliance work that all of its program areas performed. However, Interior elevated this goal from a bureau-specific goal to a strategic plan goal for fiscal year 2017. This goal is a ratio of costs to collections for compliance activities and is to assess whether ONRR collected additional royalties for every additional dollar the agency spends on compliance reviews, audits, and data mining. To account for variations in collections and oil and gas prices, ONRR is to calculate its performance on return on investment based on the royalties from the previous 3 years. For example, the return on investment the agency reported for fiscal year 2017 was based on revenues collected from fiscal years 2014, 2015, and 2016. According to ONRR officials, the goal for fiscal year 2017 to collect an additional $2 in royalties for every $1 spent on compliance activities was developed based on trends from prior years. Achieving this return on investment would indicate that ONRR met its goal. Total additional royalty collections goal. In fiscal year 2016, ONRR developed a bureau-specific goal for total additional royalties collected from compliance reviews, audits, and data mining. The goal for fiscal year 2016 was to collect an additional $110 million from compliance activities. In the following fiscal year, 2017, ONRR elevated this goal to a strategic plan goal and kept the amount the same, at $110 million in additional royalties. <2.2. ONRR Used All Levels of Compliance Activities to Generally Meet Goals> To generally meet its compliance goals during fiscal years 2010 through 2017, ONRR used all levels of its compliance activities: audits, compliance reviews, and data mining. The number of audits completed annually generally remained the same for fiscal years 2010 through 2017, declining slightly from 162 in 2010 to 153 in 2017. During the same time period, the number of completed compliance reviews decreased, declining from 1,233 in 2010 to 683 in 2017 (see fig. 2). During this time frame, ONRR s Data Mining group increased the number of exceptions resolved to address instances of incorrectly reported data from 4,323 in 2010 to over 26,000 in 2017. Our analysis of ONRR s data on compliance activities showed that adding data mining financial results in 2011 was associated with a decrease in the return on investment for ONRR s other compliance activities. Prior to including data mining, compliance reviews earned a 6 to1 return on investment, STRAC compliance work earned about a 4 to1 return on investment, and audits earned a 2 to1 return on investment. By the end of fiscal year 2017, data mining proved to be far more cost-effective for royalty compliance, with a return on investment of 9 to1. During the same time, return on investment declined for all compliance reviews (including STRAC compliance work) and all audits (see fig. 3). According to ONRR officials, the reason for this decline was that data mining was identifying royalties that might otherwise have been identified through audits or compliance reviews. Additionally, ONRR officials we interviewed stated that data mining has been more cost-effective than audits or compliance reviews in identifying additional royalties. Officials we interviewed stated that data mining often identifies more simple reporting errors. Return on investment is an indicator of the efficiency of ONRR s compliance program. As long as ONRR is collecting more royalties through its compliance activities than it is spending on identifying those royalties, the federal government will obtain additional revenues. According to ONRR officials we interviewed, the agency does not calculate the potential additional royalty revenues that would be generated if it conducted additional compliance activities. However, ONRR officials said they do calculate the effect of reduced funding on compliance activities. For example, ONRR stated in its fiscal year 2018 budget justification document that reductions in its budget for compliance work would directly result in reductions to additional royalty collections. <2.3. ONRR s Goals May Not Align with Agency Mission and Statutory Requirements to Account for Royalty Payments> ONRR s fiscal year 2017 compliance goals, the most recent compliance goals we reviewed, may be useful for assessing certain aspects of ONRR s performance but may not be effectively aligned with the agency s stated mission or fulfill other statutory requirements. ONRR s 2017 strategic priorities document states that the agency s mission is to collect, account for, and verify energy revenues. Additionally, statutory requirements under RSFA direct ONRR not to conduct audit activities if it and the relevant state determine that the cost of conducting or requiring the audit exceeds the expected amount to be collected by the activity, based on the most current 12 months of activity. ONRR s fiscal year 2017 return on investment compliance goal helps the agency comply with RSFA by assessing whether the agency s compliance program is cost- effective. Moreover, ONRR s statutory requirements under FOGRMA require that it establish a comprehensive auditing system to provide the capability to accurately determine oil and gas royalties, among other requirements. However, ONRR s fiscal year 2017 compliance goals do not sufficiently address its mission or FOGRMA requirements, in part, because its goals do not address accuracy or consider the extent to which its compliance work is covering, for example, royalty payments. While ONRR previously had coverage goals, agency officials told us that they eliminated their company and property coverage goals because they concluded the compliance program was reviewing too many companies and properties with smaller royalty payments. ONRR officials told us that this was deemed an inefficient use of limited compliance resources. However, it is difficult for ONRR to provide reasonable assurance that it is accurately collecting royalties when it does not have data on the extent to which, for example, royalties or companies were subject to compliance activities. According to agency officials we interviewed, ONNR stopped tracking these data when ONRR eliminated its coverage goals for fiscal year 2016. As a result, ONRR could be determining that it is meeting its current annual compliance goals but potentially doing so by examining a small percentage of royalties or companies. For example, ONRR may be able to achieve a 2 to 1 return on investment, but only conduct compliance activities on 10 percent of the approximately $5 billion in royalties paid in calendar year 2017. This raises questions about the extent to which ONRR can provide reasonable assurance that its compliance program is assessing the accuracy of oil and gas royalty payments because it does not have a goal for, or data on, the amount of royalties subject to compliance activities. Finally, because ONRR no longer has a coverage goal which helps it assess the extent to which it has ensured the accuracy of royalty payments it does not track the amount of royalties subject to its differing level of compliance activities. ONRR has established a compliance program with three activities audits, compliance reviews, and data mining each of which offers varying levels of assurance for determining the accuracy of royalty payments. However, the extent to which its compliance program allows ONRR to accurately determine and collect royalty payments is unclear because the agency does not track each compliance activity s contribution toward a coverage goal. Interior s OIG reported a similar finding in December 2006. In its report, the OIG found that ONRR s compliance goal for coverage of royalties was misleading because it weighed audits and compliance reviews equally, although the two compliance activities provided differing levels of assurance about whether royalties were accurately paid. The OIG recommended that ONRR should revise the compliance goal to account for each compliance activity separately. While ONRR did not concur with establishing a goal for each of the compliance activities, it agreed to internally track separate measures for them. According to ONRR documentation, the agency took steps to identify what amount of royalties was covered by audits or compliance reviews but did not report this information. When ONRR eliminated its coverage goals for fiscal year 2016, it no longer tracked information on the extent to which royalty payments were subject to its different levels of compliance activities. By establishing a coverage goal (e.g., identifying the number of companies or percentage of royalties subject to compliance activities over a set period of time) that aligns with the agency s mission and tracking the extent to which each of its compliance activities contributes toward this goal, ONRR would have greater assurance that its compliance program has the capability to accurately determine oil and gas royalties. <3. ONRR s Process to Select Compliance Cases Is Not Documented and May Not Align with Compliance Goals> ONRR s process to select compliance cases for audits and compliance reviews is not documented. Additionally, the agency does not have performance measures for determining whether its case selection process aligns with the agency s compliance goals. Finally, while ONRR has a risk model to assist in selecting compliance cases, it has not analyzed the effect the risk model has had on its selection process. <3.1. ONRR Does Not Have a Documented Case Selection Process for Audits and Compliance Reviews> ONRR does not have a documented case selection process with procedures for how to select cases. According to ONRR officials, ONRR s Work Planning Group reviews royalty information on federal oil and gas leases and selects leases from specific companies or properties to undergo either an audit or a compliance review. These officials also stated that while the process for selecting cases for audits and compliance reviews differs, the agency has no written procedures for either compliance activity on how cases should be selected. For audits, ONRR officials we interviewed told us that cases are generally selected based on research from ONRR s recently established Analytics and Risk Management group, which includes the relocated Work Planning Group and other offices that analyze particular aspects of the oil and gas industry, such as pricing. According to these officials, the work planners or analytics staff review a variety of royalty payment and oil and gas production information to identify trends and outliers that may indicate potential royalty noncompliance. The officials told us that they also consider other factors in their selection decisions, such as whether a company was new and therefore may be unfamiliar with how to correctly report royalties or had undergone a change in ownership which can lead to reporting errors. Additional factors that ONRR officials told us they considered were referrals by ONRR staff based on recently completed compliance activity on a specific company or property and the risk scores for the relevant companies and properties generated from the agency s compliance risk model. For compliance reviews, ONRR officials we interviewed told us that the Work Planning Group includes information from a Go/No-go analysis, which they said allows ONRR to make a decision early in the process to cost effectively decide whether to initiate a compliance review. According to ONRR officials, the use of the Go/No-go analysis began in fiscal year 2015 as means to better ensure that the compliance activities they select will identify a finding of royalty noncompliance. According to the officials, the Work Planning Group then compares the list of companies and properties to other sources of information, such as the findings of recently completed work and ONRR s royalty compliance risk model, to select cases based on the group s professional judgment. Overall, ONRR officials we interviewed said that the Work Planning Group maintains a small pool of cases for either an audit or compliance review for when staff become available after completing other work. ONRR officials said that as there was no requirement that they develop documented procedures for case selection, they rely on the experience and training of members of the Work Planning Group to review the available information and select cases based on requests from the Audit Management and Compliance Management groups. Under federal standards for internal control, management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity s objectives, including the documentation of the internal control system. Documentation provides a means to retain organizational knowledge and mitigate the risk of consolidating that knowledge to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors. By developing a documented case selection process that includes procedures for how to select compliance cases, ONRR could better ensure that it retains the organizational knowledge needed to carry out the process effectively and can defend it to external parties. <3.2. ONRR Does Not Have Performance Measures for Determining Whether the Way Such Cases Are Selected Contributes to Overall Compliance Goals> ONRR does not have performance measures for determining the extent to which cases selected align with the agency s compliance goals. ONNR s Work Planning Group is responsible for selecting cases that is, companies or properties to undergo a compliance review or audit. As mentioned previously, ONRR s fiscal year 2017 goals for its compliance program are to achieve a specified return on investment and total amount of additional royalties collected from the cases it selects to undergo compliance activities. However, according to ONRR officials we interviewed, these goals are not considered when selecting cases. Rather, these officials told us that the Work Planning Group attempts to select cases for compliance activities that are the most likely to result in a finding of royalty noncompliance. A finding of noncompliance for a company can result from a variety of circumstances, such as reporting an incorrect volume of oil or gas sold or claiming allowances for transportation and processing costs above established limits. ONRR officials stated that the agency s IT system tracks whether a completed compliance case resulted in a finding, but the agency does not regularly assess the percentage of completed cases that produce findings. Prior to 2015, ONRR had performance measures for determining the extent to which cases selected aligned with its compliance goals but stopped using these measures after it made changes to the goals. Prior to fiscal year 2010, for example, ONRR had a goal for conducting compliance activities on a certain percentage of royalties within 3 years from the date it received payment. To support this goal, ONRR sought to select companies with relatively high royalty dollar amounts. ONRR then assessed its performance toward achieving this goal by reviewing all completed audits and compliance reviews over a 3-year period and calculating the percentage of total royalties paid over this period from completed compliance cases. For example, in fiscal year 2008, ONRR reported that compliance cases covered 69 percent of royalties received in calendar year 2004. However, as we noted previously, the 2006 OIG report found that the focus on coverage of royalties resulted in ONRR providing limited coverage of its universe of companies and properties. Additionally, ONRR officials we interviewed confirmed that selecting cases with higher royalty amounts to achieve the royalty coverage goal resulted in more limited coverage of companies because the goal directed ONRR toward repeatedly selecting many of the same large companies each year for compliance activities. In response to the recommendations in the OIG s report as well as ONRR s own recognition of the reduced company coverage resulting from its selection of companies that pay high royalties, ONRR transitioned to a new performance measure for case selection along with a new compliance goal in fiscal year 2010. ONRR s new performance measure assessed the number of unique companies and properties for selected compliance activities. This new performance measure, according to ONRR officials, was driven by ONRR s new compliance goal for cumulatively covering a certain percentage of unique companies and properties over a 3-year period. According to ONRR officials, after the company and property coverage goal was in place for approximately 5 years, officials determined that this goal and corresponding performance measure was driving the compliance case selection process to select too many companies and properties with smaller royalty payments, which they deemed an inefficient use of limited compliance resources. As a result, ONRR officials told us that the agency decided to change its compliance goal in fiscal year 2015 to focus on return on investment and total additional dollars collected. However, ONRR did not establish a corresponding performance measure for its compliance case selection process that would determine the extent to which cases selected contributed to ONRR s compliance goals. As stated previously, we have reported that the requirements in GPRA and GRPAMA for establishing performance metrics serve as leading practices for divisions, programs, and initiatives. Performance measures help agencies make resource decisions, provide managers information on which to base their organizational and management decisions, and create powerful incentives to influence organizational and individual behavior. Furthermore, successful performance measures are aligned with division and agency-wide goals and missions. According to ONRR officials we interviewed, they have not established performance measures for determining whether the way such cases are selected aligns with the agency s compliance goals because there is no specific requirement to do so. By developing performance measures (e.g., establishing a specified percentage of compliance cases that identify findings of royalty noncompliance or total additional royalties) that assess whether the agency is selecting cases that are helping it achieve its compliance goals, ONRR would be able to better monitor its performance in achieving its goals and whether changes to its selection process affect its performance. <3.3. ONRR Has Not Analyzed the Effectiveness of Its Risk Model on Case Selection> ONRR has developed a model that assesses the risk of noncompliance for companies and properties. Officials from the Work Planning Group use this model to inform their compliance case selections. However, it is unclear whether use of the model has improved case selection because ONRR has not analyzed the model s effect on such selections. ONRR began a pilot program in 2006 to analyze the risk factors for royalty noncompliance, which included developing a quantitative risk model. In December 2006, Interior s OIG recommended that ONRR consider additional factors that may indicate a risk of noncompliant royalty payments when making case selection decisions. In addition to the factors that ONRR was using to select cases to help achieve its compliance goals, such as cases with high royalty dollars, the OIG recommended that ONRR incorporate other risk factors, including companies or properties having a history of underreported royalties and falsely reported information to other federal agencies, such as the Environmental Protection Agency. In December 2007, Interior s Subcommittee on Royalty Management reiterated the importance of using a risk-based process for compliance and made a number of related recommendations to ONRR. Among these were that ONRR should fully implement the quantitative model it was developing as part of its pilot program. Additionally, the subcommittee recommended that ONRR evaluate its risk model s performance and then establish a process to continually validate and update the model to ensure that it remains effective. In response to these recommendations, ONRR worked with a contractor from 2006 through 2012 to develop an initial risk model. This model evaluated the risk of royalty noncompliance for each lease based on four characteristics: the type of lease, the specific location of the lease, the region of the country the lease was in, and the type of commodity extracted. The model looked at a number of indicators of risk, which were grouped into four overall risk drivers: complexity of the oil and gas market, complexity of regulations, commodity-specific practices, and transparency of the market. According to officials from the Work Planning Group we interviewed, they used the risk scores generated from this model to help inform the list of compliance cases to be reviewed the following year. These officials told us that they stopped using the scores from this model around 2012 for two reasons. First, the model allowed for the scores to be manually weighted based on the judgment of those selecting the compliance cases, and this weighting process was believed to have eventually hurt the accuracy of the risk scores. Second, agency officials determined that the risk scores the model was producing did not correlate closely with cases resulting in significant findings. In 2013, ONRR tasked a different contractor with developing a new set of risk models. According to an initial development document, ONRR requested separate risk models for companies and properties that would determine the propensity for a company to submit an incorrect royalty payment using historical royalty compliance data that ONRR and third- party sources provided. The contractor produced two risk models, one that assigned a risk score to companies and one to properties. The risk scores which ranged from 0 to 100 attempted to quantify the risk of royalty noncompliance. The initial models were completed in 2014, and ONRR began including the risk scores from these models in the data that the Work Planning Group reviewed during the case selection process. Documents from the contractor show that the models then went through an initial validation process using the results of cases that the contractor selected when the models were instituted in 2014 and completed cases from 2012 onward. According to documents summarizing the contractor s efforts, the validation showed a correlation between higher risk scores on the company model and cases that resulted in findings and additional royalty revenues. However, the contractor reported that higher risk scores on the property model did not correlate with either findings or additional royalty revenues. The documents we reviewed also included a number of recommendations to ONRR to improve its risk modeling, including adding third-party and commercial data sources, adding data sources from within ONRR and other oil and gas bureaus within Interior, and attempting to redefine property risk and building a new property risk model. However, according to officials we interviewed, they have not yet acted on any of these recommendations. ONRR requested that the contractor update the models with data from recent royalty reporting and completed compliance cases, which it did in both 2015 and 2018 but does not do either regularly or periodically. According to ONRR officials, the Work Planning Group currently considers the risk scores based on the company model when selecting cases but does not consider the risk scores based on the property model, as the group considers those scores less reliable. ONRR officials told us that they do not believe that their current risk approach is entirely effective and are considering having staff from the Analytics and Risk Management group develop a risk model for the agency. To date, ONRR has not analyzed how the use of the risk scores has affected case selection or findings of royalty noncompliance and is therefore unable to identify whether its risk model is effective. As a result, the agency does not have sufficient information to make a decision on whether to continue using the model as it exists today, consider potential improvements, or discontinue the model in favor of another approach. Federal standards for internal control state that management should design control activities to achieve objectives and respond to risks, such as by comparing actual performance to planned or expected results and analyzing significant differences. By periodically analyzing whether the risk model is effectively identifying potential royalty noncompliance and whether the model s results are being effectively used to assist in case selection, and making changes to the model (e.g., updating it) or developing a new model based on this analysis, ONRR would be better able to determine how to proceed with using risk analysis to inform its case selections. <4. STRAC Members Reported They Are Satisfied with ONRR Coordination but Do Not Have Documented Processes, and Compliance Activities in Their Work Plans Do Not Align with ONRR Goals STRAC Officials Expressed Satisfaction with ONRR s Coordination on Royalty Compliance> STRAC officials we interviewed from the nine member states that had agreements with ONRR for conducting royalty compliance generally expressed satisfaction with ONRR s coordination of compliance activities, including both the frequency of interaction as well as support for budget and training. STRAC officials from all nine member states generally expressed satisfaction with the frequency of interaction between STRAC and ONRR. STRAC officials stated that this interaction occurred primarily through three mechanisms. First, ONRR and STRAC hold semiannual in-person meetings. At these meetings, STRAC officials said that attendees discuss a range of topics. For example, at the March 2018 STRAC meeting in Sacramento, California, which we attended, there were two training sessions as well as a session on updates to ONRR s IT systems. Second, ONRR and STRAC hold quarterly teleconferences. These teleconferences, according to STRAC officials, are opportunities for both ONRR and STRAC to highlight any significant or systematic issues that they may be identifying in their compliance activities. Third, ONRR assigned agency points of contact to each STRAC member state for technical questions. The STRAC officials stated that ONRR has been responsive when they have reached out with questions or concerns. Overall, STRAC officials from seven of the nine member states said that coordination with ONRR had improved over the past approximately 10 years. STRAC officials from two of the member states attributed this improvement to ONRR leadership s concerted effort to work more effectively with STRAC. Additionally, STRAC officials from the majority of member states generally expressed satisfaction with the support ONRR has provided STRAC member states with respect to resources and training. STRAC officials from seven of nine member states told us that the current contracted budget was sufficient to conduct oversight of their states federal oil and gas royalties. STRAC officials from two member states stated that the budget was insufficient. One official stated that the budget did not allow the state to review all of the federal properties for which it was responsible. The officials from the other state indicated that a larger budget would allow the state to hire additional auditors. According to these officials, additional auditors could help the state conduct compliance activities on more royalty payors and in particular small royalty payors that may not be as familiar with the requirements for federal royalty payments. STRAC officials from several member states said that the flat budget that ONRR provided over the past several years may lead to changes in their federal royalty compliance activities. For example, one official stated that without additional funding in the future, the state may have to move more experienced and higher paid auditors to state royalty compliance activities, thus leaving less experienced and lower paid auditors to conduct federal royalty compliance activities. Another official stated that the state had offered less training and reduced the amount of funds for travel to address potential budget shortfalls. Additionally, another official stated that flat budgets could make it difficult to offer staff merit pay increases. Finally, officials from seven of the nine STRAC member states said ONRR provided sufficient training on policies, procedures, and IT systems used to conduct compliance activities on federal oil and gas royalties. A STRAC official from one member state said that ONRR s training had improved recently, while another official said that support had improved. However, STRAC officials from three member states expressed uncertainty about ONRR s training for companies. These officials stated that they would like to understand the content of the training so they would better understand how ONRR is training companies to report royalties. <4.1. STRAC Members Processes for Selecting Compliance Cases Are Not Documented> None of the nine STRAC member states had documented case selection processes. Specifically, officials from all nine STRAC member states we interviewed said that either they did not have, or were unable to provide, documented procedures for the processes they used to select federal oil and gas compliance cases. Rather, STRAC officials stated that they relied on a variety of factors to select cases for compliance reviews. Staff expertise about companies and properties was the factor that all nine STRAC officials identified as key for case selection. For example, one official stated that she had over 10 years of experience and therefore knew what companies or properties to review. Another official stated that because staff also work on state tax audits, they can use knowledge from that work to help identify compliance cases. Another factor officials identified as assisting in the case selection process was ONRR s company and property risk scores, though they were given varying degrees of consideration. Other factors officials identified included referrals from BLM or ONRR, and risk scores generated from their own models. Under federal standards for internal control, management should establish an organization structure, assign responsibility, and delegate authority to achieve the entity s objectives, including the documentation of the internal control system. Documentation provides a means to retain organizational knowledge and mitigate the risk of consolidating that knowledge to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors. Because STRAC members do not have a documented process, ONRR cannot, for example, assess whether STRAC members are selecting compliance cases in a manner that aligns with ONRR s compliance goals or that future STRAC members will know how to select compliance cases. In the agreements between the nine STRAC members and ONRR, the agency includes terms and conditions that the members agree to, but ONRR does not require STRAC members to have documented procedures for compliance case selection. By including in ONRR s future agreements with STRAC members requirements to develop a documented case selection process, including procedures for how to select compliance cases and how to document which factors were considered in selection decisions, ONRR could better assess whether members select cases that align with the agency s compliance goals. <4.2. STRAC Compliance Activities Described in Work Plans Do Not Align with ONRR Goals> We reviewed STRAC members annual work plans to determine whether the compliance activities discussed aligned with ONRR compliance goals. STRAC member agreements from eight of the nine STRAC members included language that the state will contribute to ONRR s GPRA goals and thereby the performance goals of this Agreement by performing audits, compliance reviews and other investigations in coordination with ONRR. The yearly performance goals are listed on the state s annual work plan. However, when we reviewed the STRAC members corresponding annual work plans, we found no information on how the members compliance activities contributed to ONRR s goals. For example, several of the STRAC members work plans included information on the leases and properties selected for compliance activities but did not include information on how those selections would contribute to ONRR s compliance goals. In addition, the majority of STRAC officials from member states said they did not consider ONRR s compliance goals for return on investment or total additional royalty collections when selecting compliance cases. When we asked STRAC members about their goals, three of nine STRAC member states noted that they had compliance program goals. For example, one STRAC member s goal was to maximize revenue to the state and implement on behalf of ONRR and the state, a constantly improving and efficient royalty audit program. Another member s goal was to protect the US Citizens Federal Mineral Interest within the boundaries of the state by ensuring that a fair value, as established by the federal regulations, is received. Officials from the other six STRAC members told us that their states do not have goals for federal oil and gas royalty compliance activities because ONRR does not require that they do so. For STRAC members that did not have compliance goals, officials provided examples of informal goals or goals that were not documented. For example, one STRAC official reported that the state s goal was to try to audit 50 percent of royalties paid to the state every 2 years. Another STRAC official stated the state tries to review major market areas in the state once every 7 years. When we compared STRAC officials responses on their goals to ONRR s broader compliance goals for return on investment and total additional royalty collections, we found that the majority of states compliance goals did not align with ONRR s goals. Federal standards for internal control state that management should define objectives clearly to enable the identification of risk and define risk tolerances, such as by defining objectives in alignment with the organization s mission, strategic plan, and performance goals. In requiring eight of the nine STRAC members to conduct compliance activities consistent with the agency s compliance goals, ONRR was following these standards. However, ONRR approved the STRAC members work plans, although those work plans did not specify how the described members compliance activities would contribute to ONRR s goals as the agency stated they would in the agreements between the seven of the nine STRAC members and ONRR. By requiring STRAC members to describe in their annual work plans how their compliance activities would align with ONRR s current compliance goals, ONRR would have better assurance that activities were aligned with its compliance goals. Finally, ONRR does not track STRAC member states contributions against its annual compliance goals. ONRR has the data available to track these contributions because the results of STRAC members compliance activities are retained in ONRR s IT system. For example, we obtained reports on the aggregate overall return on investment of STRAC members and reviewed individual data entries from STRAC members work that included a data field for revenue collections. According to regulations, if a state accepts delegated authority, it is to assist ONRR in meeting the requirements of GPRA as well as in developing and endeavoring to comply with ONRR s Strategic Plan and Performance Measurements. Because ONRR does not track STRAC member states contributions toward its annual compliance goals, the agency has limited information for assessing whether the funding they are providing to STRAC members is achieving its goals. ONRR officials we interviewed stated that they do not track states contributions to ONRR s overall compliance goals as there is no requirement to do so. However, by tracking the performance of each state and its contribution toward ONRR s compliance goals, ONRR could better assess the effectiveness of states performance in supporting the agency s mission of ensuring accurate royalty payments. <5. Conclusions> ONRR is taking steps intended to improve its royalty compliance program and better verify that all royalties paid on the sale of oil and gas extracted from leased federal lands are accurate. These steps include reorganizing the management structure of its compliance program, implementing new systems for managing compliance cases electronically, and instituting a training curriculum for newly hired auditors. However, although ONRR reported generally meeting its compliance goals for fiscal years 2010 through 2017, its current goals may not align with the agency s mission or other statutory requirements. For example, ONRR s fiscal year 2017 compliance goals do not sufficiently address its mission to collect, account for, and verify revenues, in part, because its goals do not address accuracy, such as through a coverage goal. Establishing a coverage goal (e.g., identifying the number of companies or percentage of royalties subject to compliance activities over a set period) that aligns with the agency s mission, and tracking the extent to which each of its compliance activities contributes to this goal, would provide ONRR more reasonable assurance that its compliance program is assessing the extent to which oil and gas royalty payments are accurate. Furthermore, ONRR s audits, compliance reviews, and data mining efforts each provide a different level of assurance that royalties are accurately paid, but the agency does not measure how each of the compliance activities contributes to the FOGRMA requirement to establish a system with the capability to accurately determine and collect royalties in a timely manner. By tracking the extent to which each of its compliance activities contributed to any future coverage goal, ONRR would have greater assurance that its compliance program has the capability to accurately determine oil and gas royalties. In addition, ONRR s compliance program relies on its Work Planning Group, which is responsible for reviewing information on companies and properties to select cases for audits or compliance reviews. The Work Planning Group, however, does not have a documented case selection process. By developing a documented case selection process that includes procedures for how to select compliance cases, ONRR could better ensure that it retains the organizational knowledge needed to effectively select compliance cases and defend the process in external reviews. In addition, ONRR does not have performance measures to determine the extent to which cases selected align with ONRR s compliance goals. By developing performance measures (e.g., establishing a specified percentage of compliance cases that identify findings of royalty noncompliance or total additional royalties) that assess whether the agency is selecting cases that are helping it achieve its compliance goals, ONRR would be able to better monitor its performance in achieving its goals and whether changes to its selection process affect performance. Moreover, since 2006, ONRR has worked to develop a model to assess the risk of royalty noncompliance for use in its compliance case selection process. After several iterations with two contractors, ONRR began using the risk scores from its model to assist with case selection in 2014. However, according to ONRR officials, the agency is considering discontinuing the use of its current model in favor of one that is internally developed. ONRR has not analyzed how the use of the risk scores has affected case selection or findings of royalty noncompliance and is therefore unable to identify whether its risk model is effective. By periodically analyzing whether the risk model is effectively identifying potential royalty noncompliance and whether the model s results are being effectively used to assist in case selection and making changes to the model (e.g., updating it) or developing a new model based on this analysis, ONRR would be better able to determine how to proceed with using risk analysis to inform its case selections. Furthermore, none of the nine STRAC members had documented case selection processes. In the agreements between the nine STRAC members and ONRR, the agency includes terms and conditions that the members agree to, but ONRR does not require STRAC members to have documented procedures for compliance case selection. By including requirements in ONRR s agreements with STRAC members to develop a documented case selection process, including procedures for how to select compliance cases and how to document which factors were considered in selection decisions, ONRR could better assess whether members select cases that align with the agency s compliance goals. Additionally, ONRR does not require that STRAC members specify how their compliance activities included in annual work plans contribute to ONRR s compliance goals, although those goals appear on the work plans. ONRR approved the work plans but did not specify how the members compliance activities would contribute to its goals as the agency stated they would in the agreements between eight of the nine STRAC members and ONRR. By requiring STRAC members to describe in their annual work plans how their compliance activities would align with ONRR s current compliance goals, the agency would have better assurance that activities were aligned with its performance goals. Lastly, ONRR does not track STRAC members contributions toward its annual compliance goals though it has the data to do so. By tracking the performance of each state and its contribution toward ONRR s compliance goals, ONRR could better assess the effectiveness of states performance in supporting its mission of ensuring accurately royalty payments. <6. Recommendations for Executive Action> We are making a total of seven recommendations to ONRR. Specifically: The Director of ONRR should establish an accuracy goal (e.g., identifying the number of companies or percentage of royalties subject to compliance activities over a set period of time) that aligns with the agency s mission of collecting, accounting for, and verifying royalty payments. In doing so, ONRR should track the extent to which each compliance activity (audits, compliance reviews, and data mining) contributes toward achieving this goal. (Recommendation 1) The Director of ONRR should develop a documented case selection process that includes procedures for how to select all compliance cases. (Recommendation 2) The Director of ONRR should develop performance measures (e.g., having a specified percentage of compliance cases identify findings of royalty noncompliance or total additional royalties) that assess whether the cases the agency is selecting are helping it achieve its compliance goals. (Recommendation 3) The Director of ONRR should periodically analyze whether the risk model is effectively identifying potential royalty noncompliance and whether the model s results are being effectively used to assist in case selection, and should use this analysis to make changes to the model (e.g., updating it) or develop a new model. (Recommendation 4) The Director of ONRR should include requirements in ONRR s agreements with STRAC members to develop a documented case selection process, including procedures for how to select compliance cases and how to document which factors were considered in selection decisions. (Recommendation 5) The Director of ONRR should require STRAC members to describe in their annual work plans how their compliance activities would align with ONRR s current compliance goals. (Recommendation 6) The Director of ONRR should track the performance of the compliance work of each state STRAC member and the contribution that each state makes to ONRR s compliance goals. (Recommendation 7) <7. Agency Comments> We provided a draft of this report to Interior for review and comment. Interior concurred with all seven recommendations. Agency comments are reproduced in appendix III. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Interior, 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 have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix IV. Appendix I: Status of Royalty Policy Committee s Subcommittee on Royalty Management We reviewed and summarized recommendation closure documentation that the Department of the Interior (Interior) provided for royalty compliance recommendations made to the department by the Royalty Policy Committee s Subcommittee on Royalty Management in 2007 and Interior s Office of Inspector General (OIG) in 2006. For the subcommittee recommendations, Interior officials told us that the subcommittee did not assess the implementation of its recommendations. As a result, we present information that Interior provided on its decision about the status of the recommendations and a summary of actions taken. (See table 3.) For the OIG recommendations, we present the status of recommendations according to the OIG and a summary of the actions according to Interior. (See table 4.) We did not independently assess the implementation of the recommendations. Appendix II: ONRR s Annual Compliance Goals and Performance See table 5 for detailed information on the Office of Natural Resources Revenue s (ONRR) performance goals, including goal type, goal, fiscal year goal, fiscal year performance, and long-term target for performance goal. Appendix III: Comments from the Department of the Interior Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Christine Kehr (Assistant Director), Glenn C. Fischer (Analyst-in-Charge), Tim Bober, John Delicath, Sarah Detweiler, Wil Gerard, Cindy Gilbert, Michael Kendix, Eli Lewine, Ben Licht, Anne Stevens, and Sara Sullivan made important contributions to this report.

Why GAO Did This Study Royalties paid on the sale of oil and gas extracted from leased federal lands and waters are a significant source of revenue for the federal government. However, Interior has faced challenges verifying the accuracy of royalty payments. In the 2000s, GAO issued reports highlighting weaknesses in Interior's royalty compliance program. In 2011, GAO added Interior's management of federal oil and gas resources to its High-Risk List, in part because its work showed Interior did not have assurance that it was collecting its share of revenue from oil and gas produced on federal leases. Interior has taken steps to operate more effectively. GAO was asked to examine ONRR's federal oil and gas royalty compliance efforts. This report examines, among other objectives, the extent to which ONRR reported meeting its compliance goals for fiscal years 2010 through 2017, the most recent data available. GAO reviewed relevant laws, regulations, agency guidance, and Interior's annual performance plan and report and annual budget justifications for the period; analyzed ONRR compliance data for the period; and interviewed ONRR officials and state auditors who conducted work in coordination with ONRR. What GAO Found The Department of the Interior's (Interior) Office of Natural Resources Revenue (ONRR) reported that it met its annual performance goals for its royalty compliance program in 6 of the 8 years from fiscal years 2010 through 2017. Under this program, ONRR conducts three levels of compliance activities—audits, compliance reviews, and data mining—to help ensure that oil and gas royalty payments submitted by companies that produce oil and gas from federal leases are accurate and comply with federal laws and regulations (see figure). Specifically, GAO's analysis of Interior's annual budget justifications for fiscal years 2010 through 2017 found that ONRR reported meeting its compliance goals for 6 of the 8 fiscal years. According to ONRR officials, ONRR did not report meeting its compliance goals for 2 years because of a shift in the agency's goals that created a short-term misalignment of planned work and available resources. ONRR's fiscal year 2017 goals for its compliance program were (1) to obtain a return of $2 of additional royalties for every dollar spent on compliance activities and (2) to collect a defined amount of additional royalties. ONRR's compliance goals generally aligned with the agency's requirement that resources should not be expended without an expected return. However, these goals may not align with the agency's mission to collect, account for, and verify royalty payments and other statutory requirements because the goals do not address accuracy—or the extent to which its compliance work is covering, for example, royalty payments. By establishing a goal that addresses accuracy, for example, by covering a portion of royalty payments with its compliance activities, ONRR could increase the extent to which it had reasonable assurance that its compliance program is fully accounting for federal oil and gas royalty payments. What GAO Recommends GAO is making seven recommendations, including that ONRR establish an accuracy goal that addresses coverage that aligns with its mission. Interior concurred with GAO's recommendations.

gao_GAO-19-275T

gao_GAO-19-275T_0

<1. Background> According to the President s budget, the federal government planned to invest more than $96 billion for IT in fiscal year 2018 the largest amount ever budgeted. Despite such large IT expenditures, we have previously reported that investments in federal IT too often resulted in failed projects that incurred cost overruns and schedule slippages, while contributing little to the desired mission-related outcomes. For example: The tri-agency National Polar-orbiting Operational Environmental Satellite System was disbanded in February 2010 at the direction of the White House s Office of Science and Technology Policy after the program spent 16 years and almost $5 billion. The Department of Homeland Security s (DHS) Secure Border Initiative Network program was ended in January 2011, after the department obligated more than $1 billion for the program. The Department of Veterans Affairs Financial and Logistics Integrated Technology Enterprise program was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011. The Department of Defense s Expeditionary Combat Support System was canceled in December 2012 after spending more than a billion dollars and failing to deploy within 5 years of initially obligating funds. The United States Coast Guard (Coast Guard) decided to terminate its Integrated Health Information System project in 2015. As reported by the agency in August 2017, the Coast Guard spent approximately $60 million over 7 years on this project, which resulted in no equipment or software that could be used for future efforts. Our past work has found that these and other failed IT projects often suffered from a lack of disciplined and effective management, such as project planning, requirements definition, and program oversight and governance. In many instances, agencies had not consistently applied best practices that are critical to successfully acquiring IT. Such projects have also failed due to a lack of oversight and governance. Executive-level governance and oversight across the government has often been ineffective, specifically from CIOs. For example, we have reported that some CIOs roles were limited because they did not have the authority to review and approve the entire agency IT portfolio. In addition to failures when acquiring IT, security deficiencies can threaten systems. As we previously reported, in order to counter security threats, the 23 civilian Chief Financial Officers (CFO) Act agencies spent a combined total of approximately $4 billion on IT security-related activities in fiscal year 2016. Even so, our cybersecurity work at federal agencies continues to highlight information security deficiencies. The following examples describe the types of risks we have found at federal agencies. In September 2018, we reported that the Department of Education s Office of Federal Student Aid exercises minimal oversight of lenders protection of student data and lacks assurance that appropriate risk- based safeguards are being effectively implemented, tested, and monitored. In August 2017, we reported that, since the 2015 data breaches, the Office of Personnel Management (OPM) had taken actions to prevent, mitigate, and respond to data breaches involving sensitive personal and background investigation information. However, we noted that the agency had not fully implemented recommendations made to OPM by DHS s United States Computer Emergency Readiness Team to help the agency improve its overall security posture and improve its ability to protect its systems and information from security breaches. In July 2017, we reported that information security at the Internal Revenue Service had weaknesses that limited its effectiveness in protecting the confidentiality, integrity, and availability of financial and sensitive taxpayer data. An underlying reason for these weaknesses was that the Internal Revenue Service had not effectively implemented elements of its information security program. In May 2016, we reported that the National Aeronautics and Space Administration, the Nuclear Regulatory Commission, OPM, and the Department of Veteran Affairs did not always control access to selected high-impact systems, patch known software vulnerabilities, and plan for contingencies. An underlying reason for these weaknesses was that the agencies had not fully implemented key elements of their information security programs. In August 2016, we reported that the information security of the Food and Drug Administration had significant weaknesses that jeopardized the confidentiality, integrity, and availability of its information systems and industry and public health data. <1.1. FITARA Increases CIO Authorities and Responsibilities for Managing IT> Congress and the President have enacted various key pieces of reform legislation to address IT management issues. These include the federal IT acquisition reform legislation commonly referred to as the Federal Information Technology Acquisition Reform Act (FITARA). This legislation was intended to improve covered agencies acquisitions of IT and enable Congress to monitor agencies progress and hold them accountable for reducing duplication and achieving cost savings. The law includes specific requirements related to seven areas: Agency CIO authority enhancements. CIOs at covered agencies have the authority to, among other things, (1) approve the IT budget requests of their respective agencies and (2) review and approve IT contracts. Federal data center consolidation initiative (FDCCI). Agencies covered by FITARA are required, among other things, to provide a strategy for consolidating and optimizing their data centers and issue quarterly updates on the progress made. Enhanced transparency and improved risk management. The Office of Management and Budget (OMB) and covered agencies are to make detailed information on federal IT investments publicly available, and agency CIOs are to categorize their investments by level of risk. Portfolio review. Covered agencies are to annually review IT investment portfolios in order to, among other things, increase efficiency and effectiveness and identify potential waste and duplication. Expansion of training and use of IT acquisition cadres. Covered agencies are to update their acquisition human capital plans to support timely and effective IT acquisitions. In doing so, the law calls for agencies to consider, among other things, establishing IT acquisition cadres (i.e., multi-functional groups of professionals to acquire and manage complex programs), or developing agreements with other agencies that have such cadres. Government-wide software purchasing program. The General Services Administration is to develop a strategic sourcing initiative to enhance government-wide acquisition and management of software. In doing so, the law requires that, to the maximum extent practicable, the General Services Administration should allow for the purchase of a software license agreement that is available for use by all executive branch agencies as a single user. Maximizing the benefit of the Federal Strategic Sourcing Initiative. Federal agencies are required to compare their purchases of services and supplies to what is offered under the Federal Strategic Sourcing Initiative. In June 2015, OMB released guidance describing how agencies are to implement FITARA. This guidance is intended to, among other things: assist agencies in aligning their IT resources with statutory requirements; establish government-wide IT management controls to meet the law s requirements, while providing agencies with flexibility to adapt to unique agency processes and requirements; strengthen the relationship between agency CIOs and bureau CIOs; and strengthen CIO accountability for IT costs, schedules, performance, and security. The guidance identifies a number of actions that agencies are to take to establish a basic set of roles and responsibilities (referred to as the common baseline) for CIOs and other senior agency officials and, thus, to implement the authorities described in the law. For example, agencies are to conduct a self-assessment and submit a plan describing the changes they intend to make to ensure that common baseline responsibilities are implemented. In addition, in August 2016, OMB released guidance intended to, among other things, define a framework for achieving the data center consolidation and optimization requirements of FITARA. The guidance directed agencies to develop a data center consolidation and optimization strategic plan that defined the agency s data center strategy for fiscal years 2016, 2017, and 2018. This strategy was to include, among other things, a statement from the agency CIO indicating whether the agency had complied with all data center reporting requirements in FITARA. Further, the guidance states that OMB is to maintain a public dashboard to display consolidation-related costs savings and optimization performance information for the agencies. <1.2. Congress Has Undertaken Efforts to Continue Selected FITARA Provisions and Modernize Federal IT> Congress has recognized the importance of agencies continued implementation of FITARA provisions, and has taken legislative action to extend selected provisions beyond their original dates of expiration. Specifically, Congress and the President enacted laws to: remove the expiration dates for the enhanced transparency and improved risk management provisions, which were set to expire in 2019; remove the expiration date for portfolio review, which was set to expire in 2019; and extend the expiration date for FDCCI from 2018 to 2020. In addition, Congress and the President enacted a law to authorize the availability of funding mechanisms to help further agencies efforts to modernize IT. The law, known as the Modernizing Government Technology (MGT) Act, authorizes agencies to establish working capital funds for use in transitioning from legacy IT systems, as well as for addressing evolving threats to information security. The law also creates the Technology Modernization Fund, within the Department of the Treasury, from which agencies can borrow money to retire and replace legacy systems, as well as acquire or develop systems. Further, in February 2018, OMB issued guidance for agencies on implementing the MGT Act. The guidance was intended to provide agencies additional information regarding the Technology Modernization Fund, and the administration and funding of the related IT working capital funds. Specifically, the guidance encouraged agencies to begin submitting initial project proposals for modernization on February 27, 2018. In addition, in accordance with the MGT Act, the guidance provides details regarding a Technology Modernization Board, which is to consist of (1) the Federal CIO; (2) a senior IT official from the General Services Administration; (3) a member of DHS s National Protection and Program Directorate; and (4) four federal employees with technical expertise in IT development, financial management, cybersecurity and privacy, and acquisition, appointed by the Director of OMB. <1.3. FISMA Establishes Responsibilities for Agencies to Address Federal Cybersecurity> Congress and the President enacted the Federal Information Security Modernization Act of 2014 (FISMA) to improve federal cybersecurity and clarify government-wide responsibilities. The act addresses the increasing sophistication of cybersecurity attacks, promotes the use of automated security tools with the ability to continuously monitor and diagnose the security posture of federal agencies, and provides for improved oversight of federal agencies information security programs. Toward this end, the act clarifies and assigns specific responsibilities to entities such as OMB, DHS, and the federal agencies. Table 1 describes a selection of the OMB, DHS, and agency responsibilities. <1.4. The Administration Has Undertaken Efforts to Improve, Modernize, and Strengthen the Security of Federal IT> Beyond the implementation of FITARA, FISMA, and related actions, the administration has also initiated other efforts intended to improve federal IT. Specifically, in March 2017, the administration established the Office of American Innovation, which has a mission to, among other things, make recommendations to the President on policies and plans aimed at improving federal government operations and services. In doing so, the office is to consult with both OMB and the Office of Science and Technology Policy on policies and plans intended to improve government operations and services, improve the quality of life for Americans, and spur job creation. In May 2017, the Administration also established the American Technology Council, which has a goal of helping to transform and modernize federal agency IT and how the federal government uses and delivers digital services. The President is the chairman of this council, and the Federal CIO and the United States Digital Service Administrator are among the members. In addition, on May 11, 2017, the President signed Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. This executive order outlined actions to enhance cybersecurity across federal agencies and critical infrastructure to improve the nation s cyber posture and capabilities against cybersecurity threats. Among other things, the order tasked the Director of the American Technology Council to coordinate a report to the President from the Secretary of DHS, the Director of OMB, and the Administrator of the General Services Administration, in consultation with the Secretary of Commerce, regarding the modernization of federal IT. As a result, the Report to the President on Federal IT Modernization was issued on December 13, 2017, and outlined the current and envisioned state of federal IT. The report focused on modernization efforts to improve the security posture of federal IT and recognized that agencies have attempted to modernize systems but have been stymied by a variety of factors, including resource prioritization, ability to procure services quickly, and technical issues. The report provided multiple recommendations intended to address these issues through the modernization and consolidation of networks and the use of shared services to enable future network architectures. Further, in March 2018, the Administration issued the President s Management Agenda, which lays out a long-term vision for modernizing the federal government. The agenda identifies three related drivers of transformation IT modernization; data, accountability, and transparency; and the workforce of the future that are intended to push change across the federal government. The Administration also established 14 related Cross-Agency Priority goals, many of which have elements that involve IT. In particular, the Cross-Agency Priority goal on IT modernization states that modern IT must function as the backbone of how government serves the public in the digital age. This goal establishes three priorities that are to guide the Administration s efforts to modernize federal IT: (1) enhancing mission effectiveness by improving the quality and efficiency of critical services, including the increased utilization of cloud-based solutions; (2) reducing cybersecurity risks to the federal mission by leveraging current commercial capabilities and implementing cutting edge cybersecurity capabilities; and (3) building a modern IT workforce by recruiting, reskilling, and retaining professionals able to help drive modernization with up-to-date technology. More recently, on May 15, 2018, the President signed Executive Order 13833, Enhancing the Effectiveness of Agency Chief Information Officers. Among other things, this executive order is intended to better position agencies to modernize their IT systems, execute IT programs more efficiently, and reduce cybersecurity risks. The order pertains to 22 of the 24 CFO Act agencies: the Department of Defense and the Nuclear Regulatory Commission are exempt. For the covered agencies, the executive order strengthens the role of agency CIOs by, among other things, requiring them to report directly to their agency head; serve as their agency head s primary IT strategic advisor; and have a significant role in all management, governance, and oversight processes related to IT. In addition, one of the cybersecurity requirements directs agencies to ensure that the CIO works closely with an integrated team of senior executives, including those with expertise in IT, security, and privacy, to implement appropriate risk management measures. <2. Agencies Have Not Fully Addressed the IT Acquisitions and Operations High-Risk Area> In the February 2017 update to our high-risk series, we reported that agencies still needed to complete significant work related to the management of IT acquisitions and operations. We stressed that OMB and federal agencies should continue to expeditiously implement FITARA and OMB s related guidance, which includes enhancing CIO authority, consolidating data centers, and acquiring and managing software licenses. Our update to this high-risk area also stressed that OMB and agencies needed to continue to implement our prior recommendations in order to improve their ability to effectively and efficiently invest in IT. Specifically, since fiscal year 2010, we have made 1,242 recommendations to OMB and federal agencies to address shortcomings in IT acquisitions and operations. As stated in the update, OMB and agencies should demonstrate government-wide progress in the management of IT investments by, among other things, implementing at least 80 percent of our recommendations related to managing IT acquisitions and operations. As of November 2018, OMB and agencies had fully implemented 732 (or about 59 percent) of the 1,242 recommendations. Figure 1 summarizes the progress that OMB and agencies have made in addressing our recommendations compared to the 80 percent target. Overall, federal agencies would be better positioned to realize billions in cost savings and additional management improvements if they address these recommendations, including those aimed at implementing CIO responsibilities, reviewing IT acquisitions; improving data center consolidation; and managing software licenses. <2.1. Agencies Need to Address Shortcomings and Challenges in Implementing CIO Responsibilities> In all, the various laws, such as FITARA, and related guidance assign 35 IT management responsibilities to CIOs in six key areas. These areas are: leadership and accountability, budgeting, information security, investment management, workforce, and strategic planning. In August 2018, we reported that none of the 24 agencies we reviewed had policies that fully addressed the role of their CIO, as called for by federal laws and guidance. In this regard, a majority of the agencies had fully or substantially addressed the role of their CIOs for the area of leadership and accountability. In addition, a majority of the agencies had substantially or partially addressed the role of their CIOs for two areas: information security and IT budgeting. However, most agencies partially or minimally addressed the role of their CIOs for two areas: investment management and strategic planning. Further, the majority of the agencies minimally addressed or did not address the role of their CIOs for the remaining area: IT workforce. Figure 2 depicts the extent to which the 24 agencies addressed the role of their CIOs for the six areas. Despite the shortfalls in agencies policies addressing the roles of their CIOs, most agency officials stated that their CIOs are implementing the responsibilities even if the agencies do not have policies requiring implementation. Nevertheless, the CIOs of the 24 selected agencies acknowledged in responses to a survey that we administered that they were not always very effective in implementing the six IT management areas. Specifically, at least 10 of the CIOs indicated that they were less than very effective for each of the six areas of responsibility. We believe that until agencies fully address the role of CIOs in their policies, agencies will be limited in addressing longstanding IT management challenges. Figure 3 depicts the extent to which the CIOs reported their effectiveness in implementing the six areas of responsibility. Beyond the actions of the agencies, however, shortcomings in agencies policies also are partially attributable to two weaknesses in OMB s guidance. First, the guidance does not comprehensively address all CIO responsibilities, such as those related to assessing the extent to which personnel meet IT management knowledge and skill requirements, and ensuring that personnel are held accountable for complying with the information security program. Correspondingly, the majority of the agencies policies did not fully address nearly all of the responsibilities that were not included in OMB s guidance. Second, OMB s guidance does not ensure that CIOs have a significant role in (1) IT planning, programming, and budgeting decisions; and (2) execution decisions and the management, governance, and oversight processes related to IT, as required by federal law and guidance. In the absence of comprehensive guidance, CIOs will not be positioned to effectively acquire, maintain, and secure their IT systems. In response to the survey conducted for our August 2018 report, the 24 agency CIOs also identified a number of factors that enabled and challenged their ability to effectively manage IT. Specifically, most agency CIOs cited five factors as being enablers to effectively carry out their responsibilities: (1) NIST guidance, (2) the CIO s position in the agency hierarchy, (3) OMB guidance, (4) coordination with the Chief Acquisition Officer (CAO), and (5) legal authority. Further, three factors were cited by CIOs as major factors that have challenged their ability to effectively carry out responsibilities: (1) processes for hiring, recruiting, and retaining IT personnel; (2) financial resources; and (3) the availability of personnel/staff resources. As shown in figure 4, the five enabling factors were identified by at least half of the 24 CIOs and the three factors cited as major challenges were identified by at least half of the CIOs. Although OMB has issued guidance aimed at addressing the three factors that were identified by at least half of the CIOs as major challenges, the guidance does not fully address those challenges. Further, regarding the financial resources challenge, OMB recently required agencies to provide data on CIO authority over IT spending; however, its guidance does not provide a complete definition of the authority. In the absence of such guidance, agencies have created varying definitions of CIO authority. Until OMB updates its guidance to include a complete definition of the authority that CIOs are to have over IT spending, it will be difficult for OMB to identify any deficiencies in this area and to help agencies make any needed improvements. In order to address challenges in implementing CIO responsibilities, we made three recommendations to OMB and one recommendation to each of the selected 24 federal agencies to improve the effectiveness of CIOs implementation of their responsibilities for each of the six IT management areas. Most agencies agreed with or had no comments on the recommendations. As of November 2018, all 27 of the recommendations had not been implemented. We will continue to monitor the implementation of these recommendations. <2.2. Agencies Need to Ensure That IT Acquisitions Are Reviewed and Approved by CIOs> FITARA includes a provision to enhance covered agency CIOs authority through, among other things, requiring agency heads to ensure that CIOs review and approve IT contracts. OMB s FITARA implementation guidance expanded upon this aspect of the legislation in a number of ways. Specifically, according to the guidance: CIOs may review and approve IT acquisition strategies and plans, rather than individual IT contracts; CIOs can designate other agency officials to act as their representatives, but the CIOs must retain accountability; CAOs are responsible for ensuring that all IT contract actions are consistent with CIO-approved acquisition strategies and plans; and CAOs are to indicate to the CIOs when planned acquisition strategies and acquisition plans include IT. In January 2018, we reported that most of the CIOs at 22 selected agencies were not adequately involved in reviewing billions of dollars of IT acquisitions. For instance, most of the 22 agencies did not identify all of their IT contracts. In this regard, the agencies identified 78,249 IT- related contracts, to which they obligated $14.7 billion in fiscal year 2016. However, we identified 31,493 additional contracts with $4.5 billion obligated, raising the total amount obligated to IT contracts by these agencies in fiscal year 2016 to at least $19.2 billion. Figure 5 reflects the obligations that the 22 selected agencies reported to us relative to the obligations we identified. The percentage of additional IT contract obligations we identified varied among the selected agencies. For example, the Department of State did not identify 1 percent of its IT contract obligations. Conversely, eight agencies did not identify over 40 percent of their IT contract obligations. Many of the selected agencies that did not identify these IT contract obligations also did not follow OMB guidance. Specifically, 14 of the 22 agencies did not involve the acquisition office in their process to identify IT acquisitions for CIO review, as required by OMB. In addition, 7 agencies did not establish guidance to aid officials in recognizing IT. We concluded that until these agencies involve the acquisitions office in their IT acquisition identification processes and establish supporting guidance, they cannot ensure that they will identify all such acquisitions. Without proper identification of IT acquisitions, these agencies and CIOs cannot effectively provide oversight of these acquisitions. In addition to not identifying all IT contracts, 14 of the 22 selected agencies did not fully satisfy OMB s requirement that the CIO review and approve IT acquisition plans or strategies. Further, only 11 of 96 randomly selected IT contracts at 10 agencies that we evaluated were CIO- reviewed and approved as required by OMB s guidance. The 85 contracts not reviewed had a total possible value of approximately $23.8 billion. Until agencies ensure that CIOs are able to review and approve all IT acquisitions, CIOs will continue to have limited visibility and input into their agencies planned IT expenditures and will not be able to effectively use the increased authority that FITARA s contract approval provision is intended to provide. Further, agencies will likely miss an opportunity to strengthen their CIOs authority and the oversight of acquisitions. As a result, agencies may award IT contracts that are duplicative, wasteful, or poorly conceived. As a result of these findings, we made 39 recommendations in our January 2018 report. Among these, we recommended that agencies ensure that their acquisition offices are involved in identifying IT acquisitions and issuing related guidance, and that IT acquisitions are reviewed in accordance with OMB guidance. OMB and the majority of the agencies generally agreed with or did not comment on the recommendations. As of November 2018, 27 of the recommendations had not been implemented. <2.3. Agencies Have Made Progress in Consolidating Data Centers, but Need to Take Action to Achieve Planned Cost Savings> In our February 2017 high-risk update, we stressed that OMB and agencies needed to demonstrate additional progress on achieving data center consolidation savings in order to improve the management of IT acquisitions and operations. Further, data center consolidation efforts are key to implementing FITARA. Specifically, OMB established the FDCCI in February 2010 to improve the efficiency, performance, and environmental footprint of federal data center activities. The enactment of FITARA in 2014 codified and expanded the initiative. In addition, in August 2016, OMB issued a memorandum which established the Data Center Optimization Initiative (DCOI) and included guidance on how to implement the data center consolidation and optimization provisions of FITARA. Among other things, the guidance required agencies to consolidate inefficient infrastructure, optimize existing facilities, improve their security posture, and achieve cost savings. According to agencies, data center consolidation and optimization efforts have resulted in approximately $4.5 billion in cost savings through 2018. However, additional work remains to fully carry out the initiative. Specifically, in a series of reports that we issued from July 2011 through May 2018, we noted that, while data center consolidation could potentially save the federal government billions of dollars, weaknesses existed in several areas, including agencies data center consolidation plans, data center optimization, and OMB s tracking and reporting on related cost savings. In these reports, we made a total of 160 recommendations to OMB and 24 agencies to improve the execution and oversight of the initiative. Most agencies and OMB agreed with our recommendations or had no comments. As of November 2018, 47 of these 160 recommendations remained unimplemented. In addition, in a draft report on data center optimization that we have provided to the agencies for comment and plan to issue in early 2019, our preliminary results indicate that agencies continued to report mixed progress toward achieving OMB s goals for closing data centers and realizing the associated savings by September 2018. Specifically, as of August 2018, over half of the agencies reported that they had met, or planned to meet, all of their OMB-assigned closure goals for tiered data centers by the deadline. However, 6 agencies reported that they did not plan to meet their goals for tiered data centers. In addition, as of August 2018, 11 agencies reported that they had already met the goal for closing 60 percent of their non-tiered centers, 3 agencies reported that they planned to meet the goal by the end of fiscal year 2018, and 9 agencies reported that they did not plan to meet the goal by the end of fiscal year 2018. In all, the 24 agencies reported a total of 6,250 data center closures as of August 2018, which represented about half of the total reported number of federal data centers. In addition, the agencies reported 1,009 planned closures by the end of fiscal year 2018, with an additional 191 closures planned through fiscal year 2023, for a total of 1,200 further closures. Further, in August 2018, 22 agencies reported that they had achieved $1.94 billion in cost savings for fiscal years 2016 through 2018, while 2 agencies reported that they had not achieved any savings. In addition to that amount, 21 agencies identified a further $0.42 billion in planned savings through fiscal year 2018 for a total of $2.36 billion in planned cost savings from fiscal years 2016 through 2018. Nevertheless, this total is about $0.38 billion less than OMB s goal of $2.74 billion for overall DCOI savings. <2.4. Agencies Need to Better Manage Software Licenses to Achieve Savings> In our 2015 high-risk report s discussion of IT acquisitions and operations, we identified the management of software licenses as an area of concern, in part because of the potential for cost savings. Federal agencies engage in thousands of software licensing agreements annually. The objective of software license management is to manage, control, and protect an organization s software assets. Effective management of these licenses can help avoid purchasing too many licenses, which can result in unused software, as well as too few licenses, which can result in noncompliance with license terms and cause the imposition of additional fees. As part of its PortfolioStat initiative, OMB has developed a policy that addresses software licenses. This policy requires agencies to conduct an annual, agency-wide IT portfolio review to, among other things, reduce commodity IT spending. Such areas of spending could include software licenses. In May 2014, we reported on federal agencies management of software licenses and determined that better management was needed to achieve significant savings government-wide. Of the 24 selected agencies we reviewed, only 2 had comprehensive policies that included the establishment of clear roles and central oversight authority for managing enterprise software license agreements, among other things. Of the remaining 22 agencies, 18 had policies that were not comprehensive, and 4 had not developed any policies. Further, we found that only 2 of the 24 selected agencies had established comprehensive software license inventories, a leading practice that would help them to adequately manage their software licenses. The inadequate implementation of this and other leading practices in software license management was partially due to weaknesses in agencies policies. As a result, we concluded that agencies oversight of software license spending was limited or lacking, thus potentially leading to missed savings. However, the potential savings could be significant considering that, in fiscal year 2012, 1 major federal agency reported saving approximately $181 million by consolidating its enterprise license agreements, even when its oversight process was ad hoc. Accordingly, we recommended that OMB issue a directive to help guide agencies in managing software licenses. We also made 135 recommendations to the 24 agencies to improve their policies and practices for managing licenses. Among other things, we recommended that the agencies regularly track and maintain a comprehensive inventory of software licenses and analyze the inventory to identify opportunities to reduce costs and better inform investment decision making. Most agencies generally agreed with the recommendations or had no comments. As of December 2018, 27 of the 135 recommendations had not been implemented. Table 2 reflects the extent to which the 24 agencies implemented the recommendations in these two areas. <3. Agencies Need to Address Shortcomings in Information Security Area> Since information security was added to the high-risk list in 1997, we have consistently identified shortcomings in the federal government s approach to cybersecurity. In particular, in a September 2018 report, we identified four major cybersecurity challenges: (1) establishing a comprehensive cybersecurity strategy and performing effective oversight, (2) securing federal systems and information, (3) protecting cyber critical infrastructure, and (4) protecting privacy and sensitive data. To address these challenges, we identified 10 critical actions that the federal government and other entities need to take. For example, in order to address the challenge of securing federal systems and information, we identified 3 actions that the agencies should take: (1) improve implementation of government-wide cybersecurity initiatives, (2) address weaknesses in federal information security programs, and (3) enhance the federal response to cyber incidents. Figure 6 depicts the 10 critical actions to address the four major cybersecurity challenges. As we have previously noted, in order to strengthen the federal government s cybersecurity posture, agencies should fully implement the information security programs required by FISMA. In this regard, FISMA provides a framework for ensuring the effectiveness of information security controls for federal information resources. The law requires each agency to develop, document, and implement an agency-wide information security program. Such a program should include risk assessments; the development and implementation of policies and procedures to cost- effectively reduce risks; plans for providing adequate information security for networks, facilities, and systems; security awareness and specialized training; the testing and evaluation of the effectiveness of controls; the planning, implementation, evaluation, and documentation of remedial actions to address information security deficiencies; procedures for detecting, reporting, and responding to security incidents; and plans and procedures to ensure continuity of operations. Since fiscal year 2010, we have made over 3,000 recommendations to agencies aimed at addressing the four cybersecurity challenges. These recommendations have identified actions for agencies to take to strengthen technical security controls over their computer networks and systems. They also have included recommendations for agencies to fully implement aspects of their information security programs, as mandated by FISMA. Nevertheless, many agencies continue to be challenged in safeguarding their information systems and information, in part, because many of these recommendations have not been implemented. Of the roughly 3,000 recommendations made since 2010, 73 percent had been implemented as of November 2018; leaving 688 recommendations unimplemented. <3.1. Agencies Inspectors General Are to Identify Information Security Program Weaknesses> In order to determine the effectiveness of the agencies information security programs and practices, FISMA requires federal agencies inspectors general to conduct annual independent evaluations. The agencies are to report the results of these evaluations to OMB, and OMB is to summarize the results in annual reports to Congress. In these evaluations, the inspectors general are to frame the scope of their analyses, identify key findings, and detail recommendations to address the findings. The evaluations also are to capture maturity model ratings for their respective agencies. Toward this end, in fiscal year 2017, the inspector general community, in partnership with OMB and DHS, finalized a 3-year effort to create a maturity model for FISMA metrics. The maturity model aligns with the five function areas in the NIST Framework for Improving Critical Infrastructure Cybersecurity (Cybersecurity Framework): identify, protect, detect, respond, and recover. This alignment is intended to help promote consistent and comparable metrics and criteria and provide agencies with a meaningful independent assessment of their information security programs. The maturity model is designed to summarize the status of agencies information security programs on a five-level capability maturity scale. The five maturity levels are defined as follows: Level 1 Ad-hoc: Policies, procedures, and strategy are not formalized; activities are performed in an ad-hoc, reactive manner. Level 2 Defined: Policies, procedures, and strategy are formalized and documented but not consistently implemented. Level 3 Consistently Implemented: Policies, procedures, and strategy are consistently implemented, but quantitative and qualitative effectiveness measures are lacking. Level 4 Managed and Measurable: Quantitative and qualitative measures on the effectiveness of policies, procedures, and strategy are collected across the organizations and used to assess them and make necessary changes. Level 5 Optimized: Policies, procedures, and strategy are fully institutionalized, repeatable, self-generating, consistently implemented and regularly updated based on a changing threat and technology landscape and business/mission needs. In March 2018, OMB issued its annual FISMA report to Congress, which showed the combined results of the inspectors general s fiscal year 2017 evaluations. Based on data from 76 agency inspector general and independent auditor assessments, OMB determined that the government-wide median maturity model ratings across the five NIST Cybersecurity Framework areas did not exceed a level 3 (consistently implemented). Table 3 shows the inspectors general s median ratings for each of the NIST Cybersecurity Framework areas. <3.2. OMB Requires Agencies to Meet Targets for Cybersecurity Metrics> In its efforts toward strengthening the federal government s cybersecurity, OMB also requires agencies to submit related cybersecurity metrics as part of its Cross-Agency Priority goals. In particular, OMB developed the IT modernization goal so that federal agencies will be able to build and maintain more modern, secure, and resilient IT. A key part of this goal is to reduce cybersecurity risks to the federal mission through three strategies: manage asset security, protect networks and data, and limit personnel access. The key targets supporting each of these strategies correspond to areas within the FISMA metrics. Table 4 outlines the strategies, their associated targets, and the 23 civilian CFO Act agencies progress in meeting those targets, as of June 2018. In conclusion, FITARA and FISMA present opportunities for the federal government to address the high-risk areas on improving the management of IT acquisitions and operations and ensuring the security of federal IT, thereby saving billions of dollars. Most agencies have taken steps to execute key IT management and cybersecurity initiatives, including implementing CIO responsibilities, requiring CIO reviews of IT acquisitions, realizing data center consolidation cost savings, managing software assets, and complying with FISMA requirements. The agencies have also continued to address the recommendations that we have made over the past several years. However, further efforts by OMB and federal agencies to implement our previous recommendations would better position them to improve the management and security of federal IT. To help ensure that these efforts succeed, we will continue to monitor agencies efforts toward implementing the recommendations. Chairmen Meadows and Hurd, Ranking Members Connolly and Kelly, and Members of the Subcommittees, this completes my prepared statement. I would be pleased to respond to any questions that you may have. <4. GAO Contacts and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Carol C. Harris, Director, Information Technology, at (202) 512- 4456 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 Kevin Walsh (Assistant Director), Chris Businsky, Rebecca Eyler, Meredith Raymond, and Jessica Waselkow (Analyst in Charge). 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.

Why GAO Did This Study The federal government planned to invest more than $96 billion in IT in fiscal year 2018. However, IT investments have often failed or contributed little to mission-related outcomes. Further, increasingly sophisticated threats and frequent cyber incidents underscore the need for effective information security. As a result, GAO added two areas to its high-risk list: cybersecurity in 1997 and the management of IT acquisitions and operations in 2015. This statement summarizes federal agencies' progress in improving the management, and ensuring the security, of federal IT. It is primarily based on GAO's reports issued between February 1997 and August 2018 (and an ongoing review) on (1) CIO responsibilities, (2) agency CIOs' involvement in approving IT contracts, (3) data center consolidation efforts, (4) the management of software licenses, and (5) compliance with cybersecurity requirements. What GAO Found The Office of Management and Budget (OMB) and federal agencies have taken steps to improve the management of information technology (IT) acquisitions and operations and ensure federal cybersecurity through a series of initiatives. As of November 2018, agencies had fully implemented about 59 percent of the 1,242 IT management-related recommendations that GAO has made since fiscal year 2010. Likewise, agencies had implemented about 73 percent of the approximately 3,000 security-related recommendations that GAO has made since 2010. Even with this progress, significant actions remain to be completed. Chief Information Officer (CIO) responsibilities . Laws such as the Federal Information Technology Acquisition Reform Act (FITARA) and related guidance assigned 35 key IT management responsibilities to CIOs to help address longstanding challenges. However, in August 2018, GAO reported that none of the 24 selected agencies had policies that fully addressed the role of their CIO, as called for by laws and guidance. GAO recommended that OMB and each of the 24 agencies take actions to improve the effectiveness of CIOs' implementation of their responsibilities. As of November 2018, none of the 27 recommendations had been implemented. IT contract approval . According to FITARA, covered agencies' CIOs are required to review and approve IT contracts. Nevertheless, in January 2018, GAO reported that most of the CIOs at 22 covered agencies were not adequately involved in reviewing billions of dollars of IT acquisitions. Consequently, GAO made 39 recommendations to improve CIO oversight over these acquisitions. As of November 2018, 27 of the recommendations had not been addressed. Consolidating data centers . OMB launched an initiative in 2010 to reduce data centers. According to agencies, data center consolidation and optimization efforts have resulted in approximately $4.5 billion in cost savings through 2018. Even so, additional work remains. GAO has made 160 recommendations to OMB and agencies to improve the reporting of related cost savings and to achieve optimization targets. However, as of November 2018, 47 of the recommendations had not been fully addressed. Managing software licenses . Effective management of software licenses can help avoid purchasing too many licenses that result in unused software. In May 2014, GAO reported that better management of licenses was needed to achieve savings, and made 135 recommendations to improve such management. As of December 2018, 27 of the recommendations had not been implemented. Improving the security of federal IT systems . While the government has acted to protect federal information systems, agencies need to improve security programs, cyber capabilities, and the protection of personally identifiable information. The approximately 3,000 recommendations that GAO has made to agencies since 2010 were aimed at improving the security of federal systems and information. Specifically, these recommendations identified actions for agencies to take to strengthen their information security programs and technical controls over their computer networks and systems. As of November 2018, 688 of the security-related recommendations had not been implemented. What GAO Recommends Since fiscal year 2010, GAO has made 1,242 recommendations to OMB and agencies to address shortcomings in IT acquisitions and operations. Since fiscal year 2010, GAO also has made over 3,000 recommendations to federal agencies to improve the security of federal systems. These recommendations include those to improve the implementation of CIO responsibilities, the oversight of the data center consolidation initiative, software license management efforts, and the strength of security programs and technical controls. Most agencies agreed with the recommendations, and GAO will continue to monitor their implementation.

gao_GAO-20-130

gao_GAO-20-130_0

<1. Background> <1.1. Roles and Responsibilities for Managing Federal Real Property> Within the executive branch, both OMB and GSA provide leadership in managing federal real property. OMB, among other things, issues policies and memorandums, including the RTF policy discussed below. GSA has dual roles with regard to the management of federal real property. First, GSA s Office of Government-wide Policy supports the implementation of OMB s real property policies, including RTF, by collecting and analyzing federal real property data and providing agencies with guidance on leading practices. According to GSA officials, GSA and OMB coordinated to develop data analysis methods to monitor agencies performance in meeting OMB s real property policies, and OMB approved the methods that are used. Second, as the federal government s principal landlord, GSA s PBS acquires, manages, and disposes of federally-owned real property for which it has custody and control on behalf of agencies that occupy it, and leases commercial space on behalf of agencies. In these cases, GSA manages the lease agreements. We refer to both of these types of properties as GSA-managed space. All of the agencies obtain at least some of their office space through GSA s PBS; in fact, two-thirds of the 23 agencies office space is GSA-managed space. When agencies obtain space through GSA, they enter into occupancy agreements with PBS and pay rent, operations, and maintenance costs to PBS. When GSA obtains space for its own employees, it also enters into occupancy agreements with PBS. PBS maintains a record of agencies GSA-managed space, including information on square footage and costs, in its Occupancy Agreement database. We discuss PBS s role in agencies office space decisions later in this report. Some agencies also have independent statutory authority to lease, or acquire and manage their own property, which GSA refers to as directly- leased or directly federally-owned ( directly-owned ) space. Additionally, some agencies may be authorized to directly lease or acquire property when GSA delegates authority to them because doing so is in the government s best interest. Fourteen of the 23 agencies directly lease or own some of their office space, and about one-third of these agencies total office space is made up of directly-leased or owned property. Agencies pay rent to private landlords when directly leasing space and are responsible for operating and maintaining directly-owned property. Agencies must report, among other things, the square footage and costs to rent, operate, or maintain such properties to the FRPP database, which GSA maintains. <1.2. Reduce the Footprint Policy and Performance> As previously mentioned, in March 2015, OMB issued the RTF policy to promote the more efficient use of real property assets through improved space utilization and reduction. According to OMB, the policy is intended to provide value to the taxpayer. The RTF policy requires agencies to submit annual Real Property Efficiency Plans (Efficiency Plans) to OMB that: (1) identify annual reduction targets for domestic office and warehouse space for a 5-year period; (2) include a policy that specifies the maximum usable square feet per person, also known as a utilization rate, and (3) refrain from increasing the square footage of domestic office and warehouse space over fiscal year 2015 levels. As part of the Efficiency Plans, agencies must also identify specific projects they will implement to reduce or improve efficient use of their space. Agencies may undertake different types of projects such as renovation, relocation, or consolidation projects to achieve their space reduction or efficiency goals. While OMB oversees the implementation of the RTF policy, GSA tracks and reports key cost performance measures on agencies square footage and cost changes, in accordance with analysis methods it developed in coordination with OMB. GSA reports these performance measures on performance.gov and to Congress in annual reports, and provides measures for agencies to use in their Efficiency Plans. According to these data, the 23 civilian agencies reduced more than 6 million square feet of office space from fiscal year 2015 through fiscal year 2018. As shown in figure 1, space changes varied across agencies; 16 of the 23 agencies reduced office space, while 7 increased space. According to publicly available RTF data, some agencies space reductions have slowed as the RTF policy approaches its end date in fiscal year 2020 and as according to OMB officials, many of the lower- cost, high financial return projects have been executed. GSA has reported varied results with regard to changes in agencies costs since the start of RTF. GSA reported that the federal government has avoided spending millions of dollars as a result of reduced office and warehouse space but also has reported that the average cost per square foot for office space has increased. We discuss the RTF cost performance measures in detail later in this report. The RTF policy is effective through the end of fiscal year 2020. OMB and GSA officials told us that discussions about a real property policy to succeed RTF were underway as of early 2019. However, no policy to succeed RTF has been issued as of September 2019, according to a senior GSA official. <2. Reduce the Footprint Cost Performance Measures Give Insight into Agencies Efforts, but Using Actual Cost Data Would Provide More Accurate Information> GSA tracks and reports two RTF cost performance measures estimated cost avoidance and average cost per square foot. These measures provide useful information on agencies results, but the average cost per square foot performance measure does not use the most accurate information. Regarding estimated cost avoidance, GSA reported that the 24 CFO Act agencies including DOD avoided an estimated $166 million in office and warehouse costs as a result of their space reductions since fiscal year 2015. We used GSA s data and the cost avoidance approach GSA developed with OMB to identify that $114 million of the estimated cost avoidance can be attributed to civilian agencies office space reductions since fiscal year 2015. The estimated cost avoidance measure reflects overall federal cost avoidance because it accounts for space that agencies have returned to GSA but that remains unoccupied. Under certain conditions, agencies may vacate GSA-managed space prior to the end of their occupancy agreement and report that as a reduction in their space. However, until this space is reoccupied or GSA disposes of it, the federal government continues to incur costs to operate and maintain the space. Because of these continued costs, GSA accounts for vacant space when it estimates cost avoidance. For example, from fiscal year 2016 to fiscal year 2017 the amount of vacant GSA-managed office space increased more than the amount of space agencies reduced. Since this increase meant that the federal government had not reduced office space overall when the calculation was made, GSA estimated that rather than avoiding costs, costs for civilian office space increased by roughly three-quarters of a million dollars during this period. GSA officials noted that this estimate represents estimated cost avoidance at a single point in time and does not capture fluctuations in agencies space or vacant federal space throughout the year. Average fiscal year 2015 cost per square foot for (1) space agencies lease directly, (2) space agencies acquire and manage directly, (3) space GSA leases on behalf of agencies, and (4) federally-owned space GSA manages. In 2018, GAO reported that GSA s and OMB s method for estimating the cost avoidance associated with agencies real property changes is a reasonable approach given current limitations. OMB officials explained that the estimated cost avoidance is not intended to depict actual cost savings or the net effect of space changes on costs (i.e., investment cost minus savings) because the estimate does not include agencies investment costs to renovate, relocate, or dispose of space. Rather, GSA s and OMB s method estimates the costs for rent, operations, and maintenance that the federal government did not incur because it no longer occupies space. Further, OMB officials pointed out that because agencies use a variety of methods and systems to track and categorize their renovation, relocation, and disposal costs, agencies data on actual investment costs are not consistent across agencies and using these data would limit the accuracy of any estimate purporting to be an actual cost savings measure. Another annual cost measure GSA uses to track agencies RTF performance is the average cost per square foot, which is intended to reflect actual changes in agencies real property costs. GSA calculates the annual average cost per square foot for different categories based on how the space is managed directly-owned, directly-leased, and GSA- managed office space. GSA uses the same approach to calculate the measure for all agencies, and for each agency to use in their annual Efficiency Plans. GSA s performance measure shows an increase in all types of office space costs since fiscal year 2015, and our analysis of FRPP and Occupancy Agreement data similarly found that overall office space costs have increased for the majority of agencies, some by as much as 10 to 15 percent. We found the approach GSA developed with OMB to calculate average cost per square foot for directly-owned and directly-leased office space to be reasonable because GSA used the best available data. However, we found that GSA s and OMB s approach for GSA-managed space understated the average cost per square foot. Specifically, we found that GSA understated the overall average cost per square foot for all agencies GSA-managed office space by $1.31 (4.7 percent) on average from fiscal years 2015 through 2018. Furthermore, we found that GSA s and OMB s method understated the average cost per square foot for 18 of the 23 agencies between 3 percent and 41 percent on average from fiscal years 2015 through 2018. Figure 2 illustrates the range of differences we found between GSA s and OMB s method and actual costs. GSA understated the average cost per square foot for GSA-managed space because it did not use readily available data on the actual costs agencies paid to GSA for office space each year. Instead, GSA used the rental rate , which reflects the cost per square foot that agencies paid in the month GSA accessed the data usually September. This rate does not include all agency costs, such as costs for GSA s fee. Using the monthly rental rate to calculate average cost per square foot can significantly affect the resulting measure because the rental rate can differ from month to month. According to GSA officials, this variation can occur for many reasons including rental incentives, credits, or one-time costs that are reflected in that particular month but do not apply in all months. To identify how GSA s use of the rental rate affected the cost information GSA used to calculate the measure, we calculated costs using the rental rate (GSA s method) and compared them to the actual annual costs in GSA s data. We found that costs calculated using the rental rate were almost always lower than actual annual costs for agencies, sometimes by millions of dollars for a single space. This approach led GSA to exclude an average of $271 million in office space costs per year from its calculations during this time period. Moreover, by using this approach GSA did not include the costs for spaces that did not have a rental rate, even when agencies paid for those spaces during the fiscal year. In fiscal year 2018, GSA s and OMB s method excluded 405 GSA-managed office spaces that did not have a rental rate but that had a combined annual rental cost of $24.2 million. Example of the Effect of General Services Administration s (GSA) and Office of Management and Budget s (OMB) Method on Cost per Square Foot: National Aeronautics and Space Administration (NASA) GSA used the rental rate even though it tracks and can easily access actual annual costs in its Occupancy Agreement database because, in GSA s view, the rental rate better reflects the real average cost of an office space. Officials said that the actual annual cost can represent partial year costs and that GSA did not want to skew the averages toward zero- or low-cost spaces. However, as demonstrated by our analysis, GSA s use of the rental rate, rather than preventing GSA from skewing the average costs toward lower cost office spaces, actually resulted in an understatement of these costs. GSA and OMB s method excluded about $31 million from the cost per square foot calculation. This difference was largely attributable to one office space, which had a rental rate of $44.67, much lower than the actual annual cost per square foot for that space, which was $97.98. Standards for Internal Control in the Federal Government state that agencies should use and externally communicate quality information information that is accurate and complete to achieve their goals. Understating the average cost per square foot for GSA-managed office space, which comprises two-thirds of agencies office space, has implications for federal efforts to efficiently manage space. First, using an inaccurate cost performance measure affects stakeholders and policymakers ability to accurately judge and oversee agencies progress toward reducing space costs. Second, because agencies use these data to judge their own performance and make decisions about how to efficiently manage their space, agencies are at risk of taking ineffective steps to manage their costs and achieve their goals. <3. While Costs Are a Central Consideration When Making Office Space Decisions, Selected Agencies Balance Additional Factors GSA Prioritizes Federal Cost Savings When Obtaining Office Space for Agencies> As the government s principal landlord, GSA s PBS emphasizes cost savings from a government-wide perspective when working with agencies. To facilitate this approach, PBS has established policies and tools that focus on early planning and cost analysis. For example, according to PBS officials, PBS generally begins planning and cost analysis 5 years ahead of expiring occupancy agreements and leases. As part of this planning, PBS analyzes project costs and cost savings, and considers opportunities to fill vacant federal space and improve a space s efficiency by, for example, improving the utilization rate. PBS recommends projects including consolidation, relocation, and renovation projects to agencies based on its analysis. Though PBS officials said that PBS has the final decision-making authority regarding agencies space, they said PBS works closely with agencies to make collaborative decisions about office space changes. Officials also told us that early planning helps ensure that PBS and agencies have time to identify and select the most cost-effective project option. According to PBS officials, PBS developed a tool in 2018 to compare potential space projects based on, among other factors, market and move costs. Officials told us that this tool is a way to ensure that PBS analyzes all projects consistently to identify the most cost-effective option for the federal government. They also told us that they use this tool iteratively throughout the planning process and that the cost analysis becomes more refined as PBS coordinates with agencies and identifies specific spaces as options. For high-cost projects, PBS also performs cost analysis of alternative options, including comparing each alternative s net present value. However, PBS officials said that there are instances when they do not perform GSA s standard cost analysis because it is not necessary. Specifically, PBS does not conduct this analysis when there is a space option that clearly aligns with its priorities. For example, PBS did not conduct its standard cost analysis for two of our 13 selected projects because both agencies moved into vacant federally-owned or leased space, moves that presented clear benefits to the federal government, according to PBS officials. However, GSA s government-wide emphasis may not always result in cost savings for individual agencies, and in some cases, what is most cost-effective for the federal government does not always align with what is most cost-effective for individual agencies. For example, when Education relocated its San Francisco office to vacant federal space in fiscal year 2016, GSA s analysis of the relocation showed that it cost Education slightly more than one other option, but was the lowest cost option for the federal government because it allowed GSA to fill space the federal government was already paying for. <3.1. Selected Agencies Conduct Cost Analysis When Making Office Space Decisions> PBS officials told us that they expect their analysis to heavily influence agencies office space decisions and do not expect agencies to perform their own cost analysis for these decisions, but said some agencies do conduct such analysis. We found that all five of our selected agencies Education, GSA in the space that it occupies, IRS, Labor, and NIH conducted some type of cost analysis to inform office space changes. We found that some agencies include such analysis as part of their routine policies and procedures, while others conducted analysis for specific projects as needed. Percentage Change in Selected Agencies Square Footage and Cost, Fiscal Year 2015 through 2018 Cost plays an important role in agencies office space decision-making processes, which can influence office space changes over time. From fiscal year 2015 through 2018, our selected agencies office space costs and square footage changes varied, and square footage and cost changes did not always have the same trend. Education: A senior Education official said that the Department carries out various cost analyses when making office space decisions. For example, the official told us that Education conducts various cost analyses to identify the most cost-effective options for the Department. To manage agency office space costs, the Education official told us that Education focuses its planning process on expiring leases, high-cost leases, and low-cost projects with a large and rapid return on investment. We found that Education conducted such analysis when carrying out its Washington, D.C., consolidation project in fiscal year 2016. The official told us that Education had to quickly reduce agency costs and decided to do so by reducing space as opposed to furloughing employees. After reviewing their space and conducting rent savings analysis, Education decided to consolidate its staff from three different office buildings in Washington, D.C., into excess space it had in two other buildings. According to Education s analysis, this consolidation reduced the annual rent for its Washington, D.C., offices by about 19 percent. GSA: GSA considers cost when it identifies and evaluates potential projects for the space it occupies. Specifically, GSA requires its offices to use a project template to routinely collect rent savings and payback period information on almost all potential projects. In fiscal year 2015, GSA also conducted a portfolio-wide review of GSA-occupied space during which it identified potential projects based, in part, on rent savings and payback period analysis. Through this review, GSA identified and recommended 15 projects that would reduce 964,000 rentable square feet, use space more efficiently, and save up to more than $17 million in rent over 5 years. GSA officials told us GSA prioritized its implementation of the recommendations by starting with the projects that had the largest space reduction and rent savings. For example, in fiscal year 2015, GSA decided to consolidate two of its Atlanta offices into one smaller, more efficient space. GSA determined that this consolidation could reduce its rentable square feet by 150,000 square feet (52 percent) and save $4.1 million in annual rent. IRS: IRS has developed multiple tools to analyze the cost of project options based on market data and upfront costs, among other information. For example, IRS developed its Return on Investment Calculator to help determine whether it is most cost-effective to stay in place, downsize, or relocate when a lease or occupancy agreement expires. The tool compares the return on investment for moving versus staying by using cost information, such as market data, travel, furniture, and rent costs. The IRS also uses a project estimating and tracking tool called the Space, Time & Resources Tool to create general cost estimates for a variety of project types, evaluate alternatives, and according to IRS officials, contribute to the development of plans for expiring leases. This tool uses preliminary space and cost estimates for needs such as facilities, security, and information technology to determine each project s return on investment and potential annual rent savings. IRS officials told us that they may use the analyses from some of the tools to make a case to GSA in support of IRS s preferred alternative or lowest-cost option, if necessary. Labor: Labor considers cost in its space policies and procedures, and we found that Labor sometimes conducted its own cost analysis to identify opportunities to achieve savings. A senior Labor official told us that Labor conducts an informal, broad review of its space that allows the Department to identify opportunities for cost savings. The official told us Labor looks for opportunities to co-locate staff from multiple agencies, and according to its space management policy, co-location allows Labor agencies to share support spaces which can reduce overall square footage and administrative costs. The official said that through review and analysis, Labor identified an opportunity to consolidate staff from multiple offices in Washington, D.C., into a single space in fiscal year 2016. Labor s analysis indicated that the consolidation could save the Department an estimated $789,000 in annual rent in fiscal year 2014, the year the project began. The Labor official told us that Labor is focused on early planning to identify opportunities for cost savings and space reductions, and is beginning a new initiative to review and plan for projects up to 6 years in advance of lease or occupancy agreement expirations. NIH: We found that NIH routinely considers costs when it evaluates potential projects. Specifically, when NIH considers potential projects, it collects information on costs, such as long-term budget effects. A senior NIH official also told us that NIH works closely with GSA to conduct cost analysis, including analysis for high-cost projects that NIH submits as part of its funding requests to Congress, such as analysis of rent costs over the full lease term. Through this analysis, NIH has been able to identify lower-cost space options to meet its needs. For example, NIH determined that it could save $3.6 million annually and $53 million over 15 years by locating to office space that was closer to its other offices because it would decrease the time employees spent traveling between spaces. Additionally, the NIH official said one of NIH s goals includes co-locating agency offices and staff to improve efficiency and reduce costs, and NIH routinely identifies opportunities to co-locate as part of its project selection process. For example, when NIH consolidated staff in Maryland into two buildings on one campus, the official said that NIH chose consolidation because it offered NIH an opportunity to operate more efficiently. <3.2. All Selected Agencies Consider Factors beyond Cost When Making Office Space Decisions> We found that while all selected agencies consider cost when making office space decisions, they generally do not make decisions based on cost alone. We have previously reported that cost, mission, and external considerations influence agencies efforts to manage, reduce, or change their space. We found that all five of our selected agencies balance these factors, as well as workforce considerations, with cost, and with each other, when making office space decisions. These factors may not always align with each other and the extent to which these factors influence space decisions and their cost implications can vary for each specific office project need. Mission and Goals: We found that all selected agencies considered and balanced their mission or goals with other factors, such as cost, when making office space decisions. Mission: Agencies missions are an important factor and can work in tandem, or be in tension, with agencies efforts to achieve cost savings. For example, we found that when GSA decided in fiscal year 2014 to renovate and reduce space in its Chicago, IL, office, it considered, among other factors, how this project supported GSA s government-wide mission to make federal space available to agencies. By reducing space in the existing location by fiscal year 2017, GSA determined it could reduce its annual rent in Chicago by 40 percent and provide more than 50,000 square feet of federal space to other agencies. On the other hand, a senior IRS official told us that because enforcement needs a central part of IRS s mission are constantly shifting to different parts of the country, IRS may not always be able to enter into long-term lease agreements, which are generally more cost-effective. Goals: We found that agencies goals could be complementary to or in conflict with their efforts to reduce cost. A senior NIH official told us that NIH s offices are currently widely dispersed and that NIH has a goal of making the crumbs into a loaf by co-locating different offices as leases expire. The NIH official told us that co-locating can facilitate cost savings because it allows NIH to operate more efficiently by, for instance, reducing shuttle services and sharing common areas and services. For example, one NIH project in Bethesda, Maryland will consolidate 11 expiring leases in five locations into three leases in a two-building campus that, according to GSA analysis, will reduce rent by 42.5 percent per year for 15 years. Conversely, some of our selected agencies noted that agency goals do not always align with cost savings. For example, both Labor and IRS officials told us that they may not pursue their space utilization goals if it costs too much to renovate space to meet their desired space per person. Additionally, the senior NIH official told us that NIH has previously moved to office space that did not meet its utilization rate goals because it was able to achieve larger cost savings by moving to a space in an area with lower rent than the area it previously considered. Workforce Impact: We found that all five of the selected agencies considered how office space decisions could impact their workforce, and a couple of agencies told us that they balance this consideration with costs, along with agency mission and goals. Commuting time: Officials from three selected agencies noted that changes in employees commuting time can influence what office space to select. For example, Education is scheduled to relocate its Dallas regional office in fiscal year 2020. A senior Education official told us that Education chose a space that has close proximity to the current space, in part, because the relocation will have minimal impact on employees commute. The official also said that even if federally- owned office space further away became available, Education may not move there if it would be difficult for staff to get to. Similarly, IRS s business case to consolidate several offices in the Cincinnati, OH, area into one office starting in fiscal year 2015, analyzed how the project would affect IRS employees, including the impact on employees commute, ability to park, and the effect on employees income taxes. Employee Morale and Productivity: Several selected agencies noted that reducing the amount of space per person can affect employee morale and productivity. According to GSA s strategic goals, improving space utilization by, for example, reducing the amount of space per person can help the federal government achieve cost savings. A senior Education official told us that when redesigning Education s Washington, D.C., offices, which reduced the amount of space per person, leadership engaged in a substantial employee outreach effort to understand how these changes affected employees and to build employee support for the changes. The official also said Education took into account upfront costs for tools to improve employees experience. For example, the official said that the Department invested in noise cancelling headphones to improve the employee experience, which was a small cost compared to the cost for office space. To ensure that reductions are not having a negative impact on its employees, GSA developed a survey that it sometimes distributes both before and after making space changes. External Factors: Officials from four of the five selected agencies said external factors, such as federal priorities, statutes, regulations, and policies can influence their office space decisions. In some cases, these factors did not complement efforts to reduce costs. Federal Priorities: Federal goals and priorities can influence agencies space decisions, and these requirements may not align with efforts to reduce costs. For example, in fiscal year 2016, GSA relocated its regional office in New York City from federally-owned to federally- leased space in the World Trade Center. Though GSA considered cost, the federal government s commitment to move into the World Trade Center after the terrorist attacks on September 11, 2001, influenced this decision, which resulted in increased costs for GSA. Statutes, Executive Orders, and Regulations: Some agencies told us that statutory requirements, directives, and regulations can influence their space decisions, and may or may not align with efforts to reduce costs. For example, a senior IRS official told us that a 1978 Executive Order, which requires that agencies with a mission need to locate in an urban area first consider moving to a central business district, might result in IRS moving to higher-cost neighborhoods. A senior official from the Department of Health and Human Services also told us that locating office space in the central business district of urban areas can be more expensive, but that the Department often does so because of the Executive Order. GSA policies: GSA policies on space management can also affect agencies office space decisions. A senior Labor official told us that the Department is currently reducing space in its Chicago, IL, regional office but the ability to do so is dependent on whether Labor can return the space to GSA. GSA policy states that agencies occupying space acquired from PBS can return space within a certain time frame if, among other requirements, the space is categorized as cancelable and is in marketable blocks based on the location, usage, and size of the space. If the space does not meet these criteria, an agency can return the space to PBS but is still responsible for paying rent and other costs associated with the space until the occupancy agreement or lease expires. <4. Conclusions> Even as agencies have intensified their focus on better space management in an effort to save taxpayer dollars, overall, the cost for office space continues to rise. Using the best data available to assess space options and trade-offs is critical. GSA s and OMB s cost per square foot performance measure could provide agencies a good way to assess their costs and track cost trends, particularly as agencies efforts continue to evolve beyond reducing their footprints toward optimizing their space. However, the measure is only as good as the approach and data used in the calculation. Because GSA s and OMB s cost per square foot performance measure is not using actual cost information for GSA- managed space, GSA and OMB are understating the average cost per square foot for a significant portion of square footage. This inaccurate information could adversely affect agencies and stakeholders understanding of RTF results. As the RTF policy ends in fiscal year 2020 and agencies look toward the next initiative, having the most transparent and accurate information on the results of agencies efforts to date can inform new strategies and tools to help agencies continue and expand upon their efforts to manage their property more efficiently and ultimately save money. Moreover, having accurate information on agencies real property costs will continue to be important in future initiatives to efficiently manage federal real property. <5. Recommendation> The Administrator of the General Services Administration (GSA), in coordination with the Director of the Office of Management and Budget, should ensure that the average cost per square foot performance measure for GSA-managed space is calculated using actual cost information. (Recommendation 1) <6. Agency Comments> We provided a draft of this report to GSA, OMB, and the Secretaries of the Departments of Labor, Education, the Treasury, and Health and Human Services for review and comment. In GSA s written comments, which are reproduced in appendix II, GSA agreed with our recommendation. OMB did not provide comments, but GSA stated in its comments that it is working with OMB to develop a plan to address our recommendation. The Departments of Labor, Education, the Treasury, and Health and Human Services told us that they had no comments on the draft report. We are sending copies of this report to the appropriate congressional committee; the Administrator of GSA; the Director of the OMB, and; the Secretaries of the Departments of Education, Health and Human Services, Labor, and the Treasury. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning the report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in Appendix III. Appendix I: Objectives, Scope, and Methodology This report discusses: (1) the extent to which Reduce the Footprint performance measures reflect changes in civilian Chief Financial Officers Act agencies (CFO Act agencies) office space costs, and (2) how selected agencies considered costs in office space decisions. To obtain background information on both of our objectives, we reviewed literature including the Office of Management and Budget s (OMB) and General Services Administration s (GSA) memos and guidance governing the Reduce the Footprint (RTF) policy, the Real Property Efficiency Plans (Efficiency Plans) agencies submit to OMB and GSA annually as part of RTF, and relevant regulations and statutes. We also examined information GSA uses to track RTF progress, including public data on agencies square footage changes. We assessed the reliability of these data by conducting electronic testing, reviewing prior GAO assessments of reliability, and interviewing agency officials. Based on this assessment, we determined these data to be reliable for the purposes of describing changes in agencies square footage. Additionally, we reviewed previous GAO and GSA Inspector General reports describing the federal government s efforts to use its property more efficiently and reduce costs. To address our first objective, we analyzed federal data on office space square footage and costs, and reviewed the two RTF cost measures GSA developed with OMB to track and report agency performance: (1) estimated cost avoidance and (2) changes in average cost per square foot. To identify changes in agencies office space costs, we analyzed square footage, and rent, operations, and maintenance costs from Federal Real Property Profile (FRPP) data submitted by agencies and GSA s Occupancy Agreement data. Office space costs in both datasets may contain costs for additional items beyond rent, operations and maintenance, such as tenant improvements, but we determined that the inclusion of these costs did not preclude us from using these data to describe agencies costs as the data reflect the total annual costs to agencies. Though agencies may report different types of square footage in FRPP, as specified by GSA s FRPP reporting guidance, we analyzed rentable square footage where available because it represents the total space an agency pays for. We limited our analysis to the CFO Act agencies because these agencies are subject to RTF requirements, but we excluded the Department of Defense (DOD) from our analysis because of GSA concerns about the reliability of DOD s data. We analyzed data from fiscal year 2015, the year RTF began, through fiscal year 2018, the most recent year for which data were available. To assess the reliability of these data, we conducted electronic testing, reviewed GSA documentation and prior GAO data reliability assessments, and interviewed GSA officials. Based on our assessment, we determined that both the FRPP and Occupancy Agreement data were reliable for the purposes of describing changes in agencies office space costs and square footage. To analyze the extent to which the cost performance measures reflected agencies cost changes, we reviewed the methodologies GSA developed with OMB for the cost performance measures and GSA s calculations, interviewed OMB and GSA officials regarding the measures, and replicated one of the methods. We also reviewed previous GAO assessments of the estimated cost avoidance methodology. To determine how GSA s and OMB s approach to calculating the average cost per square foot affected the results for GSA-managed space, we used GSA Occupancy Agreement data to compare the average cost per square foot based on GSA s and OMB s method to the average cost per square foot using actual costs. We compared our analysis of the average cost per square foot method to Standards for Internal Control in the Federal Government, which state that agencies should use and communicate quality information information that is complete and accurate to inform decisions. To address our second objective, we selected five agencies the Department of Education (Education), GSA, the Department of the Treasury, the Department of Labor (Labor), and the Department of Health and Human Services to review in depth. Within the Departments of the Treasury and Health and Human Services, we further selected the Internal Revenue Service (IRS) and National Institutes of Health (NIH) respectively because we determined that real property within these Departments is managed at the agency level. Using FRPP and Occupancy Agreement data on agencies costs and square footage, we selected agencies based on factors such as office space portfolio size, whether the agencies obtain office space themselves or through GSA, and changes in portfolio cost and square footage. We selected agencies for variety but weighted our selection toward agencies with larger absolute changes in cost and square footage. Our selection is not representative, and these agencies experience is not generalizable to all agencies. To gain insights into how these agencies consider costs when making office space decisions, we reviewed selected agencies real property management policies, and interviewed agency officials. We then analyzed this information to identify common themes across selected agencies. To further understand how agencies implemented their policies and the factors agencies considered when making specific office space decisions, we also selected 13 office space projects these agencies undertook from fiscal year 2015 through fiscal year 2018. We identified potential projects based on selected agencies annual Efficiency Plans, agency project data, and interviews with agency officials. We selected specific projects based on factors such as cost, location, changes in square footage, and project type. We chose projects with a range of types and locations to better understand agencies decision-making process for different kinds of projects. However, we selected only projects with a cost of $1 million or more and with larger changes in square footage because these projects have more effect on overall federal and agency costs and portfolios. Because our intent was to understand the factors selected agencies considered when deciding on projects, our selection includes both completed projects and projects that were ongoing as of spring 2019, when we collected our data. The projects we selected are not representative of all projects or agencies, and are not generalizable. We analyzed project documentation and interviewed agency officials about each project. We also reviewed federal data for some projects to identify the changes in agencies square footage and costs before and after projects. To further address our second objective, we reviewed GSA Public Buildings Service (PBS) policies and guidance, and interviewed PBS headquarters officials to understand PBS s role in agencies office space decisions, including how PBS considers costs when helping agencies obtain space. We also reviewed PBS cost analyses, such as net present value alternatives analysis and move-stay analysis, for most of our selected projects. We conducted this performance audit from November 2018 to December 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the General Services Administration Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact:> <8. Staff Acknowledgments> In addition to the contact named above, Maria Edelstein (Assistant Director), Katherine Raymond (Analyst-In-Charge), Eli Albagli, Ricki Gaber, and Minette Richardson made significant contributions to the report. Also contributing to this report were Melissa Bodeau, Josh Ormond, Kelly Rubin, Terence Lam, and Crystal Wesco.

Why GAO Did This Study The government's RTF policy has intensified federal efforts to reduce office space and save money since 2015. GSA and OMB report key cost performance measures but questions exist about how well these measures reflect agencies' efforts. GAO was asked to review how federal real property costs have changed since 2015. This report examines (1) the extent to which performance measures reflect changes in civilian CFO Act agencies' office space costs and (2) how selected agencies considered cost in their office space decisions. To conduct this work, GAO analyzed federal data on office space square footage and cost changes for the 23 civilian CFO Act agencies from fiscal years 2015 through 2018, and reviewed GSA's and OMB's calculations for cost performance measures. GAO selected five agencies and 13 of their office space projects as non-generalizable case studies based on several factors, including those with larger space and cost changes. GAO reviewed the selected agencies' policies and project documentation, and interviewed agency officials. What GAO Found The Office of Management and Budget (OMB) issued the Reduce the Footprint (RTF) policy in 2015 to promote the more efficent use of federal space. The General Services Administration (GSA) and OMB track and report two RTF cost performance measures: estimated costs avoided and average cost per square foot. GAO found that the method for estimating costs avoided was reasonable. However, the average cost per square foot was not accurate for the federally-owned and leased office space GSA manages for agencies. Specifically, GAO found that from fiscal years 2015 through 2018 the actual average cost per square foot for this space was, on average, $1.31 per square foot higher than the costs GSA and OMB reported for the 23 civilian agencies subject to the Chief Financial Officers (CFO) Act. The actual cost per square foot was higher for 18 out of 23 of these agencies (see figure). Because GSA and OMB did not use readily available actual cost data, their method, which is based on 1 month's data, excluded an average of $271 million per year in costs over this period. Consequently, stakeholders and agencies do not have accurate information to assess agencies' performance or help manage their space decisions. Note: This information covers the 23 Civilian Chief Financial Officers Act agencies. While selected agencies considered costs when making office space decisions, they balanced other factors as well. As the federal government's principal landlord, GSA obtains space for many agencies. In so doing, it emphasizes federal cost savings, which may not lead to agency savings. For example, GSA prioritized filling unoccupied federally-managed space even if it was more costly to an agency than another option. The selected agencies also reported that factors such as mission, workforce needs, and external factors are important to consider and balance as well. For example, a senior official from the Department of Education said that effects on employees' commutes are an important factor in its space decisions, and that it weighs the impact of potential office locations on the Department's workforce against the cost of the space. What GAO Recommends GAO recommends that GSA coordinate with OMB to use actual cost information to calculate the average cost per square foot performance measure for GSA-managed space. GSA agreed with the recommendation.

gao_GAO-20-393

gao_GAO-20-393_0

<1. Background> <1.1. History of Rule of Law Assistance> Promoting the rule of law abroad has been a U.S. government priority for decades. As early as 1985, rule of law was added to the Foreign Assistance Act of 1961 as a policy priority. Prior to the 1990s, rule of law assistance was primarily focused on activities in Latin America and the Caribbean. With the end of the Cold War and subsequent collapse of the Soviet Union, the U.S. government invested resources to support rule of law and justice sector reform in Central and Eastern Europe. Following the September 11, 2001 terrorist attacks, Afghanistan became a primary recipient country of U.S. rule of law assistance. The United States continues to support rule of law activities around the world. <1.2. Agencies Involved in Rule of Law Assistance> Department of State s Standardized Definition of Rule of Law Rule of law is a principle of governance under which all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, independently adjudicated, equally applied and enforced, and consistent with international treaties and customary law. Rule of law is demonstrated by adherence to the principles of publicly accepted legitimacy of the law, institutions, and process; checks and balances on structures of power; supremacy of the law; equality before the law; accountability to the law; fairness; effective application of the law; equitable access to justice; participation in decision-making; legal certainty; avoidance of arbitrariness; and procedural and legal transparency. Activities include support for strengthening of judicial systems including court administration, management, and operations; judicial proceedings; constitutional and legal reform efforts; judicial independence; access to justice; and legal education and associations. Millennium Challenge Corporation (MCC), also provide assistance that can be related to improving the rule of law. At each agency, several offices participate in rule of law assistance. The Bureau for International Narcotics and Law Enforcement (INL) is the lead office for rule of law within State. According to INL, it has three main objectives related to rule of law assistance: (1) effectiveness, (2) accountability, and (3) respect for fundamental rights and freedoms. One principle that also guides INL s rule of law assistance is effectively coordinating assistance with other donors, other bureaus and offices within State, and interagency partners, according to INL. According to USAID, USAID designs, oversees and manages rule of law programming primarily through country-level missions, which ensures programming is tailored to local context. These programs are, in turn, supported by Washington-based regional and pillar bureaus. As the home base for USAID s Democracy, Human Rights and Governance (DRG) programs, the DRG Center (1) leads USAID efforts to achieve self-reliant, citizen-responsive, democratic societies that respect human dignity, rights and the rule of law; (2) provides proactive and responsive technical support to missions and bureaus on core DRG sectors, including rule of law; and (3) conducts assessment, design, and evaluation of related DRG programs around the world to support more effective, systemic, cost- efficient and sustainable development. DOJ does not directly fund rule of law assistance, but its Office of Overseas Prosecutorial Development, Assistance and Training (OPDAT) and the International Criminal Investigative Training Assistance Program (ICITAP) implement activities funded by agencies such as State, USAID, and DOD through interagency agreements. <2. State and USAID Allocated $2.7 Billion for Rule of Law Assistance in Fiscal Years 2014 through 2018, Mostly to Afghanistan and the Western Hemisphere> <2.1. State and USAID Rule of Law Allocations Increased from Fiscal Years 2014 to 2018> From fiscal years 2014 through 2018, State and USAID allocated $2.7 billion for rule of law assistance, with annual allocations increasing from $496 million in fiscal year 2014 to $551 million in fiscal year 2018, or 11 percent. Within this time period, allocations fluctuated. Specifically, allocations increased by 20 percent from fiscal years 2014 through 2016, and subsequently decreased by 7 percent from fiscal years 2016 through 2018. According to the Congressional Research Service, the fluctuations in rule of law funding mirrored the fluctuations in foreign operations appropriations, which also increased by 11 percent from fiscal years 2014 through 2018. State allocated more than $2 billion from fiscal years 2014 through 2018 in that time period and USAID allocated over $700 million. See figure 1 for annual allocations by State and USAID for rule of law assistance from fiscal years 2014 through 2018. In fiscal year 2018, activities promoting justice systems and institutions received more allocated funding than all other types of rule of law assistance combined. Justice Systems and Institutions funds were allocated toward activities such as improving the systems, capacity, and sustainability of the civil and criminal justice sectors by harmonizing policies, fostering public / private partnerships, providing training programs, and strengthening administrative and operational systems. Recipients of this assistance can include police forces, prosecutors, judges, public defenders, bar associations, and training institutions. See figure 2 for rule of law allocations by program element, and appendix II for more information on how State and USAID track rule of law funding. DOJ s ICITAP and OPDAT track funding in obligations, not allocations. According to DOJ, State and USAID used DOJ to implement certain rule of law programs, obligating $691 million from fiscal year 2014 through July 2019. Of this amount, $327.6 million went to ICITAP and $363.5 million went to OPDAT. <2.2. Majority of Rule of Law Assistance Funds Were Allocated to Programs in Afghanistan and the Western Hemisphere> From fiscal years 2014 through 2018, State and USAID allocated funds for rule of law assistance to 20 regional or programmatic operating units in Washington, D.C., and 72 field-based operating units, primarily bilaterally to country missions. The top four recipients of rule of law allocations were State s Western Hemisphere Region and bilateral programs in Afghanistan, Mexico, and Colombia. These four recipients were allocated $1.7 billion of $2.7 billion, or 63 percent of the total rule of law allocations from fiscal years 2014 through 2018. The top three bilateral recipients, Afghanistan, Mexico, and Colombia, received 40 percent of rule of law assistance during this time period, which exceeded the total allocation to all 69 other bilateral recipients combined. Figure 3 shows worldwide distribution of bilateral rule of law assistance allocations from fiscal years 2014 through 2018. See appendix III for a complete list of countries and regional programs listed by funds received. <3. Agencies Determine Allocations through the Annual Foreign Assistance Budget Process and Identify Rule of Law as a Goal in Strategic Documents> <3.1. State and USAID Determine Rule of Law Assistance Allocations Worldwide through the Existing Annual Foreign Assistance Budget Process> State and USAID participate in an annual foreign assistance budget process, managed by State s F bureau, which determines the allocation of foreign assistance funds for a variety of projects for all recipient countries and programs worldwide. According to agency officials, allocations of rule of law assistance are determined during this process. Agencies develop budget requests on an annual basis, usually starting this process 2 years before the start of any particular fiscal year. According to agency officials, the requests begin with the overseas missions providing annual reports and performance plans to State and USAID headquarters. They said that, during this process, each mission determines its need for financial resources related to foreign assistance, including rule of law assistance. Officials also hold interagency roundtable discussions regarding various aspects of foreign assistance. According to State officials, State chairs a roundtable on rule of law assistance that includes other interagency partners such as DOJ, DOD, MCC, and others. According to these officials, this roundtable allows the relevant agencies and bureaus to make decisions related to the amount of rule of law assistance funding that goes to specific regions and countries and align the funding with broader foreign assistance goals. Each agency also compiles and analyzes these annual reports and performance plans and provides initial budget requests to the Office of Management and Budget (OMB) in September. From September to November, OMB reviews each agency s budget request submission and conducts analysis on how the budget requests align with the overall federal budget. After OMB conducts its review, it communicates to each agency the level of funding it can request from Congress. The President usually submits the overall federal budget request to Congress on the first Monday in February. As part of this request, each agency, including State and USAID, provides a more detailed Congressional Budget Justification that explains the need for specific funding levels to the relevant congressional subcommittees. Once the House of Representatives and the Senate agree on the language of the bills, including the levels of funding, and pass the State and Foreign Operations appropriations bill, the President can then sign it into law. Once the President signs the State and Foreign Operations appropriations bill into law, OMB apportions the amount of funds that State, USAID, and other agencies may use. Agencies then allocate and obligate these funds for certain programs. In the case of rule of law assistance, these obligated funds are often used to engage in partnership with implementing partners overseas through contracts, grants, or cooperative agreements, according to agency officials. <3.2. State, USAID, and DOJ Have National and Agency-Specific Strategies on Rule of Law Assistance and Determine Roles and Responsibilities for Relevant Bureaus and Offices> Improving the rule of law in partner countries overseas is identified as an important objective in several strategic documents including the 2017 National Security Strategy, the 2018-2022 State-USAID Joint Strategic Plan, the 2018-2022 DOJ Strategic Plan, and bureau-specific plans. Each of these strategic documents is linked to U.S. national security goals and discuss U.S. agencies roles in improving the rule of law in partner countries. See figure 4. <3.2.1. White House> 2017 National Security Strategy. This strategy identifies the rule of law as a central U.S. governing principle and a part of the foundation of American alliances overseas. It also states that the United States should provide assistance to support democracy and rule of law in partner countries. <3.2.2. State> 2018-2020 State-USAID Joint Strategic Plan. This plan articulates the importance of improving the rule of law in partner countries overseas and identifies this as a strategic objective. It also requires coordination between the two agencies to deliver sustainable assistance that strengthens their democratic institutions. The plan also calls for State and USAID to work together at the country level to develop country-specific strategies that ensure investments are sustainable and that results are valued by partner countries. Foreign Affairs Manual (FAM). The FAM includes specific roles and responsibilities for rule of law assistance and notes that the lead office for such assistance, INL, is responsible for, among other things, the development of assistance programs directed at U.S. Government objectives abroad on international criminal justice issues. Bureau-specific plans and documents. INL and several other State bureaus also have their own strategic documents with elements that relate to the provision of rule of law assistance. Specifically: INL s Functional Bureau Strategy provides a framework for connecting its responsibility for providing rule of law assistance with its specific programs overseas. The strategy also defines how the bureau matches U.S. foreign policy goals with its foreign assistance portfolio, including its allocation to rule of law assistance. State s other functional bureaus and offices are guided by strategic documents that relate to rule of law assistance. According to State officials, programs provided by these bureaus and offices can touch on rule of law-related efforts such as training on techniques related to investigating and prosecuting trafficking cases. These bureaus include the Bureau of Democracy, Human Rights, and Labor; the Bureau of Counterterrorism; and the Office to Monitor and Combat Trafficking in Persons. State s regional bureaus are also guided by strategic documents that can relate to rule of law assistance. For example, the Joint Regional Strategy for the Bureau of European and Eurasian Affairs includes a strategic goal related to protecting core U.S. interests by advancing democracy and human rights and strengthening civil society. USAID Strategy on Democracy, Human Rights, and Governance. This strategy identifies the strengthening of institutions that enable the rule of law as part of USAID s work to foster greater accountability of leaders to citizens and the law. USAID programs are designed to strengthen the institutional and decisional independence of judiciaries, develop judicial self-governance, and introduce best practices in judicial effectiveness. The strategy also states that USAID will continue to offer timely support for institutional development of oversight bodies, including legislatures and auditor general s offices. 2017 DOJ Strategic Plan. The strategic plan identifies the development of rule of law as a key responsibility for DOJ. According to DOJ officials, DOJ has two main offices that provide rule of law assistance. Both of these offices are within DOJ s Criminal Division. ICITAP. This office works with foreign governments to develop professional and transparent law enforcement institutions that protect human rights, combat corruption, and reduce the threat of transnational crime and terrorism. ICITAP focuses on law enforcement, correctional institutions, and forensics (whereas OPDAT works primarily with prosecutors and courts). According to DOJ, ICITAP and OPDAT often coordinate their rule of law assistance efforts and pursue a comprehensive approach to criminal justice reform in countries with both a Resident Legal Advisor and an ICITAP advisor. ICITAP programs are implemented by a combination of federal employees and contractors. OPDAT. According to DOJ officials, OPDAT builds foreign partners who can work with the U.S. agencies to enhance cooperation in transnational cases and to fight crime before it reaches the United States. OPDAT has Resident Legal Advisors, Intermittent Legal Advisors, and International Computer Hacking and Intellectual Property Advisors posted at U.S. embassies overseas who provide assistance and case-based mentoring to foreign counterparts to develop justice systems that can combat transnational crime, corruption, and terrorism consistent with the rule of law. According to these officials, OPDAT s efforts and programming align with, reinforce, and further U.S. law enforcement and national security objectives. <3.3. In Selected Countries, Missions Developed Interagency Strategies and Two Developed Issue- Specific Strategies to Guide Rule of Law Assistance> <3.3.1. Mission-Wide Strategies We Reviewed Address Rule of Law> The Integrated Country Strategy (ICS) outlines goals and objectives for country-level priorities, such as rule of law assistance. The ICS is developed jointly by State and USAID in the country mission and establishes overall goals and objectives of the U.S. government in the particular country. The ICSs are 4-year strategic plans for whole-of- government priorities in a given country. According to State, the goals and objectives in the ICS are linked to and informed by the National Security Strategy, the State/USAID Joint Strategic Plan, and department regional and functional bureau strategies. ICS documents are organized around higher-level goals to be achieved by meeting objectives and sub- objectives. For example: In Kosovo, the ICS lists two objectives that help achieve the goal of improved rule of law: (1) ensuring that all Kosovo s citizens have access to reliable, transparent, and accountable governance and justice and that it is responsive to citizens needs, and (2) improving delivery of services, implementation of laws and regulations, and committing to countering corruption. In Colombia, the goal to advance Colombia s capacity to strengthen governance includes the objective of extending the effective presence of democratic institutions and processes, such as the rule of law. To further detail USAID s in-country efforts, USAID develops a Country Development Cooperation Strategy (CDCS) to plan agency goals and objectives, which are achieved by meeting intermediate and sub- intermediate results for its work in a specific country, such as the provision of rule of law assistance. According to USAID, the CDCS objectives are integrated into the ICS and inform overall rule of law assistance goals and strategy. Some examples include the following: In Liberia, the 2013-2019 CDCS states that the overall goal of Strengthened Liberian Institutions should be reached by achieving, among others, the development objective of more effective, accountable, and inclusive governance. This development objective would in turn be achieved by meeting, among others, the intermediate result of increased access to justice, according to the CDCS. In the Philippines, the 2013-2019 CDCS includes the sub-intermediate result of judicial efficiency improved as supporting the intermediate result of economic competitiveness enhanced. This intermediate result must be reached to achieve the development objective of broad-based and inclusive growth, which in turn contributes to the goal of a more stable, prosperous and well-governed Philippines, according to the CDCS. The mission-wide strategies for the four selected countries varied in how they prioritized rule of law assistance. In Kosovo, Liberia, and the Philippines rule of law was a higher-level priority, such as a goal in the ICS or development objective in the CDCS. In Colombia, the ICS includes improving rule of law as an objective, but not a main goal, and the CDCS lists rule of law as a sub-intermediate result. <3.3.2. Two Missions We Reviewed Developed Strategies Specific to Rule of Law> Depending on the emphasis of rule of law assistance in a particular country, the in-country mission may develop strategies, in addition to the ICS and CDCS, to address a specific priority such as rule of law. In two of the four selected countries, we found that missions had developed additional strategic documents specific to rule of law assistance. In Kosovo, the mission developed a specific rule of law strategy document to guide activities across State, USAID, and DOJ in support of the rule of law goal in the ICS. In Colombia, State and USAID developed a mission rule of law strategy in 2015. In addition, agency officials said they had adapted strategies to fit changing contexts. For example, when a spate of violence targeted human rights defenders and social activists in 2018, the mission in Colombia developed a human rights strategy as a supplement to the rule of law strategy. <4. Agencies in Selected Countries Use Similar Processes to Design and Implement Rule of Law Assistance, but the Sufficiency of Interagency Coordination Is Unknown Agencies Use Similar Approaches to Identify Needs, Design Programs, and Execute Activities to Implement Rule of Law Assistance in Selected Countries> State, USAID, and DOJ conduct assessments, consult with host governments, and use interagency reviews to identify local rule of law needs. Agency officials noted that local context affects the nature of rule of law programs, and that needs assessments are critical to understanding this context. While each country faces unique and specific rule of law challenges, and agencies have flexibility to conduct foreign assistance as they deem appropriate, some key interventions are consistent across several or all of the selected countries. See appendix IV for more information on key interventions and priority issues in each selected country. Assessments. State and USAID officials said that they can identify needs by conducting assessments of the rule of law in some of the countries we reviewed. They also sometimes contract with other organizations to conduct these assessments as part of the broader contract for a program. DOJ noted that they have used these assessments as an initial baseline against which to evaluate progress, identify critical local assistance needs, inform development of mission strategies such as the ICS and CDCS, and prepare for future activities. According to U.S. officials, program implementing partners can also use assessments to prepare for specific projects and activities according to the terms of grants and contracts with U.S. government agencies. For example, according to officials: In Colombia, State concluded a letter of agreement with the Pan American Development Foundation to conduct an assessment of the function of the local justice sector. Following this assessment, INL officials said they funded a project with the foundation to strengthen the capacity of Colombia s Attorney General to address issues related to the original assessment. Also in Colombia, USAID s Justice for Sustainable Peace program conducted a local justice study with civil society organizations and academic experts in 45 municipalities and also conducted six regional political economy analyses during the initial phase of the project, among other analytical tools that shaped the project s implementation. In the Philippines, a USAID assessment of closed cases and similar studies supported by the World Bank showed that judicial inefficiency was the most serious concern of litigants. Subsequently, USAID officials said they designed and funded a project intended to, among other things, address the two most significant results of inefficiency: docket congestion and court delay. They did this through supporting case inventories and disposition, streamlined litigation procedures, and automated case management. Late in fiscal year 2018, USAID also funded a project to improve access to justice by increasing access to legal information and assistance, and strengthening formal and informal alternative dispute resolution mechanisms. Host government consultation. U.S. officials said they have also involved the host government in identifying rule of law needs. For example: In Liberia, USAID worked closely with the Liberian government while preparing the 5-year CDCS to best capture local views on justice sector needs, according to USAID officials. In the Philippines, DOJ followed up judicial and prosecutor trainings with informal conversations to elicit local official views on rule of law needs and gaps, according to DOJ officials. According to USAID officials, USAID and the government of the Philippines convened interagency meetings consisting of justice system stakeholders to jointly develop the Joint Country Action Plan which includes rule of law priorities and programmatic activities. In Colombia, USAID and the Colombian Ombudsman s Office jointly identify overlapping areas of interest and develop programs that fit these priorities, according to USAID officials. Interagency review. U.S. officials described collaborative efforts used at missions to identify local rule of law needs. For example: In the Philippines, officials from State, USAID, and DOJ discuss local needs and capacity gaps in the Law Enforcement Working Group and ad-hoc rule of law technical panels. Agency officials noted that, unlike an independent assessment, these groups review proposed and ongoing activities to ensure they meet technical needs identified by all agencies, including potential projects before solicitations for proposals are made public. In Kosovo, U.S. officials who participate in the rule of law working group jointly discuss potential needs and areas of intervention for local rule of law assistance. Also in the Philippines, State and USAID officials jointly serve on technical evaluation committees to ensure that the design matches local needs and U.S. assistance goals. In the selected countries, U.S.-supported rule of law assistance is implemented through country-specific programs, and we identified five examples, among others, of distinct types of rule of law activities. 1. Technical assistance to build human and institutional capacity in the justice system. U.S. agencies provide assistance to improve rule of law capacity in the form of trainings and exchange programs, and through the use of embedded advisors in local institutions. In Liberia, for example, trainings supported by USAID address a variety of issues. According to officials there, trainings are used in programs to increase the number of magistrates, supplement legal education, increase capacity of the Liberian Land Authority, integrate rule of law and property rights concepts into surveyors training, and increase the capacity and number of pro bono legal aid providers. (See fig. 5.) Multiple exchange programs provide training to enhance the rule of law, but local government officials from all four selected countries received training at International Law Enforcement Academies, which provide local law enforcement and justice sector officials with rule of law-related training and technical assistance. (See fig. 6.) 2. Embedded advisors. Embedded advisors provide onsite advice to local government officials and may operate in some of the selected countries as either a supplement or the primary agents of training and capacity building, according to agency officials. In several of our selected countries, the U.S. government embeds advisors with local government agencies or courts. According to U.S. officials, these advisors simultaneously provide technical assistance to local officials, but also can report back to the U.S. mission on the opinions and suggestions of local government. In Colombia, DOJ officials said that advisors now focus primarily on counter-narcotics issues but previously worked with host government agencies on human rights and rule of law-related work. They noted that DOJ advisors trained thousands of Colombian judges and attorneys prior to this shift in emphasis. Also in Colombia, USAID supports embedded advisors to provide technical assistance to the Office of Colombia s Attorney General on human rights defender homicides and gender-based violence and the Inspector General s Office to support public official disciplinary actions related to human rights protections. In Kosovo, OPDAT and ICITAP embedded advisors provide advice and training to their counterparts in a variety of Kosovo government agencies, including the Ministry of Justice, Ministry of the Interior, and Kosovo Corrections. 3. Legislative and regulatory reform. U.S. agencies and funded implementers work with local governments and programs to reform specific laws and administrative procedures. For example, U.S. programs introduced or expanded the concept of and legal structure for plea bargaining into Colombia, Kosovo, and the Philippines, according to U.S. officials in those countries. In the Philippines, members of the national court system provided data showing how the expanded use of continuous trial methods and plea bargaining, supported by U.S.-funded programs, increased courts ability to process cases and begin to reduce the pre-trial detainee population. 4. Resource and equipment provision. Programs provide resources directly to government agencies and civil society groups that are engaged in advocacy around rule of law issues. In the Philippines, for example, USAID provided funds to install e-courts to improve how courts record case information, monitor case flow, and provide public access to the status of cases, according to USAID. They said this productivity tool automates the tasks and functions of the courts, improving overall efficiency, transparency and accountability. (See fig. 7.) 5. Public outreach. Missions conduct interagency public outreach campaigns to promote the rule of law in the host country, including greater awareness of legal rights, responsibilities, access, and resources, according to agency officials. Interagency coordination via the Rule of Law working group allows the Kosovo mission to conduct consistently voiced rule of law-themed public communication, for example. The mission jointly publishes a rule of law tweet to update the public on relevant issues, supports anti-corruption week, and provides feedback to host government officials to emphasize U.S. activities and views on specific rule of law issues. (See fig. 8.) In some situations, agency officials have the flexibility to amend a project during the lifespan of the project. For example, in Colombia, officials noted that a sudden rise in violence against social activists and community leaders led State, USAID, and DOJ to adjust their rule of law strategy and programming to focus more on the prevention and prosecution of those crimes. <4.1. In Selected Countries, Multiple Agencies Coordinate Rule of Law Assistance in Various Ways, but the Sufficiency of These Efforts Is Unknown> We found that agencies in the four selected countries coordinate rule of law assistance in various ways that do not consistently include relevant agencies, and the sufficiency of these coordination efforts is unknown. Officials in Colombia, Liberia, and the Philippines described their respective approaches to coordinating rule of law assistance as follows, citing their Law Enforcement Working Groups as the usual forum for formal coordination. In Colombia, INL officials said they operated a rule of law project coordination group specifically for INL staff, but the group did not always include other relevant agencies, such as USAID. INL officials said they sometimes also coordinated rule of law assistance amongst agencies through a Law Enforcement Working Group which also did not always include other relevant agencies or through the Human Rights Working Group, which did include State, USAID, and DOJ, according to INL. In Liberia, agency officials said that State and USAID sometimes coordinated rule of law assistance through a Law Enforcement Working Group, but the mission did not have a rule of law-specific working group. In the Philippines, agency officials said they coordinated rule of law assistance through a Law Enforcement Working Group, which they said included all relevant members. Although the mission also operated a Counterterrorism Working Group, agency officials noted that rule of law was not a common topic at its meetings. The mission did not have a rule of law-specific working group. By contrast, agencies at the fourth mission we visited in Kosovo used a rule of law-specific working group, which included all relevant agencies, to coordinate rule of law activities. Agency officials, including the Chief of Mission, described the working group as a highly effective means of ensuring interagency collaboration and coordination, and as having had a significant positive impact on the effectiveness of rule of law assistance in Kosovo. Agency officials in Kosovo described the working group as a more effective means of coordinating rule of law assistance than other thematic working groups they had utilized in other posts, such as one on Law Enforcement. State and USAID guidance and our prior work have highlighted the importance of coordinating with relevant entities for interagency efforts, such as rule of law assistance, which is provided by multiple U.S. agencies. The 2018-2022 State-USAID Joint Strategic Plan notes that State and USAID will work with their interagency partners to coordinate strategies and programs, including their efforts related to providing rule of law assistance. In addition, we have reported on the importance of interagency collaboration when efforts involve multiple agencies, and have noted that interagency coordination mechanisms or strategies may reduce potentially duplicative, overlapping, or fragmented efforts. The Law Enforcement Working Groups were designed for purposes other than coordinating rule of law activities and are not required to include agencies that play a key role in providing rule of law assistance. The FAM notes that the Law Enforcement Working Group is the primary forum meant to coordinate U.S. law enforcement operations and law enforcement assistance programs under Chief of Mission authority. State and USAID categorize law enforcement assistance differently from rule of law assistance. Specifically, the FAM states that law enforcement assistance coordinated by the Law Enforcement Working Groups includes bilateral or multilateral foreign assistance programs where the host country unit receiving the assistance is authorized to use force. In addition, the FAM permits but does not require the inclusion of development agencies, including those that provide rule of law assistance, such as USAID, in the Law Enforcement Working Groups. The extent to which interagency rule of law assistance coordination mechanisms are sufficient is unknown, because officials, led by the Chief of Mission, at overseas embassies have not assessed the sufficiency of interagency coordination of foreign assistance at overseas posts or ensured that such coordination includes all relevant agencies and bureaus. Given that strategic guidance is largely decentralized, country- level coordination and collaboration efforts are critical to achieving agency and government-wide objectives. Without assessing the sufficiency of a mission s mechanisms for coordinating rule of law assistance, such mechanisms may not be as effective as they could be, and may also increase the risk of duplicating efforts or fragmenting limited resources. In addition, agencies may also be missing opportunities to leverage interagency resources. <5. Conclusions> Improving the rule of law in partner countries overseas is a key objective of America s foreign and national security policy. Ensuring that State, USAID, DOJ, and other agencies involved in providing rule of law assistance coordinate their efforts effectively including involving all relevant entities is key to providing that assistance in an efficient and accountable way. Overseas missions have the ability to develop whole-of- government strategies that guide their priorities and activities in a given country. As a result, the quality of strategic planning and coordination at the mission level is critical. Agency officials at overseas posts often work in a decentralized manner to design, implement, and coordinate rule of law assistance. While there is a range of coordination mechanisms in place, in selected countries, the extent and nature of interagency coordination varied and the sufficiency of those efforts is unknown. One of the key mechanisms used in-country to coordinate rule of law assistance is designed for other purposes, and, therefore, does not consistently include agencies that play a key role in providing rule of law assistance. Without assessing the sufficiency of their coordination methods, agencies could be missing opportunities to fully leverage limited resources for rule of law assistance, and could also be duplicating efforts and not providing assistance as effectively and efficiently as possible. <6. Recommendation for Executive Action> The Secretary of State should require Chiefs of Mission at overseas missions that receive allocations for rule of law assistance to assess the sufficiency of their coordination methods to verify that this assistance is coordinated with all relevant interagency partners. (Recommendation 1) <7. Agency Comments> We provided a draft of this report to State, USAID, DOJ, and DOD for their review and comment. State and USAID provided written comments, which are reproduced in their entirety in appendices V and VI, respectively. State, USAID, DOJ, and DOD provided technical comments, which we incorporated as appropriate. In its written comments, State accepted our recommendation and agreed that an assessment of coordination mechanisms would improve the overall provision of rule of law assistance. State also said that, on behalf of the Secretary of State, INL will provide guidance to require posts to perform an assessment on their coordination of rule of law assistance and come to a determination if coordination sufficiently involves all relevant agency partners. In its written comments, USAID noted that it prioritizes rule of law as a fundamental development outcome, and that it works with State and DOJ in its pursuit of this and other related objectives. USAID also noted a preference for formal rule of law-specific coordination groups to align efforts and reduce duplication. We are sending copies of this report to the appropriate congressional committees and to the Secretaries of State and Defense, the Acting Administrator of USAID, the Attorney General, 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) 512-2964 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII. Appendix I: Objectives, Scope, and Methodology This report examines (1) how much funding the Department of State (State) and U.S. Agency for International Development (USAID) allocated for rule of law assistance in fiscal years 2014 through 2018; (2) how agencies strategically plan and coordinate the allocation of rule of law assistance; and (3) what processes agencies have to design, implement, and coordinate rule of law assistance programs in selected countries. This is the first of two reports that will address this issue. To identify which agencies were relevant for a review of global rule of law assistance, we spoke with officials from State, USAID, the Department of Justice (DOJ), the Department of Defense (DOD), and representatives from nongovernmental organizations (NGO) involved in the rule of law sector. On the basis of these interviews and our previous work, we selected State, USAID, and DOJ to review. To address our first objective, we analyzed funding data from State and USAID, and obligation data from DOJ. We primarily relied on allocation data provided by State s Office of Foreign Assistance Resources (F) for fiscal years 2014 through 2018 the most recent data available at the time of our review. F s data included allocation data disaggregated by specific recipient country or regional program. Allocation data also was reviewable by the relevant rule of law program area and program elements as listed in State s and USAID s Standardized Program Structure and Definitions (SPSD). Rule of law is listed as a program area under the Democracy, Human Rights, and Governance (DR) category within the SPSD as DR 1 and is composed of five program elements DR 1.1 through DR 1.5. According to F officials, in fiscal year 2018, F changed its policy to allow operating units to designate activities with other SPSD codes to also count toward rule of law through the cross- attribution process. We assessed the reliability of State s allocation data and determined the data to be sufficiently reliable for the purposes of reporting allocation totals and allocations disaggregated by program element and recipient country. F gathered this information from its FACTSInfo data system, which itself draws from data reported in annual Operational Plans prepared by relevant operating units, according to F officials. We verified the allocation data for the four countries we selected for our review by reviewing the allocated funds listed in the annual Operational Plans for each respective country. The data in the Operational Plans matched the allocation data from FACTSInfo. In addition to the allocation data provided by F, we collected limited obligation data from State s Bureau for International Narcotics and Law Enforcement (INL) and DOJ. Since DOJ functions primarily as a rule of law assistance program implementer, it reported all of its funding as obligations from State via interagency agreements. DOJ reported obligated funds separately for its two rule of law-focused bodies, the International Criminal Investigative Training Assistance Program (ICITAP) and the Office of Overseas Prosecutorial Development, Assistance and Training (OPDAT). DOJ s data described all obligated funding for rule of law assistance globally from fiscal years 2014 through July 2019. To evaluate the reliability of DOJ s data, we asked INL to confirm that DOJ s obligation totals for the four selected countries matched INL s. Ultimately, we found the data reported by INL and DOJ to be consistent and sufficiently reliable for the purposes of our reporting objective. To address our second objective, we reviewed documents and interviewed officials in Washington, D.C. We compared strategies and guidance described for the whole of government, specific departments and agencies, and bureaus and offices within those departments. We also reviewed the annual foreign assistance budget process to describe how agencies at headquarters collaborate to determine foreign assistance allocations generally and for rule of law assistance in particular. We reviewed the Integrated Country Strategy documents for each selected country, as well as USAID s Country Development Cooperation Strategy. We reviewed these documents to identify rule of law thematic priorities and any guidance regarding roles and responsibilities, program implementation, and intra- or interagency coordination. To address our third objective, we selected a non-generalizable sample of four countries: Colombia, Kosovo, Liberia, and the Philippines for site visits or in-depth analysis. We also reviewed one international program the Regional Training Center, based in Accra, Ghana, part of the International Law Enforcement Academy Program. In selecting these countries, we considered, among other things, (1) countries in which at least two of the three focus agencies had allocated or obligated rule of law assistance funds during fiscal years 2014 through 2018; (2) countries that were among the top half of recipients of rule of law assistance allocations from State and USAID during the same period, as reported in publically available information; (3) geographic dispersal of selected countries, to ensure that no more than one country was selected in each of State s designated regions; and (4) suggestions from State, USAID, DOJ, and NGO officials with experience in the rule of law sector. We traveled to the Philippines in August 2019 and to Ghana, Liberia, and Kosovo in September 2019. We met with and interviewed officials from State, USAID, and DOJ, and from NGOs that had implemented U.S.- funded rule of law assistance projects, as well as local government officials who had participated in U.S.-funded rule of law assistance activities. We did not travel to Colombia, but conducted interviews with State, USAID, DOJ, NGO, and local government officials in Colombia by phone. We also interviewed officials in Washington, D.C., in person. To examine the processes used by State, USAID, and DOJ to design, implement and coordinate rule of law assistance in selected countries, we reviewed documents and interviewed agency and local government officials and implementing organization staff. We interviewed U.S. and local officials in Washington, D.C.; Colombia; Ghana; Liberia; Kosovo; and the Philippines on methods of identification of local needs, the process of program / activity design, and means of coordinating implementation among multiple agencies, among other topics. We also visited projects in the Philippines, Liberia, and Kosovo, where we were able to observe activities and speak with project implementers, partners, and beneficiaries. We compared the collaboration mechanisms used at these three missions to the collaboration requirements in the 2018-2022 State-USAID Joint Strategic Plan. We conducted this performance audit from December 2018 to June 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. Appendix II: Standardized Program Structure and Definitions of Rule of Law <8. Fiscal Year 2018 Funding Allocations for Rule of Law SPSD Program Areas> The Department of State (State) and U.S. Agency for International Development (USAID) categorize and track their foreign assistance according to the Standardized Program Structure and Definitions (SPSD). State and USAID use the SPSD to define overall foreign assistance themes, and to code foreign assistance funds in order to track how U.S. agencies allocate their resources. The SPSD divides foreign assistance into category, program area, and program element. The SPSD comprises seven categories, including Democracy, Human Rights, and Governance, within which rule of law is a specific program area. Rule of law is composed of five program elements: (1) Constitutions, Laws and Legal Systems, (2) Culture of Lawfulness, (3) Checks and Balances with Judicial Independence and Supremacy of Law, (4) Justice Systems and Institutions, and (5) Fairness and Access to Justice. According to State officials, allocated funds are linked to specific SPSD codes in the annual Operational Plans, which are developed by either country-specific or regional operating units. Operating units also determine which program area and program element is the appropriate code for a specific activity. While the SPSD provides definitions of each program element, the definitions may overlap and operating units have some leeway to apply the SPSD codes based on their judgement. Table 1 shows funding associated with each rule of law program element and provides examples of rule of activities that were allocated funds in the selected countries. Beginning in fiscal year 2018, State s Office of Foreign Assistance Resources (F) began to track allocated funds that were not coded as part of the rule of law program area, but were also planned to be used for rule of law themes, according to F officials. This process is referred to as cross-attribution. Cross-attributed funds are designated by operating units in their annual Operational Plan. State officials provided an example from fiscal year 2018, explaining that funding classified under two program elements from the Peace and Security program area were cross- attributed to rule of law. Table 2 shows the cross-attributed allocated funds in fiscal year 2018. <9. Rule of Law Program Area and Component Program Elements> <9.1. Program Element DR.1.1: Constitutions, Laws, and Legal Systems> Definition: Support the development of constitutions, laws, and legal systems that are procedurally and substantively fair, derived through participatory democratic processes, and consistent with international human rights standards. Both the substance of the law and the process by which it is developed must be legitimate and should be transparent. Includes analysis and dissemination of jurisprudence, innovations, and best practices in constitutional and law-making processes. Includes programs that assist in strengthening systems and processes for developing and enacting laws. Supports efforts to end impunity and enable peaceful transitions to democracy. Customary or religious dispute resolution mechanisms are included as laws, and legal systems do not have to be written or formal to be legitimate. <9.2. Program Element DR.1.2: Culture of Lawfulness> Definition: Foster and maintain a culture that is generally law-abiding, including through legal literacy, public awareness, constituency building, and citizen engagement in legal processes. Ensure that the public is educated about laws and regulations, perceives laws as legitimate and worthy of adherence, and respects the authority of law and legal institutions. Develop citizen demand for an effective and accountable justice system, and develop associations to advocate for all citizens. This includes programs that spur a culture of lawfulness by changing beliefs and attitudes by socializing people into a rule of law culture and changing norms so that people abide by the law. This also includes rule of law programs or civil society programs with a very specific focus on rule of law-related citizen awareness and education i.e., supporting civil society organizations to participate in public hearings as part of a larger effort to strengthen the parliament or working with a civil society organization to provide legal representation of indigent populations as part of an overall judicial strengthening strategy. <9.3. Program Element DR.1.3: Checks and Balances with Judicial Independence and Supremacy of Law> Definition: Strengthen judicial independence as a means to maintain separation of powers and check excessive power in any branch or level of government. Strengthening judicial independence includes reducing improper influences on the judiciary through: open and participatory processes for judicial selection and appointment; security of tenure; satisfactory budget allocations to ensure adequate infrastructure, training, and working conditions; judicial self-governance including management of administrative, budgetary, ethics, and disciplinary processes and reform; and transparent court operations and judicial processes. Enhance the judiciary s ability to check abuses of power by any branch or level of government through creating and strengthening constitutional or judicial review. This element also helps ensure that government is bound by law, and government decision-making is in accordance with the law. Work to create an independent and impartial justice system through institutional and behavioral change, and also to promote public respect for the justice system and judicial decision-making. <9.4. Program Element DR.1.4: Justice Systems and Institutions> Definition: Improve the systems, capacity, and sustainability of civil and criminal justice sector and institutions, improve the ability and skills of justice sector actors, and enhance coordination amongst them where appropriate (includes harmonization of policies, procedures, and systems, and public / private partnerships relating to both criminal and civil law). Justice sector actors and institutions include: police, border security, prosecutors, forensics experts, judges, court personnel, public defenders, mediators, arbitrators, conciliators, corrections personnel, private bar, law schools, legal professional associations, and training institutions for each of them. Support educational and training programs for all justice system actors, to include reform of pedagogy and curricula, continuing and in- service training, and support of accreditation and legal professional associations to promote professionalism; and encourage public service. Improve administrative and operational systems, including strategic planning, budget, procurement, and personnel. <9.5. Program Element DR.1.5: Fairness and Access to Justice> Definition: Work toward an equitable justice system by ensuring fairness in law and process. Fairness programs include non-discrimination law fair trial standards, effective administrative law systems to guard against arbitrary government action, and observance by all justice system actors and institutions of international treaties and customary law. Support monitoring and advocacy by justice sector NGOs, including strategic lawyering, trial monitoring, and policy dialogue. Improve equitable access to justice through increasing the quality and quantity of state and non- state justice services, with a particular focus on women, youth, the poor, LGBT persons, and other marginalized or vulnerable groups. This includes access to state and non-state dispute-resolution fora; court redistribution; mobile courts; the removal of language, gender, cultural, sexual orientation, gender identity and physical barriers; circulation of laws and legal decisions; alternative dispute resolution systems; and expanding access to legal services (e.g., public defenders offices, legal aid and legal services, labor law services, justice or legal resources centers). This also includes programs to educate the citizenry about their rights, how to access services, and how to encourage change. Programs primarily focused on trafficking in persons should be captured under Peace and Security (PS) PS.5 and programs focused on alien smuggling under PS.4. <10. Peace and Security Program Area and Cross- Attributed Component Program Elements> <10.1. Program Element PS.9.2: Civilian Police Reform / Community-Oriented Policing> Definition: Develop modern police forces through capacity-building (training and education both in the classroom and in the field) with focus on creating police institutions that can effectively fight crime and serve the public. Activities include, but are not limited to, police academy reform, organizational restructuring, professionalization, developing internal affairs, civil service reform (pay and rank reform), management and leadership, equipment and infrastructure support, aviation support, gender sensitivity, community-oriented policing, and public affairs. Assistance can also support the establishment and sustainment of effective, professional, and accountable law enforcement services (civilian police, stability / formed police units, and specialized units trained and equipped for specific issues such as port and maritime security, border security, gangs, or kidnapping). As the foundation for such a service is fundamentally rooted in the rule of law and respect for human rights, activities conducted in support of this element should be coordinated with programs under the Rule of Law elements in the Democracy, Human Rights, and Governance (DR) category. <10.2. Program Element PS.9.4: Corrections Assistance> Definition: Provide consultation on facilities, system, and process design; increase the capabilities and professionalization of corrections personnel at all levels through training, with the goal of developing sustainable operations and infrastructure in compliance with international guidelines, especially with respect to human rights. Implement an objective classification system to separate inmates by risk and status (felony / misdemeanor / pretrial); reduce pretrial detentions and other causes of overcrowding; eliminate factors that lead to violent uprisings and intergang violence; provide specialized equipment and vehicles to ensure secure operations; and develop a path toward independent international accreditation of facilities and operations to ensure effective, transparent, and accountable corrections systems. Activities conducted herein are in support of long-term development of effective, transparent, and accountable penal systems (described under the Democracy, Human Rights, and Governance (DR) Category). Appendix III: Global Rule of Law Assistance Allocations For this review, we collected and analyzed foreign rule of law assistance allocation data from the Department of State s (State) Office of Foreign Assistance Resources (F). F tracks funding allocations by operating unit, which may be either one particular country, such as Afghanistan or Colombia, or a regional or programmatic unit, such as State Western Hemisphere Regional or Near East Regional Democracy. Allocations to regional and programmatic operating units shown in table 3 below are not inclusive of the allocations to individual countries on this list. For example, the funding allocated to State s Western Hemisphere Regional operating unit does not include the funding allocated for the Colombia operating unit. While the regional operating units may conduct activities within particular countries, because the funds are managed from the regional perspective, they are considered different streams of funding. Both regional and country-specific operating units include funds for both State and the U.S. Agency for International Development. This appendix provides a review of rule of law-related issues in selected countries in four different geographic regions. We selected a non- generalizable sample of four countries Colombia, Kosovo, Liberia, the Philippines to review specific rule of law programs and the ways agencies coordinate their rule of law assistance in-country. The following pages include some key facts and background information about those countries, key challenges to the rule of law, and U.S. rule of law assistance activities. <11. Colombia Facts> <11.1. Population> <11.2. 48,168,996 (July 2018 est.)> In 2016 the government of Colombia and the Revolutionary Armed Forces of Colombia (FARC) signed a final peace accord calling for demobilization of armed insurgents, the establishment of new transitional justice institutions, and the introduction of the FARC as a non-violent actor in the Colombian political community, according to the Central Intelligence Agency s World Factbook. The World Factbook also reports that conflict resulted in many lives lost, more than seven million internally displaced persons, and tens of thousands of disappeared victims. While the FARC has laid down its arms, challenges posed by remaining insurgent groups and narco traffickers remain. According to U.S. officials, in the absence of a full establishment of rule of law and equal access to justice for all populations, the country risks sliding back into conflict. Key Challenges to the Rule of Law In recent years, according to officials from the Department of State s (State) Bureau for International Narcotics and Law Enforcement (INL), the presence of illegal armed groups and narcotics trafficking organizations which have led to an increase in violence against human rights defenders and social activists has challenged the government of Colombia s ability to project the rule of law into rural and former conflict zones. In addition, the Integrated Country Strategy for Colombia notes that much of the gold production in Colombia is carried out by organized criminal actors and armed groups, which robs the government of tax revenue, harms human health and the environment, and prevents licit producers from entering the market. <11.3. Ethnic Composition> <11.4. Economy> $14,400 GDP per capita (2017 est.) <11.5. Civil law system, influenced by Spanish and French civil codes> Professional / technical capacity Need for enhanced skills for targeting complicated criminal acts (narcotics trafficking, money laundering, and dismantling organized crime) Corruption Corruption related to narcotics trafficking risks overwhelming the government U.S. Rule of Law Assistance Activities Colombia is one of the largest recipients of U.S. rule of law assistance in the world, and programs have sought to address an array of interrelated issues, according to U.S. officials. These officials said that State and the U.S. Agency for International Development (USAID) have collaborated on responding to violence against human rights defenders. INL works with the Department of Justice to improve the capacity of local prosecutors and law enforcement. USAID officials said that they support programs to increase access to justice, including strengthening indigenous justice, instituting alternative dispute resolution mechanisms, and collaborating with the Colombian Public Defender s Office to expand legal representation for indigent and at-risk communities. They also said that they strengthen the investigation and prosecution of gender-based violence and social leader cases, investigation of public officials failing to protect social leaders, and justice and reparations for victims of armed conflict. <12. Kosovo Facts> Following violent internal conflict from 1998 through 1999, Kosovo remained under the stewardship of the United Nations (UN) until it declared independence in 2008, according to the Central Intelligence Agency s World Factbook. According to Department of State (State) officials, the 2013 Brussels Agreement resulted in Kosovo and Serbia further partially normalizing relations; however, Kosovo is not universally recognized as a state and is not currently permitted to join the UN, North Atlantic Treaty Organization, or European Union (EU), among others. With U.S. support, the government of Kosovo has sought to reform its legal institutions with the aim of joining the EU. The United States is committed to helping the government of Kosovo reach this goal. 10,887 square kilometers in area (slightly larger than Delaware ) 1,907,592 (July 2018 est.) In 2018, administration of the legal system transferred from foreign oversight to full Kosovo government control, according to State officials. Consequently, local officials said they had to staff courts, translate casefiles kept in other languages, set new rules and regulations, and accomplish a range of other administrative functions in addition to day-to-day court operations. In addition, Kosovo s legal system had to integrate the previously parallel Serbia-run legal system into Kosovo s legal and judicial institutions, according to State officials. Albanian 92.9%, Bosniak 1.6%, Serb 1.5%, Turk 1.1%, Ashkali 0.9%, Egyptian 0.7%, Gorani 0.6%, Romani 0.5%, other / unspecified 0.2% (2011 est.). These estimates may exclude northern Kosovo because of census boycotts by Serb and Romani communities. <12.1. Economy> Professional / technical capacity Need for enhanced basic and advanced skills to address complicated criminal acts (money laundering, cybercrimes, trafficking in persons) Corruption Nepotism and cronyism are persistent features of the civil service and political culture $10,900 GDP per capita (2017 est.) U.S. agencies have provided assistance to the government of Kosovo through a variety of means. The Department of Justice embeds advisors in multiple offices of the government of Kosovo, including the Ministry of Justice, Ministry of the Interior, Kosovo Corrections, and police inspectorate, according to agency officials. These officials also said that the advisors provide traditional classroom- based technical training to Kosovo government officials, as well as real-time advice on particular cases and guidance for the development of new regulations. Officials also said that several U.S.-funded small-grant and educational exchange programs have enhanced the capability of local officials and civil society representatives to manage and advocate for an improved justice sector. To ensure an inclusive and transparent judicial process, officials from the U.S. Agency for International Development said they train local government officials in areas such as transparent procurement processes, and local and central government officials on drafting policies and legislation. Agencies at the U.S. Embassy in Kosovo also collaboratively operated a public affairs campaign to engage with Kosovo citizens on rule of law issues, according to U.S. officials. <13. Liberia Facts> Liberia, which the World Bank categorizes as a low income country, has a history that includes a 14-year civil war as well as the West African Ebola epidemic of 2014 and 2015. When the United Nations peacekeeping mission in Liberia completed its nearly 14-year deployment, the withdrawal of the several thousand peacekeeping personnel caused a significant economic recession, according to U.S. officials. The recession was exacerbated by drops in commodity prices, which left the government of Liberia unable to pay salaries to officials for months at a time, according to U.S. and Liberian officials. Within this context, the U.S. government has identified rule of law assistance as a priority for Liberia. U.S. officials stated that, by improving local rule of law, the United States can simultaneously address weaknesses in multiple sectors of Liberia s government and social services, including land management, health, and justice. <13.1. Geography> <13.2. Population> <13.3. Ethnic Composition> Key Challenges to the Rule of Law According to U.S. officials in Liberia, enhancing Liberia s land-management system is key to helping establish rule of law throughout Liberia. Land disputes were one underlying cause of the civil war and remain a threat to stability, according to U.S. officials. These officials explained that disputes are complicated by the destruction of the national property registry during the war, a critical shortage of qualified arbiters and surveyors, and some judicial officials poor understanding of property laws. Further, the officials said that persistent and slow-to-resolve land disputes highlight gaps in the administrative capacity of courts, local officials lack of technical skills necessary to resolve such disputes, and the ease with which corruption may subvert the rules-based order. <13.4. Kpelle, 20.3%; Bassa, 13.4%; Grebo, 10%; Gio, 8%; Mano, 7.9%; Kru, 6%; Lorma, 5.1%; Kissi, 4.8%; Gola, 4.4%; Krahn, 4%; Vai, 4%; Mandingo, 3.2%; Gbandi, 3%; Mende, 1.3%; Sapo, 1.3%; other Liberian, 1.7%; other African, 1.4%; non-African, 0.1% (2008 est.)> <13.5. Economy> Corruption Allegations of corruption threaten the government s authority but present an opportunity for empowering local anti-corruption actors U.S. Rule of Law Assistance Activities Both the Department of State (State) and U.S. Agency for International Development (USAID) have embedded trainers within Liberian government ministries, such as the Ministry of Justice and the Liberia Land Authority. USAID funded an integrated rule of law and property dispute program to address multiple areas of weakness. State adapted a Centers for Disease Control and Prevention- sponsored rapid response program to identify and resolve potentially destabilizing conflicts. USAID also supported wider access to justice by funding a new legal aid network and providing fellowships for law students to work in rural communities. <14. Philippines Facts> <14.1. Geography> <14.2. Population> The government of the Philippines expansion of the anti-drug campaign has counteracted progress made in reducing congestion in the Philippine courts and trial duration, according to U.S. officials. One local official we interviewed noted that violations of drug laws make up more than 70 percent of the criminal docket and that large numbers of arrests have led to a highly congested court system. A high volume of arrests and slow processing of cases has also resulted in a dramatic increase in the number of pretrial detainees, according to U.S. officials. 105,893,381 (July 2018 est.) <14.3. Ethnic Composition> <14.4. Economy> <14.5. Legal System> Court docket congestion Anti-drug campaign has overwhelmed an already burdened case management system $8,400 GDP per capita (2017 est.) <14.6. Mixed legal system of civil, common, Islamic (sharia), and customary law> U.S. Rule of Law Assistance Activities Department of State (State) U.S. Agency for International Development (USAID) and Department of Justice (DOJ) programs are designed to respond to the shift in the government of the Philippines priorities, according to U.S. officials. State provided training to Philippine law students, judges, and law enforcement officials that emphasized improved collection and interpretation of evidence. State also funded the establishment of legal aid clinics to improve community access to representation. USAID funded the introduction of e-courts and other information technologies in the judicial sector to improve the efficiency and transparency of court proceedings. USAID also funded programs to introduce new legal mechanisms, such as plea bargaining and continuous trial, to reduce the pre-trial detainee population and speed the administration of justice. DOJ has programs to increase prosecutor-police cooperation and to build capacity to combat specific threats, including trafficking in persons, cybercrime, terrorism, and financial crime. Appendix V: Comments from the State Department Appendix VI: Comments from the U.S. Agency for International Development Appendix VII: GAO Contact and Acknowledgments <15. GAO Contact> <16. Staff Acknowledgments> In addition to the contact named above, Joe Carney (Assistant Director), Brian Hackney (Analyst in Charge), Benjamin Legow, Carolina Morgan, Afsana Oreen, Abena Serwaa, Parul Aggarwal, Debbie Chung, Justin Fisher, Jenny Grover, Chris Keblitis, and Alex Welsh made key contributions to this report.

Why GAO Did This Study Rule of law strengthens protection of fundamental rights, ensures a robust civil society, and serves as a foundation for democratic governance and economic growth. According to State, countries with a strong rule of law provide a more level playing field for American businesses to engage and compete, and countries with a weak rule of law can potentially export transnational threats and economic insecurity, undermining the interests of the United States. GAO was asked to review U.S. rule of law assistance around the world. This report examines (1) how State and USAID allocated funds for this assistance in fiscal years 2014 through 2018, (2) how agencies strategically plan and allocate this assistance globally, and (3) what processes agencies have to design, implement, and coordinate this assistance in selected countries. GAO reviewed State, USAID, and DOJ documents and data for fiscal years 2014 through 2018 and interviewed officials in Colombia, Kosovo, Liberia, the Philippines, and Washington, D.C. GAO chose these countries on the basis of funding amounts and other factors. What GAO Found The Department of State (State) and the U.S. Agency for International Development (USAID) allocated more than $2.7 billion for rule of law assistance from fiscal years 2014 through 2018—the latest available data as of GAO's review. Of that, State allocated over $2 billion and USAID allocated over $700 million. State and USAID funded some of these programs through the Department of Justice (DOJ). Rule of law assistance funded a variety of activities including improving justice institutions, legal reform, and promoting a culture of lawfulness. The agencies implemented these programs globally but allocated most funds to the Western Hemisphere and Afghanistan. After Congress appropriates funding, agencies determine rule of law allocations through the foreign assistance budget process. State and USAID identify rule of law as a goal in agency-wide strategic documents and hold an annual interagency roundtable regarding rule of law assistance to determine those allocations. Rule of law assistance is guided by national and agency-, bureau-, and mission-specific strategies that are linked to the national security goals of the United States. These strategies discuss the agencies' roles and responsibilities in improving the rule of law. State and USAID guidance highlights the importance of coordination between agencies as they design and implement rule of law assistance, but not all agencies are included in some of the key coordination mechanisms used in four countries GAO selected for review. Agency officials in the selected countries cited the use of some informal and formal coordination practices, such as the use of law enforcement working groups, but State policy does not require all entities that may be involved in rule of law assistance to participate in these working groups. For example, in three of the four selected countries, officials described coordinating rule of law assistance, in part, through these working groups, which may not include critical agencies such as USAID. According to State policy, these working groups are designed to achieve other goals using agencies and offices that are not involved in providing rule of law assistance. Without verifying that interagency coordination includes all relevant entities, missions may not know whether they are fully leveraging interagency resources or ensuring that they do not duplicate or overlap rule of law assistance. What GAO Recommends GAO recommends that State require overseas missions where rule of law assistance funds have been allocated to assess whether this assistance is coordinated with all relevant interagency partners. State concurred with our recommendation.

gao_GAO-20-178

gao_GAO-20-178_0

<1. Background> <1.1. Role of Industry for National Defense> A series of laws and policy directives dating back to 1904 require DOD to rely in large part on U.S.-flag commercial ships over government-owned or foreign-flag ships for its sealift needs. More recently, a 1989 National Security Directive reaffirmed the policy of relying on U.S.-flag commercial ships to provide sealift in times of peace, crisis, and war. These requirements and policies align with the following principles from the Merchant Marine Act of 1936, as amended: A fleet of commercial ships with military utility that are owned and operated by U.S. citizens and are able to provide reliable support during difficult wartime missions is necessary for national defense. According to testimony by the Commander of U.S. Transportation Command (USTRANSCOM), during Operation Desert Shield, 7 percent of foreign-flag ships refused to go into war zones, whereas U.S.-flag ships continued to deliver cargo as promised. DOD officials we interviewed also noted that U.S. mariners have a history of providing outstanding support to the nation, but cited several situations in which civilian mariners refused to complete a government mission due to security concerns. A pool of trained U.S. mariners is needed to crew the U.S.-flag fleet. According to USTRANSCOM and MARAD, U.S. mariners are necessary to crew not only the U.S.-flag commercial ships but also the U.S. government-owned reserve cargo ships. When put into full operating status such as for a surge related to a wartime effort the government needs additional trained and qualified mariners to operate these U.S. reserve cargo ships. U.S.-flag commercial ships, which are required to be staffed by U.S.-citizen mariners, provide a pool of mariners who can be used for this task. Because mariners work on ships for months at a time, commercial ships typically have at least two full sets of mariners to crew a single ship one set of which is on the ship while the other is on leave. In times of crisis, one set of mariners could continue to work on the commercial ship, while some of those on leave could be called upon to voluntarily crew ships in the government-owned reserve fleet. A U.S. presence in international trade is needed to carry goods overseas. According to MARAD, a U.S. presence in international trade helps ensure that both commercial shippers and the military can access ships, and associated transportation networks, to carry their goods overseas at all times, both in times of peace and in times of war. <1.2. Government Support of U.S.-Flag Industry> The U.S. government financially supports oceangoing U.S.-flag ships in two key ways: (1) Maritime Security Program (MSP) stipends and (2) cargo preference requirements. Maritime Security Program: Since fiscal year 1996, the MSP has provided an annual stipend set by statute, subject to annual appropriations, to support a specific number of internationally trading U.S.-flag ships. In return for receiving the stipend, the MSP ship operator agrees to keep the ship or an equivalent ship under the U.S. flag for the life of the MARAD-issued operating agreement, and enrolled in a Voluntary Intermodal Sealift Agreement. By statute, the MSP is to enroll no more than 60 ships and provide each with a stipend of $5 million annually in fiscal years 2018-2020, subject to the availability of appropriations. The MSP was designed as a less costly replacement for the Operating Differential Subsidy that, since 1936, had subsidized the higher operating costs of the U.S.-flag fleet compared to foreign-flag ships operating on similar routes and trades. The MSP currently covers approximately 71 percent of the average annual operating cost differential between U.S. and foreign-flag ships, although this share varies across ships in the MSP, according to DOT s estimates. The other key way that these ships can make up the operating cost differential is by carrying government cargo under cargo preference requirements. Cargo Preference: A series of laws requires federal agencies to transport some portion of their cargo on U.S.-flag ships, to the extent such ships are available at fair and reasonable rates. For example, current law requires that 100 percent of military cargo be transported on U.S.-flag ships, unless the rates are found by the President to be excessive or otherwise unreasonable. According to a 2015 MARAD report, DOD accounts for 59 percent of total government cargoes. For non-military cargo, including food aid, current law requires federal agencies to transport a minimum of 50 percent of their cargo on privately owned U.S.-flag commercial ships. Federal agencies can meet cargo preference requirements by transporting cargo on any privately owned U.S.-flag commercial ships, including those in the MSP. As we reported in 2018, federal stakeholders have differing views on cargo preference requirements. On the one hand, these requirements result in higher shipping costs for food aid agencies, costs that agency officials said negatively affect their missions. On the other hand, these requirements help support the financial viability of U.S.-flag ships by helping to offset the cost differential between U.S.-flag and foreign-flag ships. According to the 2015 MARAD report, the higher freight rates that DOD and other federal agencies pay to transport government cargo on U.S.-flag ships are critical to the financial viability of U.S.-flag ships in international trade, including MSP ships. In addition, the law commonly referred to as the Jones Act generally requires that maritime transport of cargo between points in the United States be carried by ships that are owned by U.S. citizens, registered under the U.S.-flag, and built in the United States. One of the purposes of the Jones Act is to provide the nation with a strong domestic maritime industry that can serve as a naval or military auxiliary in time of war or national emergency. As of August 2019, there were 99 oceangoing ships operating domestically (i.e., in the Jones Act fleet), according to MARAD data. We reported in 2013 that the effect of any potential modifications to the Jones Act on the U.S.-flag maritime industry would be uncertain. While repealing the Jones Act could increase competition with foreign-flag ships and reduce costs for shippers, it could also affect the reliability of the industry and have a negative effect on the U.S.-flag maritime industry and national security. <1.3. Maritime Roles Split across Multiple Federal Agencies> DOT, DOD, and the Department of Homeland Security, among others, play a key role in federal policy related to the U.S.-flag maritime industry. Specifically: DOT, through MARAD, is the primary federal agency responsible for federal policy in support of the industry. DOT administers the MSP in consultation with DOD, provides funding to federal and state maritime academies, provides financial assistance to shipyards, and maintains a fleet of 56 government-owned cargo ships in reserve to provide sealift during war and national emergencies. DOD, through USTRANSCOM, jointly administers the MSP with DOT, and uses the U.S.-flag maritime industry to meet its sealift needs. DOD also maintains a fleet of 15 government-owned ships in reserve to provide sealift during war and national emergencies. We refer to DOT s and DOD s fleets together as the government-owned reserve fleet. The Department of Homeland Security, through the U.S. Coast Guard, oversees and regulates the U.S. maritime industry and marine transportation system. This includes overseeing and approving merchant mariner training programs, credentialing U.S. merchant mariners, documenting U.S.-flag ships, and maintaining the U.S, registry, among other functions. The Department of Agriculture and United States Agency for International Development administer multiple international food-aid programs. Under cargo preference requirements, they must use the U.S.-flag maritime industry to transport at least 50 percent of their government cargo when U.S.-flag ships are available at fair and reasonable rates. <1.4. National Maritime Strategy> Since 2014, DOT has been required by law to develop two strategies: one to address industry challenges and the other to ensure the viability of U.S. sealift capability. First, the Howard Coble Coast Guard and Maritime Transportation Act of 2014 mandated that DOT, in consultation with U.S. Coast Guard, submit a national maritime strategy to Congress by February 2015. The law mandated that this strategy: Identify federal regulations and policies that reduce the competitiveness of the U.S.-flag maritime industry. Provide recommendations to make the fleet more competitive in international trade. Enhance U.S. shipbuilding capacity. In January 2018, the John S. McCain National Defense Authorization Act for Fiscal Year 2019 provided a new deadline of February 2020 for this strategy to be submitted. The second strategy, due in April 2014 and mandated by the Consolidated Appropriations Act of 2014, was to develop a national sealift strategy in collaboration with DOD to ensure the long-term viability of the U.S. Merchant Marine. This act additionally required DOT to identify the impact of reduced cargo preference requirements. DOT plans to submit a single maritime strategy to meet both these 2014 mandates. DOT completed a draft national maritime strategy that went through OMB interagency review in 2016. However, DOT did not finalize this strategy and submit it to Congress prior to the change in presidential administration. In August 2018, we recommended that DOT complete the strategy and publish a timeline for finalizing the strategy. DOT agreed to implement our recommendation. <2. Industry Challenges Could Affect National Defense and Federal Actions Are Limited> <2.1. Selected Stakeholders Identified Several Areas in which Maritime Industry Challenges Could Affect National Defense> The U.S.-flag maritime industry faces an array of challenges that could negatively affect national defense. Federal assessments, as well as the federal officials we interviewed, underscored that the industry is critical to national defense, and that some potential sealift needs could be difficult for the U.S. industry to meet. All 10 of the industry stakeholders we interviewed identified at least one challenge related to each of the three broad sectors of the industry: (1) ships, (2) shipyards, and (3) mariners. Ships. Seven of the 10 stakeholders we interviewed expressed concern that declines in the size of the U.S.-flag fleet could lead to shortfalls in overall capacity or number of certain types of ships needed to carry defense cargo. Defense officials we interviewed and recent DOD needs assessments indicated that the current internationally trading U.S. fleet was generally sufficient to meet current needs but also raised some concerns about potential future gaps in certain situations. For example, the current U.S.-flag internationally trading fleet has 6 petroleum tankers down from 36 in 1990 and USTRANSCOM has estimated potential needs for 86 tankers to fulfill DOD sealift requirements under the National Defense Strategy. Currently, according to USTRANSCOM officials we interviewed, U.S.-flag tankers and tankers flagged in other countries currently meet DOD needs, but these officials stated that access to allied foreign-flag petroleum tankers is increasingly uncertain in the current geo-political environment. Likewise, roll on/roll off ships (commonly referred to as Ro-Ros because it is possible to drive vehicles on and off the ships) are essential to move military vehicles, and DOD officials we interviewed stated they currently have assured access to roughly 3.5-million square feet of commercial capacity, which just meets current needs. A recent DOD analysis estimated 3.9 million square feet of Ro-Ro capacity will be needed in 2023. Seven of the stakeholders we interviewed raised concerns about limits in the overall capacity or a mismatch between the types of ships most needed for defense and those needed for commerce. Additionally, three stakeholders added that the Jones Act fleet which is larger than the U.S.-flag fleet of internationally trading ships and also includes ships with sealift capabilities would likely not be available in a time of crisis without significant disruption to U.S. domestic trade. Shipyards. Seven of the 10 stakeholders we interviewed expressed concerns about declines in U.S. shipyard capacity. According to MARAD and DOD officials, U.S. shipyards are an important part of ensuring government-owned cargo ships can be fully activated. According to a USTRANSCOM official, a shortage of shipyard capacity has contributed to increasing repair time for the government reserve fleet. In August 2017, we reported that incidents of degraded or out of service equipment in the government reserve fleet had increased over the previous 5 years. According to two stakeholders that operate U.S.-flag ships, U.S.-flag carriers are also experiencing maintenance delays at U.S. shipyards. For example, a representative of one U.S.-flag international carrier stated that it has difficulties scheduling needed work in a timely manner in the United States. In the face of these difficulties, as well as other business considerations, international ocean carriers may turn to foreign shipyards for repair services. Currently, according to MARAD, in April 2019, there were nine active shipyards in the United States with facilities capable of building large commercial ships. MARAD officials noted that while the domestic tug and barge industry is doing well, the side of the industry building large, self-propelled oceangoing ships is struggling due to declines in new orders. One stakeholder observed that U.S. shipyards are building very few new ships and noted that the industry could lose additional capacity in the coming years without a stream of new orders. Three stakeholders also expressed concern that shipyard workers have lost some of the necessary skills to support oceangoing commercial ships. Mariners. Nine of the 10 stakeholders we interviewed identified potential gaps in the skills or availability of U.S. citizen mariners. Likewise, federal officials we interviewed, as well as a recent government study, indicated there could be too few mariners to support sustained military sealift operations. When put into full operating status such as for a surge related to a wartime effort the government s reserve fleet needs additional crew, and DOD counts on mariners working on oceangoing U.S.-flag ships to meet this need. MARAD and DOD have raised concerns about the sufficiency of U.S.- citizen mariners to meet this need. For example, in September 2017, in a statutorily mandated report, MARAD s Maritime Workforce Working Group estimated a shortage of over 1,800 mariners in the event of a drawn-out military effort, although it also recommended data improvements to increase the accuracy of the count of available mariners. USTRANSCOM officials we interviewed added that they are concerned with not only the total number of mariners but also their specific mix of skills. Similarly, five stakeholders we interviewed identified potential mariner skills gaps because the U.S.-flag commercial fleet has modernized more quickly than the government- owned reserve fleet, so U.S.-citizen mariners in the commercial sector may lack experience with the technologies used on aging government-owned ships. Four stakeholders specifically noted potential shortages in mariners qualified to operate the 26 steam- powered ships that are in the government-owned reserve fleet, noting this older technology is no longer common on commercial ships. Seven stakeholders we spoke with stated that fleet and cargo reductions have led to fewer opportunities to crew ships, limiting career development paths for mariners. <2.2. Federal Actions to Support Industry Are Largely Limited to the Administration of Established Programs and Policies and Studying Issues> Current federal actions to address industry challenges and meet defense needs include administering long-standing policies and programs as well as studying underlying issues, rather than new efforts to confront these challenges. Established federal policies and programs including the MSP, cargo preference requirements, and the Jones Act, among others have not markedly changed in recent years. Officials explained that within the existing statutory framework, they have tried to better align the MSP fleet with defense needs. For example, within the last 2 years, they enrolled three roll on/roll off ships that provide a net increase in square- footage compared to the ships they replaced, among other improvements. Cargo preference requirements, also, have largely remained the same since 2012. MARAD has made efforts to better ensure these requirements are understood and followed by federal contracting officers, contractors, and sub-contractors who make shipping decisions and are supposed to abide by these requirements. Specifically, MARAD has developed training on cargo preference and conducted outreach to various agencies and industries. Further, agencies have taken other actions to improve existing programs in ways that could aid defense. These actions include initiatives to make it easier for veterans to earn merchant marine credentials and bureaucratic improvements to speed the process to flag a ship in the United States. Five of the 10 stakeholders we interviewed noted that these established policies and programs, collectively, are vital to the U.S.-flag maritime industry. Four stakeholders emphasized that the internationally trading U.S.-flag industry is supported by three sources of revenue MSP stipends, government cargo, and commercial cargo and stated that reductions in any of these three sources would likely cause further declines in the international-trading fleet. Similarly, an industry organization representing Jones Act carriers and a representative of a shipyard that builds ships for the fleet emphasized that the legal requirements for domestic shipping were essential to the viability of the fleet. In recent years, MARAD and other key federal agencies with maritime roles have focused on studying the industry and recent trends. DOT and DOD officials we interviewed identified several recent and ongoing efforts (see table 1). Currently, in response to a recommendation in the previously mentioned Maritime Workforce Working Group report, MARAD has begun a new effort to survey mariners to determine the number who are qualified, available, and willing to serve on short notice on U.S. government-owned sealift ships or commercial ships in times of national emergencies or to meet defense sealift needs. At this early date, DOT does not have specific plans for how to use the information gathered to change programs or practices. Likewise, USTRANSCOM regularly studies DOD s sealift needs, through formal studies, ongoing cargo forecasts, and drills. For example, the Mobility Capabilities and Requirements Study of 2018 assessed the ability of mobility forces including sealift capacity to accomplish wartime missions as delineated in the 2018 National Defense Strategy based on anticipated fiscal year 2023 fleet capabilities and capacities. This study updated a similar study completed in 2010. Federal agencies have taken limited actions to address challenges industry stakeholders have identified, and the effects of those actions are unclear. For example, in addition to procuring or repairing ships as a customer, MARAD administers the small-shipyard grant program to provide cash support to sustain some shipyard capacity. MARAD officials we interviewed explained that while this grant program focuses on shipyards that tend to be too small to serve larger commercial ships needed to support defense sealift, it does help maintain the shipyard workforce. Similarly, the effect on carriers of U.S. food aid shipments is ambiguous in light of recent budget uncertainties. For example, officials we interviewed at the Department of Agriculture did not have estimates of food-aid cargo volumes beyond current appropriations because recent budget proposals from the administration have proposed eliminating much of the funding for these programs. According to 7 of the 10 stakeholders we interviewed, federal actions have not adequately addressed industry challenges, and many expressed concern that defense needs are at risk because of certain weaknesses in the federal approach. For example, four stakeholders noted that MARAD s strategy to operate its fleet of government-owned reserve cargo ships in reduced operating status limits the opportunities for U.S.- citizen mariners to get experience on these ships, which may require distinct skills to operate (e.g., steam engines). Five stakeholders worried that federal actions were not working toward a common purpose or spurring industry innovation. Seven stakeholders stated that a comprehensive national strategy is needed to ensure, for example, that federal actions are working toward common goals to support the industry and are concerned that DOT had not yet submitted such a strategy, despite working on one since 2014. <3. Following Stalled Development Process, DOT Recently Convened Interagency Group to Finalize Strategy> After a stalled strategy development process that did not include key stakeholders, in September 2019 DOT established a new interagency working group to finalize the strategy prior to the February 2020 deadline. Since 2017, the draft national maritime strategy, initially completed in 2016, has gone through three subsequent phases of development DOT revision, OMB s interagency review, and a renewed interagency working group. However, key federal agencies were omitted from DOT s revisions and OMB s interagency review. In September 2019, DOT formed a new interagency working group through the Committee on the Marine Transportation System (CMTS), an established interagency group for improving federal coordination and policies that affect the marine transportation system, as a way to bring key federal stakeholders together to finalize the strategy. DOT s strategy revision. In 2017, the new administration instructed DOT to revise the existing draft strategy which had been completed but not submitted to Congress under the prior administration to align with its priorities. These priorities included DOD s revised National Defense Strategy. Whereas DOT had held symposiums of maritime industry stakeholders and a broad array of federal agencies in 2014 when developing the initial draft strategy, DOT s efforts to revise the strategy in 2017 and 2018 did not include substantive coordination activities with industry or other federal agencies. Subject matter experts within DOD reported to us in June 2019 that they had not seen a draft of the strategy since they provided comments during the OMB interagency review process that occurred in 2016. In addition, these DOD officials were unaware that the strategy was under revision. Similarly, in June and July 2019, officials at the Department of Homeland Security and subject matter experts within the U.S. Coast Guard told us they had not been consulted during the revision of the strategy since 2017. Accordingly, the largest government user of the U.S. flag fleet DOD and the agency overseeing credentialing of the U.S. Merchant Marine the U.S. Coast Guard were not able to provide input to DOT on revisions to the strategy mandated to ensure the long term viability of the U.S.-flag maritime industry. DOT officials we interviewed cited two main reasons for not engaging in new outreach and coordination specific to the revision of the strategy. First, they stated that the input they received in 2014 remained relevant as the challenges facing the industry have remained consistent. Moreover, DOT officials stated they are in regular contact with other federal agencies about maritime topics in general and, therefore, had a good understanding of these agencies positions. As a result, DOT officials told us they did not expect that the input they would receive from renewed outreach would be different from what they received in 2014. While DOT did not engage in substantive coordination during the strategy s revision, it did provide status updates to some stakeholders on the progress of the strategy. For example, during a June 2018 meeting of the Marine Transportation System National Advisory Committee, DOT officials briefed industry representatives and participating federal agencies on the status of the strategy. During this briefing, DOT officials stated that the strategy had undergone extensive revisions since 2015 but the vision, mission, and guiding principles are largely the same, with the strategy refocused on areas where DOT plays a lead or major role. DOT officials stated this meeting afforded participants an opportunity to comment on topics germane to the strategy. DOT, however, did not circulate a draft of the strategy at this meeting, and so substantive reviews of the draft s content were not possible. In August 2018, DOT completed its revisions and submitted the draft strategy to OMB for interagency review. OMB s interagency review process. After receiving the revised strategy from DOT, OMB staff initiated the interagency review process. In August 2018, OMB staff sent the strategy to 12 federal agencies and 2 policy councils in the Executive Office of the President, according to OMB staff. DOT officials did not provide input to OMB on which agencies should review the strategy. According to DOT officials, they do not typically provide this type of input. We inquired with all 12 agencies and both councils whether they received the strategy from OMB and provided comments. As of September 2019, officials at six agencies or councils confirmed they had received the strategy in August 2018, and relevant officials at five agencies stated they did not have records of receiving the strategy. OMB staff we interviewed emphasized that it is the responsibility of each agency to make sure the strategy is provided to the right people within the agency. OMB did not include the Department of Agriculture, a major shipper of food aid, in the interagency review process, and Department of Agriculture subject matter experts told us they were not consulted by DOT during the revision of the strategy. Shortly after circulating the draft strategy, OMB suspended the interagency review process following a request from the EOP. According to OMB staff, in August 2018, an EOP policy council planned to convene a Policy Coordination Committee to address policy questions related to the strategy. As a result, OMB did not pass on the interagency comments it had already received to DOT, but instead provided those comments to the EOP policy council. According to DOT officials, OMB did not inform them that OMB had halted the interagency review process at the request of the EOP policy council. According to DOT officials, the process remained suspended until September 2019, when DOT officials learned from OMB staff that this committee had not and would not convene on the draft national maritime strategy. Furthermore, these DOT officials told us that until September 2019, when we informed them that OMB had suspended the process, they had been unaware that any such committee had been under consideration. Moreover, they indicated DOT had not worked with any EOP policy councils to resolve policy questions or concerns during that time. Likewise, DOD officials we interviewed also were unaware of any Policy Coordination Committee related to the strategy and had not worked with any EOP policy councils to resolve policy questions or concerns. As a result, from approximately September 2018 to September 2019, DOT was not working to advance the strategy, according to DOT officials we interviewed, nor did the OMB interagency process provide DOT with input from other agencies. Renewed interagency working group. Following our inquiries about both DOT s and OMB s interagency collaboration, in September 2019, DOT formed an interagency working group to finalize the strategy. According to DOT officials, following discussions with OMB, they understood that DOT could renew its efforts to finalize the strategy. According to DOT officials, DOT determined that the CMTS was the best forum for this finalization to occur. DOT officials explained the purpose of the working group is to receive substantive input from other agencies, fine tune the content of the strategy, and coordinate final edits. DOT officials told us the working group is open to any member of CMTS that elects to participate. Officials with CMTS we interviewed told us that it functions as an interagency forum for policy discussion and coordination, at the discretion of member agencies, and can help address issues that cut across multiple agencies. As of October 2019, participating agencies in the CMTS working group included DOT, OMB, DOD, and the Department of Homeland Security, among other agencies with maritime roles and responsibilities relevant to the strategy. DOT officials expected the working group to complete its work by the end of November 2019. After that time, DOT plans to send the strategy to OMB for an additional round of interagency review and clearance and to submit the finalized strategy to Congress. DOT officials stated the department remains committed to meeting the deadline to submit a finalized strategy by the February 2020 deadline. See figure 1 for the timeline of these three phases of development. Our previous work has found that national strategies are a mechanism for interagency collaboration, and that accordingly they can be used to address a range of purposes, including policy development and program implementation. We also found that collaborative mechanisms benefit from certain leading practices, including ensuring that all relevant participants have been included. These participants should have full knowledge of the relevant resources in their agency, the ability to commit those resources, and the knowledge, skills, and abilities to contribute to the collaborative effort. In addition, OMB guidance states that prior to submitting a document to OMB for interagency review, the submitting agency should make intensive efforts to reach agreement on policy issues in areas where there is overlapping interest between agencies. Since 2017, and throughout DOT s revision of the strategy and the OMB interagency review initiated in 2018, key federal agencies and personnel were not included in the strategy s development and lacked opportunities to provide their input on the strategy at that time. Without these agencies input, DOT did not have assurance that the strategy incorporated the agencies expertise or the most up-to-date information relevant to the strategy, including on DOD s most recent sealift needs and priorities. Given the interconnected nature of maritime issues and the breadth of the statutory requirements for DOT to address in the strategy, including provisions that call for collaboration with DOD, interagency collaboration is an important step toward developing an effective national strategy. DOT s work with the CMTS interagency working group should help ensure such collaboration and the input of key stakeholders that had previously not contributed to the revision of the strategy. In light of this new effort and our prior recommendation in 2018 that DOT complete and finalize the strategy, we are not making a new recommendation in this report. <4. Agency Comments> We provided a draft of this report to DOD, OMB, DOT, and the Department of Homeland Security for review and comment. DOD, DOT, and the Department of Homeland Security provided technical comments, which we incorporated as appropriate. OMB told us that they had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees, Secretaries of Transportation, Defense, Homeland Security, and Director of OMB 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 have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the individual named above, Alwynne Wilbur (Assistant Director); John Stambaugh (Analyst in Charge); David Blanding; Lilia Chaidez; Emil Friberg; Geoffrey Hamilton; Dawn Hoff; Diana Maurer; Jan Montgomery; Valerie Nowak; Josh Ormond; Molly Ryan; Travis Schwartz; Sarah Veale; Michelle Weathers; and Suzanne Wren made key contributions to this report.

Why GAO Did This Study DOT's efforts related to a national maritime strategy aimed at helping to ensure the sustainability and competitiveness of the U.S.-flag fleet were first mandated in statute in 2014. In 2018, the due date for the national maritime strategy was extended to February 2020. A provision in statute directed GAO to identify the challenges facing the U.S. maritime industry and the status of the national maritime strategy. This report (1) identifies selected stakeholders' views on the key national defense implications of the challenges facing the U.S. maritime industry, among other things, and (2) examines the status of the national maritime strategy and the extent to which DOT coordinated the strategy's development with relevant federal agencies. GAO reviewed relevant laws and analyzed DOT and DOD documents related to the U.S. flag fleet. GAO also interviewed: (1) staff in the Executive Office of the President, including OMB, and (2) officials in DOT, DOD, and other federal agencies as well as selected industry stakeholders. Interview selections were based on a range of factors to gather different perspectives across the industry and results are not generalizable to all industry stakeholders. What GAO Found Selected stakeholders identified some key national defense implications of the challenges facing the U.S. maritime industry. This industry—which includes oceangoing U.S.-registered (i.e., U.S.-flag) ships and U.S. citizen mariners—provides global transportation capabilities to the Department of Defense (DOD) in times of peace, crisis, and war. The Department of Transportation (DOT), in cooperation with DOD and other federal agencies, is responsible for federal programs to ensure that this industry meets defense needs. Stakeholders, as well as DOD officials, cautioned that continued declines in the size and capabilities of the oceangoing U.S.-flag fleet could lead to inadequate capacity for DOD to transport military cargo during a national defense crisis. Likewise, a potential shortage of mariners could lead to DOD not having adequate crews to operate government-owned reserve ships that may be activated during a wartime surge. Seven of the 10 industry stakeholders GAO interviewed stated that a comprehensive national strategy could help address industry challenges. After a stalled strategy development process that did not include key stakeholders, DOT established a new interagency working group, in September 2019, to finalize the national maritime strategy. DOT has been working on a draft strategy since 2014 to address statutory mandates. In 2017, DOT began revising the draft strategy to align with the new administration's priorities. Interagency coordination, however, was limited as DOT did not include DOD or other key federal stakeholders. In August 2018, DOT submitted the revised draft to the Office of Management and Budget (OMB) for interagency review. OMB staff told GAO they circulated this draft to 12 agencies and two policy councils in the Executive Office of the President. However, according to OMB staff, OMB suspended this process shortly after it began at the request of the Executive Office of the President because of its plans to convene a committee to consider policy matters related to the strategy. According to DOT officials, the process remained suspended until DOT learned in September 2019 that the Executive Office of the President had not convened and no longer planned to convene such a committee. DOT then established a new interagency working group to revise and finalize the strategy, ending a year-long delay in the strategy's development (see figure). This working group includes DOD and other key agencies that were not previously consulted and should address gaps in interagency coordination. DOT officials told GAO that they intend to submit the strategy to Congress by February 2020, as required.

gao_GAO-20-148

gao_GAO-20-148_0

<1. Background> <1.1. Organizational Roles and Responsibilities> Numerous organizations have roles and responsibilities in formulating and executing the Marine Corps budget. Specifically: Office of Management and Budget. OMB directs federal agencies, including DOD and the military services, to develop, among other things, civilian personnel budget requests by calculating workload requirements, the time needed to complete the workload and the number of FTEs needed to perform the work for the upcoming fiscal year. Every year, OMB releases an update to OMB Circular A-11, which provides guidance for budget formulation for the upcoming fiscal year. OMB Circular A-11 states that federal agencies should take steps to assess, and as appropriate, restructure, retain, and resize their FTE counts to achieve missions as effectively and efficiently as possible. Office of the Under Secretary of Defense (Comptroller). OUSD(C) issues the DOD s Financial Management Regulation for budget formulation and execution. The Financial Management Regulation directs statutory and regulatory financial management requirements, systems, and functions for all organizational entities within the DOD. Department of the Navy. According to Department of Navy budget officials, they provide annual budget formulation guidance to all of the budget submitting offices, including the Marine Corps, through the Program Budget Information System, the Navy s Financial Management & Budget web portal. According to these officials, the guidance contains detailed instructions and updates for budget formulation, worksheets for checking the accuracy of submitted data, and points of contact for budget formulation questions. Marine Corps Deputy Commandant for Programs and Resources (DC P&R). DC P&R is the lead for determining and allocating civilian labor budgets. The DC P&R delegates this responsibility to the Fiscal Director who monitors major subordinate command and Headquarters Marine Corps labor budget execution to ensure compliance with Manage to Payroll budget controls. DC P&R sub-allocates the portion of the budget that will be executed against civilian labor by each major subordinate command and Headquarters Marine Corps. In order to hold the major subordinate commands and Headquarters Marine Corps accountable for exercising prudent Manage to Payroll authority, DC P&R monitors civilian labor execution and issues Mange to Payroll reports on a monthly basis. Marine Corps Director for Civilian Human Resources (DCHR). DCHR provides program direction, technical advice, guidance and assistance to major subordinate commands, Headquarters Marine Corps staff agencies, and servicing human capital resource offices in carrying out Manage to Payroll responsibilities, with regard to position classification. DCHR also holds individuals with delegated classification authority accountable for carrying out effective Manage to Payroll responsibilities, when it comes to classification of position descriptions. <1.2. DOD Inspector General Report on Marine Corps Civilian Personnel Budget Development> In June 2018, the DOD Inspector General reported that, among other things, the Marine Corps did not justify or fully provide supporting documentation for how it determined its civilian personnel pay requirements for the Marine Corps fiscal year 2017 budget request. The Department of the Navy concurred with a DOD Inspector General recommendation that the Department of Navy establish and implement controls for the civilian pay budget process. The Marine Corps stated in an unpublished written response that it is reviewing its current budget formulation and other metrics through the fiscal year 2020 budget formulation process, with a plan of implementing an updated budget documentation process for the fiscal year 2021 budget request. The DOD Inspector General also found that the Marine Corps did not determine civilian pay funding levels using FTEs calculated from projected hours to be worked, as required by OMB. As a result, the DOD Inspector General recommended that the Marine Corps determine its budgeted civilian pay funding levels using FTEs calculated based on projected hours to be worked, as required by OMB. In its unpublished written response to the DOD Inspector General report, the Marine Corps stated that it determines FTEs in accordance with OMB and is working to provide greater emphasis on FTEs in its budget documents. See appendix II for more details on the DOD Inspector General s report. <2. The Marine Corps Develops Its Civilian Personnel Budget Request Using Prior Fiscal Year Data with Adjustments from Various Sources> The Marine Corps formulates its annual civilian personnel budget request using prior fiscal year budget execution data as a baseline, then makes adjustments for the upcoming fiscal year based on inputs from various sources like the Department of the Navy and OUSD(C). First, according to Marine Corps officials, the Marine Corps gathers information from several sources to start the budget formulation process including previous fiscal year budget information, information from the Program Objective Memorandum (POM) process, feedback from Marine Corps commands, OUSD(C) guidance, Department of Navy guidance, and the National Security Strategy. To develop its civilian personnel budget request for fiscal year 2020, the Marine Corps used fiscal year 2018 information as a starting point and incorporated changes made through the POM process and other inputs, according to Marine Corps Programs and Resources officials. Second, Marine Corps officials explained during the budget formulation process, the Department of the Navy publishes a Civilian Pricing Tool that financial management and budget officials use to evaluate civilian personnel pricing estimates. The Marine Corps has access to the Civilian Pricing Tool throughout the budget process. After all the inputs are included and the pricing calculations are completed, the Marine Corps officials explained, the Deputy Commandant, Programs and Resources presents the POM to the Commandant of the Marine Corps for approval and inclusion in the Department of the Navy s overall budget request. Third, according to Department of Navy officials, they conduct a thorough analytic review of each line item s dollar amount and FTE request in the Marine Corps budget request before submitting its total budget to OUSD(C). Once the Department of the Navy has reviewed and approved of the Marine Corps budget request, including its request for civilian personnel funding, the Department of the Navy sends the budget request to OUSD(C) for review. Fourth, according to Department of the Navy officials, OUSD(C) reviews the Marine Corps civilian personnel budget request as part of the Department of the Navy s overall budget request submission, including any change in year-to-year FTE growth, to determine if the Marine Corps properly justified these changes. Once OUSD(C) s review of the Department of the Navy s budget submission is complete, the Navy s budget request is submitted with the other military department s budget requests to OMB for review. During this period, according to Department of the Navy officials, OMB has monthly conversations with the military departments, including the Department of the Navy, about its budget formulation process. OMB has the authority to raise concerns with a particular military department s budget request during a passback period. Once the passback period with OMB is complete and the budget request is approved by OUSD(C), the entire Department of Navy budget is submitted to the Office of the Secretary of Defense. Finally, according to Department of the Navy officials, the Office of the Secretary of Defense makes adjustments to the Department of the Navy s budget request according to DOD and OMB priorities, and after OUSD(C) provides feedback to each military service, the military services budget request, as modified, is incorporated into the President s budget request. <3. Marine Corps Manages Its Civilian Personnel Budget Process Based on Dollar Amount, which Has Benefits and Weaknesses> <3.1. Marine Corps Manages the Execution of Its Civilian Personnel Budget Execution Based on Dollar Amount, Not FTEs> The Marine Corps manages the execution of its civilian personnel budget based on the dollar amount, not FTE workload forecasts, through an approach referred to as Manage to Payroll. Specifically, the Manage to Payroll approach places an emphasis on spending the amount of dollars or funding available for civilian personnel and not on executing a calculated full-time equivalent civilian personnel workload. Further, Marine Corps Order 12510.2D requires officials delegated Manage to Payroll authority to be accountable for establishing positions to accomplish the mission with maximum efficiency and productivity balanced against the civilian labor budget. The Manage to Payroll approach is comprised of three separate functions: (1) position management, (2) position classification, and (3) compensation management. Position management. The process of organizing and structuring organizations to accomplish their mission with maximum economy, efficiency, and productivity. Managers and supervisors determine the type of organizational structure needed to fulfill the functions assigned to a particular unit, how many positions are needed, how positions should be designed, and the most cost effective way of filling the requirement. Position classification. The function that assigns an individual position to the appropriate pay plan, occupational series, title, and grade. Compensation management. For positions where funding levels are prescribed by the Deputy Commandant for Programs and Resources, the major subordinate commands and Headquarters Marine Corps staffing agencies must ensure salary costs and other cost drivers (i.e. overtime, awards, incentives, etc.) do not exceed the civilian labor funding levels. To implement this approach, the Marine Corps Director for Civilian Human Resources, among other things, provides program direction, technical advice, guidance and assistance to the major subordinate commands, Headquarters Marine Corps staff agencies, and servicing human resources offices for carrying out Manage to Payroll responsibilities. In order to hold individuals with delegated classification authority accountable for carrying out effective Manage to Payroll responsibilities, the Director for Civilian Human Resources also conducts consistency reviews in coordination with the human resources offices to validate proper classification of positions. These reviews involve verifying positions are classified in accordance with Office of Personnel Management classification standards and within sound position management principles. Additionally, the Marine Corps Deputy Commandant for Programs and Resources is the lead for determining and allocating the Marine Corps civilian personnel budget and sub-allocates the portion of the budget that will be spent against civilian labor by each major subordinate command and Headquarters Marine Corps. <3.2. Benefits and Weaknesses Exist with the Marine Corps Management of Its Civilian Personnel Budget Execution> According to Marine Corps officials, there are benefits to using the Manage to Payroll approach for managing its civilian personnel budget execution. These benefits, according to Marine Corps officials, include: Flexibility in spending. This approach provides flexibility to the major subordinate commanders by allowing them the ability to prioritize their own current mission requirements and functions rather than spending their civilian personnel budget on workload requirements used to formulate a civilian personnel budget request during the previous fiscal year. Management of personnel requirements. The process allows commanders to manage their personnel requirements to fit with mission priority rather than adhering to the FTE-based workload requirements used to formulate their civilian personnel budget request. Visibility. This process enables officials at Marine Corps Programs and Resources and Headquarters Marine Corps to have direct control over and closely monitor the major subordinate commands civilian personnel budget execution. However, weaknesses exist with the Marine Corps Manage to Payroll approach to managing its civilian personnel budget execution. Our analysis of the Department of the Navy s annual budget request, which includes Marine Corps civilian personnel FTE data, found that the number of civilian FTEs the Marine Corps reported does not match the number of civilian FTEs it requested. This discrepancy between the number of FTEs requested and the number of FTEs reported is a result of the Marine Corps managing civilian personnel to dollar amounts and not to FTEs. Specifically, funding provided by Congress annually for the Marine Corps to manage its civilian personnel is based on the number of FTEs the Marine Corps requested for a particular fiscal year. However, during the budget execution process, Headquarters Marine Corps distributes funding to the major subordinate commands by dollar amount and not by FTEs requested. The President s budget request, which is the sole single document with budget information for the entire government, contains (1) a record of actual receipts and spending levels for the fiscal year just completed, (2) a record of current-year estimated receipts and spending, and (3) estimated receipts and spending for the upcoming fiscal year and 9 years beyond, as proposed by the President. Additionally, OMB Circular A-11 requires that current year FTE estimates should be consistent with previous year actuals, should be fully funded, and should be very close to the actual usage reported at the end of the fiscal year. For example, the estimates in the previous year s budget should be very close to the actuals published in the current budget. Table 1 shows the difference between the Marine Corps FTEs estimates in its annual civilian personnel budget request and its reported usage of actual FTEs for the previous year s budget execution contained in the budget requests from fiscal years 2013 through 2018. When asked about the difference between estimates and reported usage of actual FTEs, a Headquarters Marine Corps official stated that they were generally unaware of the importance of the budget data in measuring the degree to which an agency was exceeding or not reaching its requested FTEs. However, the official also acknowledged that a possible consequence of not managing to estimated FTEs could be a reduction in future funding for civilian personnel because budget data provided to Congress for civilian personnel is based on FTE workload and not the amount of dollars spent on civilian personnel. Therefore, a result of the Marine Corps managing to dollar amounts and not to FTEs may result in Congressional decision-making based on incorrect data, which may result in the major subordinate commands having to eliminate civilian positions. Department of the Navy officials confirmed this and told us that the Marine Corps use of Manage to Payroll puts Department of the Navy resources at risk of reduction. Additionally, according to Department of the Navy officials, the Navy s financial management branch does not support the Marine Corps use of Manage to Payroll and recommends that the Marine Corps begin to manage its civilian personnel resources using the same process as the Navy s other budget submitting offices, by formulating civilian personnel funding requests with estimated FTE requirements and then monitoring execution of the budget by actual FTEs. Additionally, by formulating and monitoring civilian personnel budgets by FTEs, there would be more transparency in how the Marine Corps is actually executing its civilian personnel budget. Our review of the Marine Corps policy for managing its civilian personnel budget execution found that it does not provide guidance for major subordinate commands to manage actual civilian FTEs to requested amounts. Specifically, Marine Corps Order 12510.2D provides budget execution requirements but does not include requirements on managing civilian FTEs. According to officials with Marine Corps Programs and Resources, Marine Corps Order 12510.2D is a Manpower and Reserve Affairs Department document that focuses on personnel actions rather than explicitly establishing cost controls. Specifically, the order states that individuals delegated Manage to Payroll authority are accountable for establishing positions to accomplish the mission with maximum efficiency and productivity balanced against the labor budget. Federal internal control standards state that management should document the organization s internal control responsibilities in its policies at the appropriate level of detail to allow management to monitor the control activity effectively. Without updated guidance for major subordinate commands to formulate and execute its civilian personnel budget to estimated FTEs, the Marine Corps risks overspending or underspending on its personnel requirements. Additionally, decision makers may not have sufficient information to effectively and efficiently provide funding for Marine Corps civilian personnel. <3.3. Internal Marine Corps Spending Data Does Not Align with Budget Request Data> Our analysis of Marine Corps internal spending data found that the dollar amount the Marine Corps is projecting to spend on civilian personnel for fiscal year 2019 is $1,749,444,000, which is in line with the $1,750,500,000 provided in its budget request for managing civilian personnel. However, our analysis of 15 major subordinate commands found that four of them are either exceeding or not reaching their requested dollar amounts by $5 million dollars or more. For example, for fiscal year 2019, Marine Corps Systems Command is projected to overspend its requested civilian personnel dollar amount by $24.7 million and Marine Corps Cyber Command is projected to fall short of its requested civilian personnel dollar amount by $7.9 million dollars in fiscal year 2019. Table 2 shows the variation in projected dollar amount by major subordinate commands for fiscal year 2019. Marine Corps Programs and Resources officials stated that when a major subordinate command exceeds its requested dollar amount, the major subordinate command is not compensated from larger Marine Corps accounts, but the command must find additional funding from within its other accounts, which may mean a funding cut to another program to make up the difference. Our review of Marine Corps civilian personnel data also found that Marine Corps data on civilian FTEs is not consistent with data that OUSD(C) uses to formulate DOD s request for civilian personnel FTEs in its annual budget submission. The Marine Corps uses a database called SABRS to maintain and track civilian personnel FTE data for fiscal years 2013 through 2019. To develop DOD s defense-wide annual civilian personnel budget request, OUSD(C) uses data from the Program Resources Collection Process system. Our review of Marine Corps data maintained in SABRS found that it does not match the data DOD provided in its annual budget request submissions, which comes from OUSD(C) s Program Resources Collection Process system, for fiscal years 2013 through 2018. Table 3 shows the difference between the Marine Corps internal civilian FTE data in SABRS and the civilian FTE data provided in the annual budget request. An OUSD(C) official told us that the two sources should match because all data, including civilian personnel dollar amounts and FTEs, should be submitted and processed through the Program Resources Collection Process system. Marine Corps officials explained that they were aware of the variations between their internal FTE data and the DOD budget request data. The officials further explained that one instance of variation in the data occurs because the Department of the Navy uses another database, the Work Year Personnel Cost system, to prepare its annual budget request, which includes the Marine Corps request for civilian personnel FTEs, before submitting the request to OUSD(C). According to the Marine Corps officials, the Work Year Personnel Cost system automatically deletes error transactions while SABRS does not, as error transactions in SABRS are manually edited. These types of error transactions occur because they did not pass one or more edits in SABRS, did not find the required matching transaction, or have some other issue that is keeping the transaction from processing. The Marine Corps corrects error transactions manually while errors transactions in the Work Year Personnel Cost System are deleted automatically without correction, which creates differences in the data between the two systems. Marine Corps officials stated that, as a result, the Work Year Personnel Cost database typically underestimates Marine Corps civilian FTEs, and that variations in actual FTE data between the SABRS and Work Year Personnel Cost databases explains why it appears the Marine Corps is not reaching its requested civilian personnel FTEs. The Marine Corps has not identified or reconciled differences between internal Marine Corps civilian personnel FTE data compared to data submitted in the annual budget request. Additionally, federal internal control standards state that management should use quality information to achieve the entity s objectives; that reliable internal and external sources provide data that are reasonably free from errors and faithfully represent what they purport to represent; and that information is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Congress and DOD leadership rely on information presented in an agency s annual budget request to help determine policies and to make financial decisions. Our prior work has found that civilian FTEs, by themselves, may not be reliable measures of the cost of the civilian personnel workforce and changes in civilian FTEs may not achieve commensurate changes in monetary spending. However, in that report we also noted that, according to OUSD(C) officials, FTEs are typically the primary measure OUSD(C) uses in managing and reporting on DOD s civilian workforce. Therefore, without reliable Marine Corps civilian personnel data, senior leaders in DOD and decision makers in Congress may not have sufficient and appropriate information to make informed planning and spending decisions and may risk funding not accurately tracking with actual needs. <4. Conclusions> To develop its annual civilian personnel budget request, the Marine Corps uses a process that relies on prior fiscal year budget execution data instead of calculating civilian personnel workload requirements and the number of FTEs needed to perform the work. Without updated guidance for the major subordinate commands to manage their respective civilian personnel budget execution to requested FTEs, the Marine Corps risks overspending or underspending on its personnel requirements. Further, assessments of Marine Corps civilian personnel FTE and DOD budget data found that the Marine Corps data does not match comparable data DOD reported in its annual budget request documentation. Congress and DOD leadership rely on FTE information presented in the Marine Corps annual budget request to help determine policies and to make financial decisions. Without civilian personnel data that are free from errors and are consistent with how the Marine Corps is managing its civilian personnel, senior leaders in DOD and decision-makers in Congress will not be able to make informed planning and spending decisions and may risk funding not accurately tracking with actual needs. As a result, the Marine Corps risks having its annual civilian personnel funding reduced. <5. Recommendations for Executive Action> We are making the following two recommendations to the Secretary of the Navy: The Secretary of the Navy should ensure that the Commandant of the Marine Corps updates the Marine Corps civilian personnel budget formulation and execution policies to include guidance for the major subordinate commands to manage civilian personnel to FTEs. (Recommendation 1) The Secretary of the Navy should ensure that the Commandant of the Marine Corps identifies and reconciles any differences between the Marine Corps internal civilian personnel data and the civilian personnel data the Department of the Navy uses to support its annual budget request. (Recommendation 2) <6. Agency Comments> We provided a draft of this report to DOD for review and comment. In written comments, DOD concurred with both recommendations and noted actions that the Marine Corps plans to take. DOD s comments are reprinted in appendix III. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Navy, and the Commandant of the Marine Corps. 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) 512-3604 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 IV. Appendix I: Scope and Methodology For our first objective, to determine how the Marine Corps develops its civilian personnel budget request, we obtained and reviewed Marine Corps, Department of Defense (DOD), Department of Navy, and Office of Management and Budget policies that guide the budget process in order to determine what requirements exist across each level of oversight and discussed these requirements with agency officials. To further analyze the Manage to Payroll process, we also obtained and reviewed Marine Corps Program Objective Memorandum requests, budget formulation and execution documents, budget analyses, financial spreadsheets, and budget presentations. We also interviewed responsible officials about these processes and requirements. For our second objective, to assess the Marine Corps management of its civilian personnel budget and FTEs, we reviewed the Marine Corps process for managing its civilian personnel budget and FTEs and compared it against Marine Corps orders and administrative messages. To examine Marine Corps policies for budget data entry, coordination, and management, we compared them to the Marine Corps Financial Management Standard Operating Procedure Manual. To determine how the Marine Corps manages its civilian personnel funding, how the Marine Corps measures budget execution by major subordinate command, and how the Marine Corps monitors and collects data on budget execution, we interviewed officials from Marine Corps Programs and Resources. To identify Manage to Payroll requirements and Marine Corps policies for managing its civilian personnel we interviewed officials from Marine Corps Manpower and Reserve Affairs. We also interviewed officials in the Marine Corps Programs and Resources office, Marine Corps Systems Command, Marine Corps Cyber Command, the Department of the Navy, and the Office of the Under Secretary of Defense (Comptroller) about their perceptions of the benefits and weaknesses of the Manage to Payroll process. To measure whether the Marine Corps exceeded or fell below its civilian personnel full-time equivalents (FTE) budget request, we compared the Marine Corps civilian personnel budget execution data to its budget request data from the same fiscal year to determine if Marine Corps actual FTEs matched this data from year to year. To measure whether the Marine Corps was consistently exceeding or falling below its FTE budget request at each major subordinate command, we reviewed Marine Corps budget execution spreadsheets displaying end-of-year budget and FTE projections. To provide a statistical measurement of the Marine Corps efforts to manage its civilian personnel budget, we obtained and analyzed fiscal year 2013-18 budget execution data from the Marine Corps Standard Accounting, Budgeting, and Reporting System (SABRS) that tracks both dollar amount and FTE allotment across the major subordinate commands. We also used SABRS data to determine how funds are allocated to the major subordinate commands within the Marine Corps. To determine if differences in reported FTE totals existed between the Marine Corps internal data and publically available data, we compared SABRS civilian personnel FTE actual data from fiscal year 2013-18 to its requested FTEs. To assess the reliability of the Marine Corps data, we reviewed policies and procedures related to data collection and entry, evaluated Marine Corps internal data reliability checks, and interviewed cognizant officials. Based on this, we determined that the data were sufficiently reliable for the purposes of our reporting objectives. We conducted this performance audit from November 2018 to August 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Department of Defense Inspector General Reports on Military Departments Civilian Pay Budgets In June 2018, the Department of Defense (DOD) Inspector General issued a report on the civilian personnel budget formulation process of the Department of the Navy, which included information on the Marine Corps. In its report, the DOD Inspector General found that the Marine Corps could not justify or support how it determined its civilian personnel pay requirements for fiscal year 2017 s Marine Corps budget request. Specifically, the report noted that Marine Corps budget officials could not fully explain the rationale for their civilian pay budget adjustments. According to the DOD Inspector General report, the Marine Corps did not maintain documentation to support these budget adjustments or material showing how it calculated average basic compensation amounts and benefit rates. The DOD Inspector General also reported that Marine Corps officials were unable to explain or provide support regarding the calculation of the civilian pay dollars and full-time equivalents (FTE) associated with these adjustments. In its unpublished written response to the DOD Inspector General s report, the Marine Corps concurred with the DOD Inspector General s recommendation that the Marine Corps determine budgeted civilian pay funding levels using full-time equivalents calculated based on projected hours to be worked, as required by Office of Management and Budget Circular A-11. The Marine Corps written response also acknowledged that having source data, assumptions, calculations, and better documentation related to budget formulation would provide for retention of institutional knowledge and would benefit budget officials formulating future budgets. The Marine Corps unpublished written response also stated that it is reviewing other command metrics within the department, which will be performed throughout the remainder of the present budget cycle with a plan of implementation during the next budget cycle. The DOD Inspector General s report stated that the Marine Corps did not determine civilian pay funding levels using FTEs calculated from projected hours to be worked, as directed in Office of Management and Budget (OMB) Circular A-11. According to the DOD Inspector General s report, in its fiscal year 2017 budget formulation, Marine Corps officials stated that they considered FTEs to be the same as end strength for budget formulation purposes, assuming that one person would be on board for an entire year even though these officials acknowledged that this was not expected to be the reality during budget execution. As a result, the DOD Inspector General recommended that the Marine Corps determine its budgeted civilian pay funding levels using FTEs calculated as required by OMB Circular A-11 requirements. In its unpublished written response to the DOD Inspector General s report, the Marine Corps stated that it determines FTEs in accordance with OMB Circular A-11. Marine Corps Programs & Resources officials told us that they use cumulative hours paid in a fiscal year divided by the number of work hours in that fiscal year to generate the number of FTEs executed. These officials told us that they then divide the cumulative amount paid by the number of FTEs to receive the average work year cost for that fiscal year. Marine Corps officials stated that Programs & Resources budget officials then adjust the civilian personnel budget request during the Department of Navy pricing tool time frame, typically reducing FTEs by the recommendation provided by the tool, which uses 18 months of execution data. Marine Corps officials told us that, as result of the DOD Inspector General s report, they are working to provide greater emphasis on FTEs in their budget formulation documents. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contacts and Staff Acknowledgments <7. GAO Contact> Brenda S. Farrell, (202) 512-3604 or [email protected]. <8. Staff Acknowledgments> In addition to the contact named above, Vincent Balloon (Assistant Director), Timothy Carr, Brian Pegram, Clarice Ransom, Aaron Safer- Lichtenstein, Shari Nikoo, Michael Silver, Carter Stevens, John Van Schaik and Gregory Wong made key contributions to this report. Related GAO Products Defense Health Care: Additional Assessments Needed to Better Ensure an Efficient Total Workforce. GAO-19-102. (Washington, D.C.: Nov. 27, 2018). DOD Civilian and Contractor Workforces: Additional Cost Savings Data and Efficiencies Plan Are Needed. GAO-17-128. (Washington, D.C.: Oct. 12, 2016). Civilian and Contractor Workforces: Complete Information Needed to Assess DOD s Progress for Reductions and Associated Savings. GAO-16-172. (Washington, D.C.: Dec. 23, 2015). Defense Headquarters: DOD Needs to Reassess Personnel Requirements for the Office of Secretary of Defense, Joint Staff, and Military Service Secretariats. GAO-15-10. (Washington, D.C.: Jan. 21, 2015). Human Capital: DOD Should Fully Develop Its Civilian Strategic Workforce Plan to Aid Decision Makers. GAO-14-565. (Washington, D.C.: July 9, 2014). Human Capital: Opportunities Exist to Further Improve DOD s Methodology for Estimating the Costs of Its Workforces. GAO-13-792. (Washington, D.C.: Sept. 25, 2013). Human Capital: Additional Steps Needed to Help Determine the Right Size and Composition of DOD s Total Workforce. GAO-13-470. (Washington, D.C.: May 29, 2013).

Why GAO Did This Study The Marine Corps requested $1.81 billion to pay for approximately 16,000 civilian employees in its fiscal year 2020 budget request. The Office of Management and Budget directs federal agencies to develop civilian personnel budgets by calculating workload requirements, the time needed to complete the work, and the number of FTEs needed. The Marine Corps uses a unique budget formulation process that relies on prior fiscal year budget data to calculate FTE estimates for future civilian personnel budget requests. Senate Report 115-290, accompanying a bill for the DOD Appropriations Act, 2019, included a provision for GAO to review how the Marine Corps develops its civilian labor requirements for both FTEs and funding and examine the benefits and shortfalls of the Manage to Payroll process. This report (1) describes how the Marine Corps formulates its civilian personnel budget request and (2) assesses the Marine Corps' management of its civilian personnel budget and FTEs, including the benefits and weaknesses of the process. GAO reviewed DOD civilian personnel budget policies, analyzed fiscal years 2013 through 2018 Marine Corps budget data that tracks spending and FTE allotment, and compared 2013 through 2018 budget execution data to budget request data. What GAO Found The Marine Corps develops its civilian personnel budget request using prior fiscal year budget execution data with adjustments based on input from sources such as the Office of the Undersecretary of Defense (Comptroller) [OUSD(C)] and the Department of the Navy. As part of the Department of the Navy, the Marine Corps' budget request is added to the Navy's overall budget request, which is incorporated into the Department of Defense's (DOD) overall budget request. The Marine Corps manages its civilian personnel based on dollar amounts—not full-time equivalent (FTE) workload like the other military services—through an approach called Manage to Payroll. Specifically, while the Marine Corps requests a certain number of FTEs each year as required by policy, the Marine Corps distributes the funds it receives to its commands by dollar amount and not based on the FTEs requested. This approach has benefits, such as providing flexibility to employ civilians based on current mission requirements. However, under this approach, for fiscal year 2019, internal Marine Corps' data show that four of its commands are either exceeding or not reaching their requested dollar amounts. Marine Corps policy does not provide guidance to its commands to manage FTEs to requested amounts. Without such updated guidance the Marine Corps risks overspending or underspending on its personnel requirements. In addition, internal Marine Corps civilian FTE data for fiscal years 2013 through 2018 is not consistent with data that OUSD(C) used to formulate DOD's overall civilian personnel budget request, as shown in the figure below. The Marine Corps has not identified or reconciled differences between its internal data compared to data submitted in the annual budget request. If information in the Marine Corps' budget request does not reflect internal Marine Corps data, then Congress and DOD leadership may not have sufficient and appropriate information to make informed planning decisions. What GAO Recommends GAO recommends that the Marine Corps 1) updates its budget policies to include guidance for commands to manage civilian personnel to FTEs and 2) identifies and reconciles differences between its internal data and data OUSD(C) uses to formulate the Marine Corps' annual budget request. DOD concurred with both recommendations.

gao_GAO-20-494

gao_GAO-20-494_0

<1. Background K-12 Public School Facilities Funding> Local educational agencies (referred to in this report as school districts or districts) receive funding for education primarily from state and local sources. School districts can typically use this funding for a wide range of purposes, including school maintenance and operations. Maintenance may include routine replacement of lighting, filters, or building system parts, as well as emergency repairs to building systems. According to Education, maintenance and operations may also cover care and upkeep of grounds and equipment, vehicles (other than student transportation), and security. When school districts need to construct, renovate, replace, or make major repairs to building systems or features, such as roofing or plumbing, they typically use capital funding, which is separate from funding used for maintenance and operations. School districts use various mechanisms to fund capital projects. The specific funding mechanisms available to a given school district may differ based on state laws or regulations, and may require approval from state or local voters. A common funding mechanism for capital projects is to issue bonds. Bonds are debt securities issued by states, school districts, and other governmental entities and are repaid with interest, often through local property taxes or other types of local revenue. In some states, school districts might also use funding mechanisms called capital reserves and sinking funds to raise funds for school facilities projects. Capital reserves allow districts to hold end-of-year surpluses of general education funding in a capital reserve fund, which typically grows over time and can be used for large-scale projects. Sinking funds are usually generated from local property taxes and allow districts to set aside a percentage of property taxes each year to be used for capital projects. Districts do not pay interest because the funds are not borrowed; however, the funds generated may not be sufficient for large-scale projects. In specific circumstances, some federal funding is available for school facilities. For example, Education administers the Impact Aid program, which compensates local school districts that, among other things, have lost property tax revenue due to federal activities. This may include the presence of tax-exempt federal property, such as a military installation, children in public schools whose parents work and live on federal property, or children living on Indian lands. In fiscal year 2019, Education provided $17.4 million in Impact Aid grants to school districts, specifically for construction, renovation, or repair of school facilities. Additionally, the Federal Emergency Management Agency (FEMA) provides funding for school districts affected by some natural disasters, partly to repair and replace damaged buildings. For example, in 2019, following Hurricane Harvey, FEMA awarded grants to two school districts in Texas to set up a temporary middle school and replace books, equipment, and furniture, among other things. <2. Facilities Condition Assessments> A facilities condition assessment is a systematic inspection of building systems and features using a standardized method for recording observations about condition. For example, one might walk through a building, record the condition of building systems and features, and identify deficiencies. Individuals conducting these assessments may also review documentation on the building systems, conduct interviews with administrators or other stakeholders, and develop cost estimates of physical deficiencies. Facilities condition assessments help districts identify deferred maintenance needs in schools, which can help them plan and budget for facilities. School districts can use data gathered from these assessments to develop a facility condition index (FCI). FCIs provide a point-in-time comparison of the cost of repairing deficiencies in a building with the cost of replacing the building, and can help school districts compare conditions across their facilities. FCIs may also help school districts budget for targeted replacements or improvements of building systems. School Districts Frequently Identified Multiple Building Systems Needing Attention, Typically Through Formal Facilities Assessments <3. We Estimate About Half of School Districts Need to Update or Replace Multiple Building Systems and Features, Such as HVAC Systems> Based on our nationally representative survey of school districts, we estimate that about half (54 percent) of districts need to update or replace at least two building systems in many of their schools. Further, we estimate about a quarter of districts (26 percent) need to update or replace at least six systems in many of their schools. In terms of specific building systems and features, we estimate that 41 percent of school districts need to update or replace HVAC systems in at least half their schools (about 36,000 schools nationwide). We also estimate about a quarter of districts need to update or replace other building systems, including interior lighting, roofing, safety and security systems, or plumbing in at least half their schools (see fig. 2). We saw similar results among the 55 schools we visited. Of those, 28 had HVAC issues, such as older systems that frequently malfunction or leak and damage flooring or ceiling tiles, according to our observations and discussions with district and school officials. For example, one school we visited in Rhode Island had parts or components of their operating HVAC systems that were nearly 100 years old, according to district officials (see fig. 3). In Michigan, we visited one school that district officials said used an original boiler from the 1920s to heat the building. According to district officials, older boilers are labor-intensive to maintain because city code requires an engineer to be on site when each boiler is operating; without constant monitoring when in operation, the boilers could build up too much pressure and explode. Officials in a New Mexico district said their mechanical systems experience issues because hard water (i.e., water with a high concentration of minerals) damages the systems and causes them to malfunction. Because of the hard water, the district spent $150,000 to replace an 8-year-old boiler that, according to district officials, should have lasted 20 years. District officials said they would like to purchase filtration and water softening systems to address the issue, but that the district cannot afford to do so. If not addressed, HVAC issues can result in health and safety problems. Officials in several school districts we visited said there are serious consequences to not maintaining or updating HVAC systems, including lost educational time due to school closings and the potential for mold and air quality issues (see fig. 4). For example, officials in a Michigan district said about 60 percent of their schools do not have air conditioning, and in 2019, some temporarily adjusted schedules due to extreme heat. Without air conditioning, schools relied on open windows and fans, which were not always effective at cooling buildings to safe temperatures for students and staff, according to district officials. Officials in a Maryland district said the district retrofitted some schools with air conditioning, but did not update pipes and insulation serving the HVAC systems, which has caused moisture and condensation problems in these buildings. Officials were concerned the moisture and condensation could lead to air quality and mold problems, but said that to remedy these issues could cost over $1 million for each building. School districts also reported needing to update or replace other key building systems and features. Based on our school district survey, we estimate that about 30,000 schools need to update or replace interior lighting and about 28,000 schools need to update or replace roofing. Of the 55 schools we visited, some had recently updated or replaced these systems, while others continued to face challenges. For example, 15 schools had installed light emitting diode (LED) systems or incorporated other energy efficient features, such as motion sensors to turn off lights in unused rooms or automatic dimmers that adjust based on the amount of daylight in a given space (see fig. 5). Six schools had not recently updated their interior lighting, but officials expressed a desire to do so in the near future, such as by switching to LED systems. Some district officials said LED systems can reduce energy consumption and utility costs. Of the 55 schools we visited, 18 had problems with their roofing, according to district and school officials. Roofing problems ranged from small leaks to larger issues requiring a costly replacement (see fig. 6). For example, officials in a Rhode Island district said that replacing the roofing at one school would likely cost about $3 million. These officials said, because the district did not have the funds to replace it, they instead planned to spend $20,000 on temporary fixes, with the hope that these fixes would last until funding was available for a full replacement. <4. Majority of School Districts Evaluated Facilities to Determine Conditions> Based on our survey of school districts, we estimate that 65 percent of districts had conducted a facilities condition assessment of their schools at least once in the last 10 years and about 35 percent had not or did not know if their district had (see fig. 7). Of the districts that had conducted these assessments, almost all did so to evaluate safety and hazards (99.6 percent) and support capital planning, including prioritizing large- scale projects (96.6 percent). Additionally, of these districts, an estimated: 86.2 percent assessed facilities at every school in their district; 68.6 percent evaluated their facilities at least every 5 years; and 39.5 percent hired contractors or professional firms to conduct the assessment. We estimate that at least 53 percent of all students in the nation attended a school that had a facilities condition assessment in the last 5 years. We estimate that 16 percent of districts had not conducted a facilities condition assessment in the last 10 years. In our survey, several districts provided reasons why they had not done so, including a lack of available funding or because they assessed school conditions through other mechanisms, such as informal walkthroughs. In addition to district-level facilities condition assessments, 11 states conducted a state-level facilities condition assessment in the last 10 years, according to our state survey (see fig. 8). Common reasons provided by these states for evaluating school facilities included to assess safety and hazards (9 states) and provide facilities information to the public (9 states). However, most states (38 of 49) either had not conducted or did not know if their state had conducted a state-level facilities condition assessment. Of these 38 states: 15 states reported they required school districts to conduct 21 states reported that they neither conduct statewide assessments nor require school districts to do so; and, Two states did not know if their state had conducted such an assessment. States that had not conducted a statewide facilities condition assessment or required districts to do so frequently said they do not assess school conditions because school districts are primarily responsible for addressing deficiencies with school facilities. Most of the districts we visited said they had conducted a facilities condition assessment. Specifically, of the 16 school districts we visited in six states, officials in 12 districts said they had recently conducted a facilities condition assessment for a variety of reasons, such as to develop facilities master plans or raise support for a bond. For example, officials in one urban California district said they conducted an extensive facilities condition assessment for planning purposes and developed a master plan of issues identified in schools 20 years or older. During the assessment, the district assigned barcodes to certain systems, such as HVAC and water fountains, to track conditions across schools (see fig. 9). District officials said they update facilities data as they complete projects. Officials in a rural Michigan district said they conducted an assessment before asking voters to approve a sinking fund. District staff identified the value, age, cost for repairs, and expected lifecycle of all major systems, which helped them estimate funding needs for the next 10 years. Officials in one Florida district said they do not conduct facilities condition assessments because the district is small and the facilities manager knows the condition of their schools and when facilities issues arise. Of the six states we visited, officials from Rhode Island and New Mexico said their states had conducted statewide facilities condition assessments and Florida officials reported requiring school districts to conduct these assessments. Officials in Rhode Island and New Mexico said data from these assessments help determine state funding for districts. For example, according to officials, Rhode Island hired a consulting firm to assess school facilities in order to develop an independent estimate of the statewide funding need; in 2017, that estimate was about $3 billion. Officials in three of the states we visited Michigan, California, and Maryland said their states had neither conducted a facilities condition assessment nor reported requiring school districts to do so. Officials in Michigan said their state provides no funding for school facilities nor requires districts to conduct facilities condition assessments because districts are responsible for planning and prioritizing school facilities needs. Michigan officials said districts often assess facility conditions before seeking bonds or other local funding to show local voters the level of need. Officials in California similarly said that school districts are primarily responsible for evaluating school conditions and noted that it would be cost-prohibitive for the state to conduct a statewide assessment, given the number of schools in the state. Maryland officials said the state has not had funding to conduct a statewide assessment since 2003, but they are currently planning a future statewide assessment. After this initial assessment, the state plans to assess each school facility every 3 to 4 years, according to these officials. School Districts Prioritized Safety and Technology Updates and Primarily Used Local Funding for School Facilities <5. School Districts Prioritized Safety and Technology while Also Addressing Repairs and Modernization Projects> In addition to key building systems such as HVAC, lighting, and roofing, school districts considered the need to ensure schools are free from health hazards, as well as update schools with modern educational spaces and features. Specifically, based on our survey, we estimate that school districts high priorities when updating or renovating school facilities are as follows: security (estimated 92 percent), student access to technology (87 percent), monitoring hazards to student and staff health (78 percent), and improving telecommunication features such as wireless internet (74 percent). In comparison, the 100 largest school districts, which serve approximately 10.4 million students, identified security (estimated 99 percent), monitoring health hazards (94 percent), and completing projects to increase physical accessibility for students with disabilities (86 percent) as their high priorities. Overall, in response to our survey, districts ranked the level of priority of each building system or feature on a categorical scale of five levels, which we assigned numerical rankings of 1 (not a priority) to 5 (top priority). Average priority ratings ranged from approximately 4.5 for safety and security to approximately 2.9 for access to natural light (see fig. 10). Similarly, officials in nearly all of the 16 school districts we visited told us that some combination of addressing urgent health hazards, improving security, and upgrading technology were among their top priorities. In addition, district staff told us they were undertaking projects to modernize spaces and improve the learning environment, when possible. Districts implemented these priorities differently based on their needs and resources. <5.1. Health Hazards> Many school district officials said they address facility issues that affect staff and student health with more urgency than many other issues. At schools we visited around the country, officials reported initiatives to address health concerns that ranged from total renovations to temporary mitigation programs (see fig. 11). For example, officials in a district in California told us that in two schools we visited they removed all materials containing lead, as well as replaced all roofs that contained asbestos, in accordance with health and safety regulations. These officials also said staff tests the water quality in all schools per recommended guidelines. In a different district, officials said they had concerns about water quality, but that they did not have the funding to remediate the issue in all schools. Therefore, the district provides bottled water to students in nearly all of its schools, and installs water filtration systems when it constructs or renovates schools. In several schools in five states we visited, officials said there is asbestos in floor or ceiling tiles or other materials that would require abatement during any renovation. Because abatement increases costs, schools may prioritize other projects or find workarounds. For example, at one high school in Florida, the district installed interactive white boards on top of old chalkboards rather than risk disturbing asbestos in the walls by removing the chalkboards. Officials in two districts also told us about addressing potential health hazards related to climate. For example, at a school in Florida, officials said they have to address mold and mildew issues due to frequent flooding and high humidity. During heavy storms, school personnel work to clear drains and place sandbags in an attempt to mitigate water intrusion and flooding. <5.2. Security> In 13 of the 16 districts we visited, officials told us that security has become a top priority, though the specific measures they took to update their security features varied considerably (see fig. 12). One high school we visited recently experienced a school shooting. District officials said they were implementing a variety of new security initiatives, first at the high school, and then at all other schools in the district. In the high school, officials applied a specialized film to exterior windows to make them bullet resistant. The school has a new security vestibule where visitors wait before entering the school, and staff placed comment boxes throughout the school encouraging students to submit safety tips. In Michigan, we visited a middle school that installed additional barricades on classroom doors, and trained students on how to use them during lockdown drills. In California, we visited an elementary school that added exterior windows to the front office so staff could see visitors approaching, and installed a lockdown alarm button. Officials from some districts we visited said they prioritized security over failing building systems. For example, one district in Rhode Island where we observed problems with key building systems, including ceiling damage from a leaking roof, broken windows, and holes in the walls and foundation of a school building, installed new security features throughout their schools. These included equipping classroom doors with electronic lockdown mechanisms that staff can activate remotely. The district updated the main entrance with heavy, reinforced doors and bulletproof glass. In a district in Florida, we visited an elementary school that updated security systems, including installing new cameras. This was despite the school having major challenges with its HVAC system that require maintenance staff to go up to the roof every day to adjust the air conditioning. In addition, we observed multiple buckets throughout the school to collect water leaking through the roof, and the principal described how it frequently rained in her office. District officials said they are seeking state funding to renovate the entire school, but decided to first address security updates because all classrooms have exterior doors, making it difficult to control access to the school. In this same district, officials told us they had recently renovated the middle-high school and ensured that all classrooms had hard corners spaces where students could congregate and not be visible to an active shooter in the hallway. <5.3. Technology> Officials in many school districts we visited said that ensuring adequate access to technology was necessary for students to be successful academically (see fig. 13). All schools we visited had WiFi access, though officials in one rural district in New Mexico described access as spotty. The majority of schools we visited provided a laptop or tablet to all or almost all students or had a goal to do so. Officials in a district in California said their most important project of the past decade was to update their fiber optic capability to have a robust WiFi network. All students in this district receive a laptop or tablet beginning in second grade, and officials said these updates allowed students to easily use devices in school. In some school districts that did not provide individual devices, schools had portable technology carts to store and charge devices, so students could access them as needed. Officials in districts we visited also said they use technology to enhance educational offerings. For example, a high school in Maryland equipped a classroom with cameras and a microphone so students could attend community college classes remotely. When renovating schools, some officials told us they incorporate and anticipate technology needs. For example, a newly renovated school in Florida installed electrical outlets on table surfaces in the media center and microphones in all classrooms so students could hear teachers better. At a newly renovated school in Maryland, officials installed a projector and sound system in the cafeteria for students to watch movies and listen to music during lunch, which they said created calmer lunch breaks. <5.4. Other Modernization Projects> Officials in districts we visited said they chose among other competing facility priorities based on available funding as well as conditions at individual schools, such as the age and condition of buildings, timeframe constraints, public opinion, space constraints, and enrollment projections. In school districts we visited that reported having local taxes or bond funds available for facility projects, officials described both the need to address the condition of basic building systems and the need to renovate schools with modern educational spaces and features. For example, officials in a Rhode Island district said they are using most of the approximately $300 million in their 5-year capital plan to ensure schools are safe, warm, and dry. These district officials estimated their school facilities need over $1 billion in updates and replacements to key building systems, based on a recent assessment. However, they said they are using 25 percent of available capital funds to modernize educational spaces, such as collaborative workspaces, student common areas, and outdoor classrooms (see fig. 14 for examples of school modernizations in districts we visited). Officials said that participants in public forums preferred educational enhancements over facility repairs. In this same district, officials said they prioritized system repairs they can complete over the summer because the district does not have designated swing spaces to accommodate students during the school year. In a district in Florida, officials similarly described using the funding from a $1 billion bond for school facilities to address health and safety concerns, HVAC issues, and roofing. They balanced these building system repairs with projects to modernize buildings, including increasing natural light by replacing the windows, upgrading technology to support engineering and robotics programs, and creating open and collaborative spaces. See textbox for examples of how school officials told us school renovations improved student experiences. Additionally, several districts we visited considered enrollment and building capacity to help prioritize projects, but they faced different challenges. Specifically, some districts experienced space constraints and needed to ensure sufficient space for all students, while others had the opposite challenge of maintaining schools that were under-enrolled (see text box). In a district in California, officials said they built nine schools in the past decade because of the increasing student population. At a high school in Maryland, the principal said his priority was ensuring sufficient space because the school was at capacity and he was struggling to find additional classrooms and furniture. Due to population fluctuations at a nearby military installation, he said he often turns offices and workspaces into classrooms and vice versa. Conversely, in a district we visited in Michigan, officials said they struggled with the inefficiencies of maintaining school facilities with low enrollment because closing schools can be difficult, given how it can affect currently enrolled students and neighborhoods. <6. About Half of Districts Primarily Relied on Local Funding for School Facilities> Based on our survey of school districts, funding for school facilities primarily came from local sources for about half of school districts. Specifically, an estimated 55 percent of districts used local funding as their primary source for school facilities, compared to state (36 percent) and federal (1 percent) funding. Based on our survey analysis, we found significant differences in the primary funding sources for school facilities for high-poverty and low-poverty districts. Specifically, high-poverty districts more commonly relied on state funding to address facility needs than low-poverty districts, whereas low-poverty districts more commonly relied on local funding (see fig. 15). School districts reported using several funding mechanisms to access local funding for school facilities projects. The most common was property taxes, which an estimated 77 percent of all school districts used for school facilities. Other local funding came from grants, bonds, other taxes, and public-private partnerships (see fig. 16). Similar to our findings on the sources of school facilities funding, based on our survey analysis we found significant differences in the local funding mechanisms used by high-poverty and low-poverty districts. Specifically, high-poverty districts used property taxes less commonly than low-poverty districts. As noted above, high-poverty districts instead more commonly relied on state funding to address facility needs. We also analyzed federal data on school district expenditures for school facilities and found differences by poverty level (see text box). Spotlight: Federal Data on School District Expenditures for Capital Construction Each year, Education collects data on school district expenditures for capital construction. In school year 2015-16, this spending totaled $44.6 billion. We analyzed these data by school district characteristics: Poverty: Capital construction expenditures, on average, were about $300 less per student in high-poverty districts ($719 per student) compared to low-poverty districts ($1,016). About 1.5 million more students attended school in high-poverty districts than low-poverty districts in 2015-16. Low-poverty districts spent about $1 billion more on capital construction than high-poverty districts that year. Size: Capital construction expenditures per student were similar in the largest (by number of students enrolled) 100 districts compared to smaller districts. Both groups of districts, on average, spent $837 per student on capital construction in school year 2015-16. Locale: Capital construction expenditures per student were similar, on average, for urban ($838 per student) and rural districts ($834). Officials in school districts we visited described various challenges they faced in securing funding for school facilities and how they have managed with limited funding. For example, officials in a Michigan district said the district had $1.5 billion in outstanding bond repayments and state borrowing related to bond repayments. As a result, the district is unable to issue an additional secured bond to fund new school facilities projects. According to officials, Michigan does not provide state-level funding for school facilities, so the district funded some recent school facilities projects using general education surpluses resulting from staff vacancies. However, as the district hired teachers and other staff, funding for facilities will decline, further limiting the district s ability to address issues with school facilities. That district has also deferred maintenance in order to handle emergency repairs, according to officials. Officials in a high- poverty district in one state we visited said their tax base generates minimal local revenue for school facilities. According to officials, the district is mostly dependent on state funding. In the past decade, the state established a partnership between various public entities, which provided $1 billion to the district to address school facility needs, according to district officials. Officials said the funding through this partnership was enough to renovate about 25 schools. However, officials estimated the district has about $5 billion in unmet needs, and its 2012 facilities condition assessment recommended it consider replacing 50 schools. We also visited districts that have consistently had access to funding for school facilities. For example, officials in one low-poverty California district said their district is generally able to obtain funds needed for school facilities projects, primarily through local taxes and passing general obligation bonds. Officials said there are currently few challenges with the condition of the district s school facilities because of routine and preventive maintenance. <7. State Support for School Facilities Varied Within and Across States> Though school districts most commonly used local funding to address school facility needs, 36 states provided some level of capital funding to school districts for school construction or renovations, based on our state survey (see fig. 17). In addition, states reported using various criteria to determine funding for capital projects, including the condition of a district s schools (23 states), type of project, such as HVAC or fire safety (22), and size of the student population (18). Fewer states (17) reported providing districts with funding for maintenance and operations used for routine upkeep and replacement of building system parts separate from general education funding. State support for school facilities similarly varied within and among the six states that we visited. Five of the six states we visited reported providing state-level capital funding for school facilities, although the amount and mechanisms differed. For example, according to state officials, New Mexico has a capital fund for schools supported through taxes on the oil and gas industry and bases its state funding on a school s condition. These officials described how New Mexico assesses and ranks all schools based on the condition of their facilities, and funds projects starting with the highest priority school on the list, until each year s funds are depleted. The state uses capital funds to match local dollars. The percentage of a project s cost covered by the state depends on the district s ability to raise local funds. In one district we visited, the state pays 100 percent. Florida targets funding for school facilities to rural districts and charter schools, both of which have limited access to local funding sources such as property taxes, according to officials. These officials said the state has a specific program to support capital projects in rural districts, and other funding generated from taxes on landlines and utilities has in recent years gone to charter schools. In California, districts receive state funding based on the order the state receives eligible applications, until funds are depleted, according to state officials. Michigan officials said the state does not fund school facilities projects at the state level, although the state has a program to review school districts local bond measures. The state does not require school districts to submit their bonds for state approval, but doing so allows the district to access the state s credit rating, which usually lowers the district s interest rate, among other benefits, according to these officials. In three states we visited, state officials we interviewed told us that financial support for capital projects may fluctuate each year depending on availability of state funding. For example, Rhode Island officials said that after the 2007-2009 recession, the state legislature stopped funding school facilities until 2015. This resulted in deferred maintenance in Rhode Island s schools that the state and school districts now need to address in addition to any new capital projects, according to officials. Based on our state survey, five states require districts to use a portion of their general education funding for maintenance and operations. Three of these states reported requiring districts to use 3 percent or less of their general education funding for this purpose, one state reported requiring districts to use 6 percent, and one state did not know what percent was required. Officials in Rhode Island said they have a new policy to require districts to set aside a portion of the state funds they receive for maintenance and operations to protect the state s increasing investment in school facilities, and that the state is phasing in the requirement over 5 years. Officials in New Mexico said that while they do not require this type of set aside, they evaluate how well districts maintain their facilities, and districts that inadequately maintain them may be ineligible for some types of state facilities funding. Many states also reported that they considered state-level priorities for school facilities when providing funding and guidance to school districts. Based on our survey, more than half of states provided financial support, as well as standards and guidance, for specific building systems and features of school facilities (see fig. 18). State funding and guidance related to state-level priorities can affect school district decisions on facilities. For example, Rhode Island approved a $250 million state bond for school facilities in 2018, and will provide higher reimbursements for district expenditures on projects reflecting state priorities, such as health and safety and decreasing overcrowding, according to state officials. In two rural districts within two states, district officials told us they cannot afford to undertake capital projects without state funding, and therefore have to balance state requirements with local needs and preferences for their facilities. For example, one district in New Mexico opted to renovate an existing gym using state matching funds, rather than fully replace it, because this allowed the district to maintain existing square footage. According to officials in that district, the state developed standards for how large a gym can be and still receive state funding for a full replacement, and the district prioritized renovating and maintaining the larger existing space instead. Agency Comments and Third Party Views We provided a draft of this report to the Department of Education (Education) for review and comment. We also provided selected draft excerpts to relevant officials we interviewed in state agencies and school districts. Education as well as several state and district officials provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Education, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0580 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 V. Appendix I: Objectives, Scope, and Methodology In this report, we examined: (1) the common facility condition issues school districts identify in public schools and how they have done so and (2) school districts highest priorities for their school facility renovations and updates, and how districts and states fund them. To address these objectives, we used the following methodologies, which we describe in detail below: Surveyed all 50 states and the District of Columbia. Surveyed a nationally representative sample of K-12 public school districts. Visited 16 school districts in six states and interviewed state, district, and school staff. Conducted building walkthroughs at 55 schools (including five charter schools) and observed a standard set of building systems and features in each school. Analyzed federal data on district expenditures for capital construction projects. We took several steps to inform each of our methodologies and provide background for our objectives. To better understand the federal role in school facilities, we interviewed officials from the Department of Education s (Education) National Center for Education Statistics (NCES), as well as Education s Office of Impact Aid Programs and the Office for Civil Rights. During these interviews, we asked officials about their role in collecting information on the condition of school facilities, as well as providing funding and guidance on school facilities, among other topics. We also interviewed officials from the National Association of Federally Impacted Schools and the National Indian Impacted Schools Association to learn about facility concerns in public school districts that receive federal Impact Aid. We reviewed federal documentation including NCES s 2014 report, Condition of America s Public School Facilities: 2012-13 and the Congressional Research Service s 2015 report on federal programs related to school facilities. In addition, we reviewed guidance from the Environmental Protection Agency on creating and maintaining healthy and environmentally friendly school facilities. To better understand assessments of building conditions, as well as to obtain information on school building systems and features, we reviewed the Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process, an international standard for assessing the condition of a building. Additionally, we interviewed officials at the 21st Century School Fund, the American Society of Civil Engineers, the Association for Learning Environments, the Center for Cities and Schools at the University of California, Berkeley, the Center for Green Schools, the Council of Chief State School Officers, and the Education Commission of the States. We used this information to create two lists of building systems and features, which we asked about in our surveys and asked to observe in the schools we visited. Specifically: The first list focused on key systems and features that may be necessary to a school building s day to day operations; the second list focused on additional or emerging priorities for systems and features that school districts may consider when modernizing school facilities. We validated these lists of systems and features through survey pretests with facilities personnel in six states. Because some modernization priorities are also key to a school building s day-to-day operations, there are systems and features that appear on both lists (see app. II for a full list of our survey questions, including all systems and features about which we asked school districts). We modified and combined the above lists for our state survey to ask states about their priorities and support for school building systems and features. <8. Web-based Survey of State Educational and School Facility Agencies> To address both research questions, we designed and administered a web-based survey to all 50 states and the District of Columbia. We sent the survey to the relevant state agency that oversees school facilities, or to the state superintendent of education to be forwarded to the state official best equipped to answer questions related to the condition of school facilities. We conducted the survey between September and December 2019. To obtain the maximum number of responses to our survey, we contacted nonrespondents via email and phone throughout the period the survey was open. In total, 49 states responded to the survey; Mississippi and Illinois did not respond. Data in this report are based on the 49 states that responded, unless otherwise noted. To ensure the quality and reliability of the survey, we pretested the questionnaire with three states that vary in their level of involvement in school facilities, among other factors. We conducted the pretests to check (1) the clarity and flow of the questions, (2) the appropriateness of the terminology used, (3) if the information could be easily obtained and whether there were concerns about the reliability of data that would be collected, and (4) if the survey was comprehensive and unbiased. We revised the questionnaire based on the pretests. We reviewed responses to assess if they were consistent and contained all of the relevant information. The survey included open-ended and closed-ended questions about: The state s role in assessing the condition of school facilities and the level of information the state has about the condition of school facilities. The state s role in providing funding to school districts for school facilities and the factors it considers in determining funding levels. The extent to which the state provides standards, guidance and other non-financial resources to school districts about their facilities. Whether the state collects information or provides additional assistance to school districts that receive federal Impact Aid funds. <9. Web-based Survey of School Districts> To address both research questions, we designed and administered a generalizable survey of a stratified random sample of local educational agencies, which we refer to as school districts throughout this report. We sent the survey to school district superintendents to be forwarded to the district official best equipped to answer questions related to the condition of school facilities. The survey included questions about: School districts policies and practices regarding whether they conduct facilities condition assessments. How often school districts conduct or update these assessments. How school districts use the information from assessments to make decisions regarding school repairs, renovations, and replacements. The extent to which the school districts were facing issues with the condition of building systems and features within their schools. The funding mechanisms that school districts use to address issues with the physical condition of public schools. We defined our target population to be all school districts in the 50 U.S. states and the District of Columbia that are not under the jurisdiction of the Department of Defense or Bureau of Indian Education. We used the Local Education Agency Universe database from Education s Common Core of Data (CCD) for the 2016-2017 school year as our sampling frame. For the purpose of our survey, we limited the sampling frame to school districts that: were located in the 50 states or the District of Columbia; had one or more schools and one or more students; and were not closed according to the 2016-2017 School Year or preliminary 2017-18 School Year CCD data available just prior to survey deployment. The resulting sample frame included 17,248 school districts and we selected a stratified random sample of 664 school districts. We stratified the sampling frame into 19 mutually exclusive strata based on urban classification and poverty classification (see table 1). We selected the largest 100 school districts, based on student enrollment, with certainty. To determine the appropriate sample size for the survey, we first determined the minimum sample size needed to achieve precision levels of percentage estimates within plus or minus 10 percentage points, at the 95 percent confidence level, within each of three sub-groups: low, medium, and high-poverty districts. Within each of these poverty sub- groups, we proportionately allocated the sample across the race and urban classification groups. We then increased the sample size within each non-certainty stratum for an expected response rate of 55 percent in order to achieve the necessary number of completed surveys for our desired precision level. We defined the three locale classifications (i.e., city, suburban, and rural) based on the NCES urban-centric locale codes. The rural classification included school districts classified as either rural or town. To build a general measure of the poverty level for each school district we used the proportion of students eligible for free or reduced-price lunch (FRPL) as indicated in the CCD data and classified these into the following three groups: High-poverty: more than 75 percent of students in the school district were eligible for FRPL; Mid-poverty: Between 25.1 and 75.0 percent of students in the school district were eligible for FRPL; and Low-poverty: 25 percent or fewer students in the school district were eligible for FRPL. We assessed the reliability of the CCD data by reviewing existing documentation about the data and performing electronic testing on required data elements and determined they were sufficiently reliable for the purposes of our reporting objectives. We administered the survey from August to October 2019. We identified that 11 of the 664 sampled school districts were closed or had no physical school buildings, so these were removed from the universe and sample. Six of these out of scope sample districts were discovered soon after survey deployment, thus, we were able to replace these six sample districts with the next randomly selected district within the same strata. This resulted in a final in scope population of 17,237 districts and 659 in scope sample districts. We received 378 valid survey responses from this in scope sample resulting in an unweighted response rate of 57 percent and a weighted response rate of 53 percent. We analyzed the response status to our survey to identify potential sources of nonresponse bias in accordance with best practices in survey research and echoed in Office of Management and Budget, Standards and Guidelines for Statistical Surveys (September 2006). We examined the response propensity of the sampled school districts using both bivariate and multivariate logistic regression models, including several demographic characteristics available for respondents and nonrespondents: urban classification, race, poverty, district size (number of schools and number of students in a district), and the stratification variable that combines these characteristics. We detected a significant association between both strata and number of students within a district and the propensity to respond to our survey. We did not detect a significant association between urban classification, race, or poverty and the response propensity. We adjusted for the characteristics significantly associated with response propensity using weighting class adjustments. Specifically, we grouped the predicted response propensity derived from our logistic regression model that includes strata and the number of students using quintiles of the predicted response propensity distribution to form five weighting adjustment groups. We applied nonresponse adjustments to the sampling weights within these groups to form nonresponse adjusted analysis weights used in our survey analyses. Based on the nonresponse bias analysis and resulting nonresponse adjusted analysis weights, we determined that estimates using these weights are generalizable to the population of eligible school districts and are sufficiently reliable for the purposes of our reporting objectives. We took steps to minimize non-sampling errors, including pretesting draft instruments and using a web-based administration system. We pretested the draft instrument from June to July 2019 with officials in five school districts in different states and with varying characteristics such as size of the student population. In the pretests, we asked about the clarity of the questions and the flow and layout of the survey. Based on feedback from the pretests, we revised the survey instrument. To obtain the maximum number of responses to our survey, and to minimize non-sampling error caused by nonresponse, we sent reminder emails to nonrespondents and contacted some nonrespondents over the telephone. We express the precision of our particular sample s results as a 95 percent confidence interval (for example, plus or minus 10 percentage points). This interval 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 compared as appropriate weighted survey estimates generated for school districts by the school district strata described above. For each subgroup, we produced percentage estimates and standard errors for each level and used these results to confirm the significance of the differences between weighted survey estimates. <10. School District Visits and School Observations> To address both research questions, we visited six states California, Florida, Maryland, Michigan, New Mexico, and Rhode Island from June to September 2019. We selected these states because they varied in the amount and type of funding they provided to school districts for school facilities, the level of information they collected on the condition of school facilities, and for geographic variation. Within these states, we visited 16 school districts, which we selected based on variation in the size and population density of the district, poverty level, racial and ethnic composition, and the receipt of federal Impact Aid funding (see table 2). Within each district, we visited between two and five schools, depending on the size of the district and logistical considerations. We also visited five charter schools across four states, chosen based on their proximity to a selected school district. In total, we visited 55 schools that varied in grade level, enrollment, physical size, age, and condition. For resource efficiency, we generally interviewed state and district officials via phone in advance of the site visit, and toured schools with district and school officials. States: We interviewed state officials who were knowledgeable about their state s role in funding, assessing, or providing other resources to school districts for school facilities. We discussed the agency s roles and responsibilities related to statewide school facilities condition assessments or data collection initiatives, state-level priorities for school facilities, and funding mechanisms within the state for school facilities. School districts: We interviewed school district officials in each district we visited. Similar to our school district survey, we discussed their policies and practices on facilities condition assessments, how often they conduct or update these assessments, and how they make decisions regarding school repairs, renovations, and replacements. We also asked questions about how the districts prioritize upgrades and repairs to school facilities and the funding mechanisms they use to address issues with the physical condition of public schools. School Observations: To select schools in each district, we used CCD data to randomize the list of all schools in the district and selected the first two to four schools with consideration for different grade levels. We then asked district officials to verify that our random selections showed sufficient variety in the age and overall condition of the building. We substituted recommended schools when appropriate to ensure we had appropriate variety in seeing schools of different ages and conditions. When logistically feasible, we visited a nearby charter school as well. We toured schools with a combination of district and school officials. During these visits, we used a data collection instrument to ask officials about school building systems and features that school personnel identified as particularly in need of repair or replacement, as well as new or upgraded systems. We photographed these as appropriate. Information we gathered from these interviews and observations, while not generalizable, provides insight into the conditions present in the states and school districts we visited at the time of our interviews, and may be illustrative of efforts in other states and school districts. <11. Federal Data Analysis> To examine expenditures for capital construction by school district characteristics, we analyzed federal data from Education s Local Education Agency Finance Survey for school year 2015-16, the most recent available at the time of our analysis. Education collects these data annually as part of the CCD. State educational agencies provide these data on behalf of their school districts to NCES and the U.S. Census Bureau s Economic Reimbursable Surveys Division. In school year 2015- 16, states reported finance data for 96.7 percent of school districts, according to Education s survey documentation. We analyzed school district data on capital construction expenditures by poverty level, locale, district size, racial demographics, and receipt of federal funding through Impact Aid or Indian education grants. We normalized data across school districts that fell into these different categories by calculating capital construction expenditures per student and per school. We determined these data were sufficiently reliable for the purposes of our reporting objectives by reviewing relevant documentation, interviewing knowledgeable Education officials, and testing for missing data, outliers, and other potential errors. Through discussions with NCES officials, we determined it was necessary to exclude some school districts from our analysis to develop accurate per pupil and per school calculations. Specifically, we excluded school districts for which the state did not report finance data and school districts where the number of students and schools was zero or missing. We conducted this performance audit from February 2019 to June 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. Appendix II: Surveys of School Districts and States on School Facilities This appendix contains the closed- and open-ended questions from our surveys of (1) local educational agencies (referred to in this report as school districts or districts) and (2) state educational and school facility agencies. In some cases, respondents received different questions based on their response to a prior question. For example, school districts that conducted a facilities condition assessment in the last 10 years received additional questions about those assessments, however school districts that had not conducted such an assessment received questions to explain the reasons why. For a detailed discussion of our survey methodologies, see appendix I. Appendix III: School Facilities in Districts that Received Federal Impact Aid This appendix summarizes key information on the condition of and funding for school facilities in districts that received Impact Aid. The Department of Education (Education) administers the Impact Aid program to assist school districts that experience a financial burden as a result of certain federal activities being carried out there. For example, federal Indian lands and military installations are exempt from property taxes a key funding source that school districts use to offer a free public education. Impact Aid is intended to compensate school districts, in part, for the lost tax revenue. As noted in this report, property tax revenue was the most common source of funding school districts used for school facilities an estimated 77 percent of all districts used property taxes for this purpose, based on our nationally representative survey. Districts with reduced property tax revenue, due to tax-exempt federal property or other reasons, may struggle to raise the funds needed for repairs and renovations to their school facilities. School districts that are eligible to receive Impact Aid might qualify for several types of payments under the program. About 90 percent of all Impact Aid funding falls under the category of Basic Support payments. According to the Congressional Research Service (CRS), school districts generally use these funds for current expenditures, such as administration, instruction, and transportation. However, because Impact Aid Basic Support payments are not limited to specific uses, school districts may also use them for capital expenditures. According to Education s data, approximately 1,040 school districts (of a total of about 14,000 school districts nationwide) received Basic Support payments in fiscal year 2018 totaling $1.26 billion. The amount of these payments varied considerably by district ranging from a high of about $55 million to a low of $540. Differences in the payments districts received resulted from several factors, including the number and types of federally-connected students the district served, according to CRS. In fiscal year 2018, there were 28 heavily-impacted school districts, meaning they were substantially affected by the presence of federally- connected children. Heavily-impacted districts receive increased Basic Support payments. In addition to Basic Support payments, some school districts are eligible for Impact Aid Construction grants for construction and emergency facility repair and renovation. From fiscal year 2014 to 2019, appropriations for Impact Aid Construction funds have consistently been about $17.4 million each year. According to CRS, appropriations language in recent years has determined whether Impact Aid Construction funds are distributed through formula grants to eligible school districts or competitive grants to a limited number of school districts, and from fiscal year 2013 to 2018, distribution alternated between these two types of grants. Approximately 150 school districts are eligible to receive Impact Aid Construction grants, according to Education officials. In fiscal year 2018, these funds were distributed through competitive grants and eight school districts received grants, ranging from $143,000 to $5.3 million. Sixty-seven school districts that received Impact Aid responded to our survey of school districts. In addition, eight of the 16 districts we visited received Impact Aid Basic Support payments in fiscal year 2018. These districts varied based on their proximity to different tax-exempt federal properties (i.e., military installations and Indian lands), as well as the number and percentage of federally-connected students they educated. Two districts we visited received Impact Aid Construction grants. <12. Conditions of School Facilities> Overall, on our survey of school districts, responses from the nongeneralizable group of districts that received Impact Aid were similar to the generalizable results for all districts nationwide both in terms of the key school building systems and features districts needed to update or replace and district priorities when updating or renovating school facilities. Table 3 shows the number of school districts receiving Impact Aid payments that reported that at least half of their schools needed updates or replacements to each building system or feature listed. As shown, districts most commonly indicated needing to update or replace heating, ventilation, and air conditioning systems (32); followed by safety and security (27), roofing (25), interior light fixtures (23), and plumbing (23). Based on our school district survey, 51 of 66 districts that received Impact Aid had conducted a facilities condition assessment of their schools at least once in the last 10 years. Of those 51 school districts, 34 reported assessing schools at least every 5 years. Nearly all districts (50 of 51) reported conducting the assessment for capital planning purposes and to assess safety and hazards. Similar to generalizable estimates from our nationally representative survey of school districts, districts that received Impact Aid placed a high priority on safety and security (59 of 66 districts), monitoring environmental conditions (55 of 64), and student access to technology (54 of 65). <13. Funding for School Facilities> Overall, more than half of districts that received Impact Aid and responded to our survey (36 of 66) reported that local funding was their primary source for funding school facilities projects. In comparison, 19 districts reported state funding as their primary source, eight districts reported federal funding, and three districts selected the Other option or did not know. Similar to generalizable estimates from our survey of school districts, about three-quarters of districts that received Impact Aid and responded to our survey (49 of 66) reported using property tax revenue for school facilities. In addition, about two-thirds of them reported using local bonds and local grants for this purpose. Fewer districts reported using public- private partnerships, sales tax revenue, or other tax revenue for school facilities. As noted above, districts may receive Impact Aid because they have lost property tax revenue due to certain federal activities, including being on or near federal property that is exempt from property taxes. Districts that serve a large proportion of federally-connected students, such as those located on or near federal Indian lands or military installations, may look similar to high-poverty districts in their lack of access to local funding mechanisms for school facilities. However, there is wide variety in the amount of Impact Aid payments districts received. This variety was similarly reflected in the eight school districts we visited that received Impact Aid. For example, the Basic Support payments the districts we visited received in fiscal year 2018 ranged from about $16,000 to about $8.6 million, and the percentage of federally-connected students in the districts we visited ranged from 1 to 100 percent. Officials in one of the districts we visited that received Impact Aid explained that, because the district is located on an Indian reservation, there is no property tax base to levy or bond against. In the absence of these local funding options, officials said the district relied on state funding and some federal Impact Aid funding to address facility needs, and noted that the lack of local funding made it difficult for them to reach their goals for their school facilities. For example, officials said the state does not provide funding for designated classrooms for bilingual education. Because the district does not have the local property tax base to fund these spaces, officials said they must be creative with classes and teacher schedules to provide bilingual education. The location of these classes moves to different parts of the school at different times, meaning that teachers cannot set up a stable classroom that is properly equipped to teach bilingual education to students in the district, according to district officials. None of the officials we interviewed in the eight districts that received Impact Aid said their district used Basic Support payments to address issues with the conditions of school facilities. Officials in two districts we visited described receiving Impact Aid construction grants. Officials in one of these districts explained that when these funds are distributed via formula grant, the amounts are not large enough to support a major capital project. An official in the district that had received a competitive grant in recent years said the district used the funds to build a new combined middle and high school. In addition, representatives from the National Association of Federally Impacted Schools and the National Indian Impacted Schools Association told us they have heard anecdotally about some school districts using their Impact Aid funds as the basis for borrowing funds to pay for school facilities projects. They described this as particularly risky because Impact Aid appropriations levels are not guaranteed to remain consistent each year. The representatives said if funding levels for Impact Aid are reduced in the future, the districts would still have to pay back the borrowed funds before allocating funding for other purposes such as general operations, teacher salaries, educational materials, and other essentials for educating students in the school district. On our state survey, eight states reported providing additional school facilities funding or other assistance to districts in the state that receive Impact Aid. For example, an official in New Mexico told us the state has two programs targeted to school districts that get Impact Aid. One program awarded $10 million to districts in 2019 to help them provide teacher housing, according to state officials. State officials said a second state program in New Mexico awarded $24 million in 2019 to districts that received Impact Aid to assist them with projects that were ineligible for funding through New Mexico s other programs. For example, these officials said this funding could help schools in need of athletic fields, performing arts centers, or administrative buildings. Appendix IV: School Facilities in Charter School Districts Charter schools comprise a small but growing group of public schools. We previously reported that, in contrast to most traditional public schools, many charter schools are responsible for financing their own buildings and other facilities, i.e., charter school districts may not have access to the same local funding mechanisms as traditional school districts. As a result, charter schools vary in terms of whether they own their own building or pay rent, and whether they operate in buildings originally designed as a school or in buildings that have been redesigned for educational purposes. Sometimes charter schools may also share space in their building with others, such as non-profit organizations. In addition to differences in facility access and finance, charter school governance also varies. We previously reported that in some states, charter schools function as their own school district, while in other states, charter schools have the option to choose between being their own school district or part of a larger school district. The data presented in this appendix are limited to the nongeneralizable responses of the 52 charter school districts that responded to our survey of school districts, unless otherwise noted. In addition, we visited five charter schools across four states (California, Florida, Maryland, and Rhode Island) as part of our school district site visits. This appendix summarizes key information on the condition of and funding for school facilities in these charter school districts and schools. Responses from the nongeneralizable group of charter school districts were similar to the generalizable results for all districts in the nation for key building updates, as well as priorities for modernizing school facilities, but different for how these districts access funding for school facilities. <14. Conditions of School Facilities> The highest number of charter school districts (20 of 51) indicated needing to update or replace heating, ventilation, and air conditioning systems in the majority of their schools, followed by windows (16), roofing (15), and interior light fixtures (15). School officials at a charter school we visited told us they were having ongoing issues with several key building features, such as doors and windows. The charter school rents their facility from the traditional school district and has a lease that specifies who is responsible for certain maintenance and repair projects. School officials told us the school has a utilities-only lease, meaning they should not be responsible for any repairs, but officials told us they had to take on several projects to make the facility usable. Although the traditional school district of which this charter school is a part is responsible for many of these projects, district officials said they have not had the funding to address this. For example, before the school opened, school officials said they had to install door handles on interior doors and re-key the building so that they were able to lock and unlock doors. In addition, school officials told us that teachers have complained that windows are nailed shut and cannot be opened. Based on our school district survey, 24 of 52 charter school districts had conducted a facilities condition assessment of their schools at least once in the last 10 years. Of those 24 school districts, 19 reported assessing schools at least every 5 years. Twenty-three charter school districts reported conducting the assessment to assess safety and hazards. Officials at four of the five charter schools we visited told us they were responsible for maintaining their own facilities. The other charter school we visited was part of a larger network of charter schools, and had regional offices that assisted with facilities and operations. When updating or renovating school facilities, charter school districts responding to our survey ranked security and technology as their highest priorities, similar to the generalizable results for all districts in the nation. The top reported priorities were student access to technology (44 of 52), safety and security (43 of 51 districts), and telecommunication systems such as WiFi (36 of 51). An official at a charter school we visited in Florida said safety and security was one of their main focuses when constructing the school. The school and parking lot are gated, and there is a camera to monitor all cars and people entering the campus. School officials told us that all classrooms and common areas are equipped with phones that can broadcast announcements throughout the campus, and that they have a lightening alert system so that they can move students indoors if a storm is approaching. <15. Funding for School Facilities> As previously noted, charter schools may or may not be part of a larger school district, and may not be able to access local funding sources such as property tax revenue. As noted in this report, property tax revenue was the most common source of funding that all school districts reported using for school facilities an estimated 77 percent of all districts nationwide used property taxes for this purpose. Most charter school districts that responded to our survey indicated that state funding was their primary method of funding school facilities (32 of 49) and fewer (8 of 49) reported local funding as their primary method. The most common local funding mechanism that charter school districts reported using for facilities was grant funding (20 of 46 districts), followed by public-private partnerships (12 of 47 districts). A charter school we visited told us about several areas in their school that they had improved with grants from non-profit organizations. For example, a teacher at the school applied for a grant from a foundation to replace the basketball hoops and paint in the gym, and a separate organization had installed a new playground at the school. Based on our state survey, 26 states provide funding to charter schools for facilities 22 states provide direct funding to charter schools and four states provide funding to non-charter school districts, which would indirectly fund certain charter schools. Of the 26 states, 20 states reported doing so either through a funding formula, or a combination of funding formula, charter school requests, and other methods. The most common factor that states considered when determining levels of facilities funding for charter schools was the size of the student population (12 of 25 states). Of the 26 states that provide funding to charter schools for construction or maintenance and operations of charter school facilities, 19 reported using allocated funding from the state legislature to do so. Appendix V: GAO Contact and Staff Acknowledgments <16. GAO Contact Staff Acknowledgments> Jacqueline M. Nowicki, Director, (617) 788-0580 or [email protected]. In addition to the contact named above, Bill MacBlane (Assistant Director), David Watsula (Analyst-in-Charge), Liz Spurgeon, and Alexandra Squitieri made key contributions to this report. Mariel Alper, Michael Armes, Susan Aschoff, John Bauckman, Alex Galuten, Alison Grantham, Elizabeth Hartjes, Lara Laufer, Sheila R. McCoy, Jean McSween, John Mingus, Lauren Mosteller, Mimi Nguyen, Jean Recklau, Almeta Spencer, Manuel Valverde, Sonya Vartivarian, and Paul Wright provided additional support.

Why GAO Did This Study Public school facilities primarily serve an educational role, and they also serve a civic role as voting places and emergency shelters. School districts collectively spend tens of billions of dollars each year on facilities construction needs at the nearly 100,000 K-12 public schools nationwide. The Joint Explanatory Statement accompanying the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019 included a provision for GAO to study the condition of public school facilities. This report examines (1) the common facility condition issues school districts identify in public schools and how they have done so and (2) school districts' highest priorities for their school facility renovations and updates, and how districts and states fund them. GAO conducted a nationally representative survey of school districts and also surveyed 50 states and the District of Columbia; visited 55 schools in 16 districts across six states, selected for geographic variation and other characteristics; analyzed federal data on school district expenditures for capital construction projects; and interviewed federal, state, district, and school officials. What GAO Found About half (an estimated 54 percent) of public school districts need to update or replace multiple building systems or features in their schools, according to GAO's national survey of school districts. For example, an estimated 41 percent of districts need to update or replace heating, ventilation, and air conditioning (HVAC) systems in at least half of their schools, representing about 36,000 schools nationwide that need HVAC updates (see figure). In about half of the 55 schools GAO visited in six states, officials described HVAC-related problems, such as older systems that leaked and damaged flooring or ceiling tiles. If not addressed, such problems can lead to indoor air quality problems and mold, and in some cases caused schools to adjust schedules temporarily. To determine the condition of their school facilities, an estimated two-thirds of districts conducted a facilities condition assessment at least once in the last 10 years. According to GAO's survey of the 50 states and District of Columbia, most states do not conduct statewide assessments to determine school facilities' needs and instead leave this task to school districts. School districts' highest priorities for their school facilities were improving security (an estimated 92 percent), expanding student access to technology (87 percent), and monitoring health hazards (78 percent), according to GAO's school district survey. In school districts GAO visited, officials said they first address health hazards and safety issues. In nearly all districts GAO visited, security also had become a top priority, with some districts prioritizing security updates over replacing building systems, such as HVAC. In about half of districts nationwide, funding for school facilities primarily came from local sources such as property taxes, based on GAO's survey. High-poverty districts more commonly relied on state funding and used property taxes less commonly than low-poverty districts. According to GAO's state survey, 36 states provided capital funding to school districts for school construction or renovations, including five of the six states GAO visited, though the funding amounts and mechanisms differed considerably within and across states.

gao_GAO-20-154

gao_GAO-20-154_0

<1. Background> <1.1. 2017 Mishaps at Sea> From January through August 2017, the Navy suffered four significant mishaps at sea that resulted in the death of 17 sailors and hundreds of millions of dollars in damage to Navy surface ships (see fig.1). More recently, the Navy experienced two incidents during which Navy surface ships collided. First, on February 5, 2019, a Ticonderoga-class guided missile cruiser USS Leyte Gulf (CG 55) collided with a Navy resupply ship the USNS Robert E. Peary (T-AKE 5) while conducting an underway replenishment operation off the coast of Florida. Second, on June 21, 2019, a Freedom-class Littoral Combat Ship the USS Billings (LCS 15) struck a merchant ship while leaving a pier in Montreal, Canada. According to Navy officials, these recent incidents did not result in serious damage to the ships or injuries to the crews but they demonstrate the need for continued focus and attention on safe ship driving. <1.2. Surface Warfare Officers> As of March 2019, the Navy had approximately 8,400 SWOs Navy officers whose training and primary duties focus on the operation of Navy ships at sea and the management of various shipboard systems. The Navy expects SWOs to progress over the course of their careers from Division Officers driving ships, to Department Heads participating in combat operations, to Executive Officers managing ship crews, and to Commanding Officers overseeing operations. Figure 2 below outlines a SWO s career progression and associated shipboard duties. <1.3. Surface Warfare Officer Training and At-Sea Experience> The Commander, Naval Surface Forces, in coordination with Office of the Chief of Naval Operations, Surface Warfare Officers School Command, and Navy Personnel Command, manages and provides ship-driving training to SWOs throughout their careers. Initially, the primary focus of a Division Officer is on leading sailors and developing ship-driving competency, ultimately working toward qualification as an Officer of the Deck and Surface Warfare Officer. Therefore, a large part of initial SWO training focuses on leading a division and developing the ship-driving skills needed to qualify and perform as an Officer of the Deck. This training is provided during a SWO s initial training in the Basic Division Officer Course offered in Norfolk, Virginia, and San Diego, California, and is a mix of classroom and simulator-based training. After completing the Basic Division Officer Course, SWO candidates begin their first at-sea assignment as Division Officers. Division Officers have three primary roles aboard a ship: 1. They support ship-driving operations. New Division Officers gain ship- driving experience in pursuit of the qualification to stand as Officers of the Deck. Once qualified as Officers of the Deck, they lead watch teams in driving ships. 2. They support ship department operations under the supervision of Department Heads, and are responsible for a portion of ship equipment and operations. 3. They lead a division of approximately 12 to 50 enlisted personnel within departments, and are responsible for the administrative and supervisory duties for divisions. In addition to their Division Officer responsibilities, new Division Officers are expected to earn qualification as a SWO by completing required education and meeting experience standards, as well as gaining watchstanding experience and demonstrating proficiency in the execution of their duties, according to Navy officials. These qualifications include Officer of the Deck and Combat Information Center Watch Officer, where an officer assists in observing and analyzing information of importance for combat, among others. Navy officials stated that after an officer completes their qualifications, their Commanding Officer reviews the officer s ability and experiences, and can grant the candidate SWO qualification. <1.4. Prior GAO Work> In June 2010, we reviewed Navy policies for surface force training including initial SWO ship-driving training and found that the Navy had reduced and altered initial SWO training as an efficiency measure, but lacked performance measures and data necessary to evaluate the impact of changes to training programs. We found that in 2003, the Navy had replaced its 6-month Division Officer course consisting of classroom and simulator training with software-based training where new Division Officers were instead expected to learn SWO skills from computer-based education software while onboard their first ship. The Navy said this change saved about $50 million annually, but we found that the Navy lacked outcome-based performance measures to evaluate the effects of these changes to training on officer performance. We recommended that the Navy develop metrics to measure the effects of training on SWO job performance, knowledge, skills, and abilities. The Navy concurred with this recommendation but did not implement the recommendation for the software training or for subsequent training programs. <2. The Navy Has Enhanced Ship- Driving Training Following the 2017 Collisions and Plans to Triple Training Hours by 2021> The Navy has enhanced ship-driving training for SWOs at the early stages of their careers following the 2017 collisions at sea, and by 2021 plans to triple the number of ship-driving training hours when compared with the amount of training SWOs were required to receive prior to the collisions. The Navy s plans to increase ship-driving proficiency hinge on the completion of two new simulator-based training facilities the Mariner Skills Training Centers which are planned to be completed in June 2021 (San Diego, California) and in January 2023 (Norfolk, Virginia). Overall, the Navy plans to invest more than $467 million to develop new ship- driving training courses, build simulator facilities, and deliver the training through fiscal year 2025. Prior to the 2017 ship collisions, SWOs were required to complete 174 hours of ship-driving training during their Division Officer assignment by attending the Basic and Advanced Division Officer training courses. Following the collisions, the Navy increased the amount of required ship- driving training in these two courses to 203 hours. In June 2019, the Navy added a 4-week ship-driving course the Junior Officer of the Deck course that focused exclusively on building ship-driving skills. This course added 158 hours of required classroom and simulator ship-driving training. In June 2021, the Navy plans to expand the curriculum of the Junior Officer of the Deck course and rename it the Officer of the Deck Phase I course, and add an additional 3-week Officer of the Deck Phase II course. These two courses will add an additional 185 hours of required ship-driving training for Division Officers in preparation for their first and second at-sea assignments. Once these ship-driving training courses are in place, Division Officers will be required to complete a total of 535 hours of training triple (a threefold increase in) the number of ship- driving training hours SWOs were required to complete prior to the 2017 collisions (see fig. 3). Below are detailed descriptions of the changes completed and planned to enhance ship-driving training. Basic Division Officer Course. From November 2017 through January 2019, the Surface Warfare Officers School Command changed the Basic Division Officer Course a 9-week course for new SWO candidates by increasing the required hours of classroom instruction and simulator training by 12 percent, and broadening the course curriculum. Specifically, prior to the 2017 collisions, SWO candidates were required to spend 113 hours (81 hours of classroom instruction and 32 hours in simulators) in this course to develop their ship-driving skills. After January 2019, however, SWO candidates were required to spend 126 hours (89 hours of classroom instruction and 37 hours in simulators) to develop their ship-driving skills. Regarding added course content, the Surface Warfare Officers School Command added subject matter including additional training on the internationally accepted ship-driving standards that govern ship maneuvers; radar navigation; and the tools used to aid ship-driving. Advanced Division Officer Course. From November 2017 through January 2019, the Surface Warfare Officers School Command changed the Advanced Division Officer Course a 5-week course for SWOs returning from their first at-sea assignment to improve ship-driving skills by increasing the required hours of simulator training from 24 to 36 hours. Prior to the 2017 collisions, SWOs were required to spend 61 hours (37 hours in the classroom and 24 hours in simulators) refining their ship- driving skills in this course. As of January 2019, SWOs were required to spend 77 hours (41 hours in the classroom and 36 hours in simulators) developing and honing their ship-driving skills. Surface Warfare Officers School Command officials also added subjects to classroom time to build on the subject matter presented in the Basic Division Officer Course, including more complex ship-driving techniques and advanced radar navigation. Surface Warfare Officers School Command plans to reduce the hours of training in this course once the Officer of the Deck Phase II course comes online in 2021. Junior Officer of the Deck course. In June 2019, Surface Warfare Officers School Command provided this new 4-week course for the first time the course having been developed after the 2017 collisions and focused predominately on building ship-driving skills. The Junior Officer of the Deck course takes place after SWO candidates complete the Basic Division Officer Course and before they begin their first at-sea assignment. SWOs taking this course are required to complete 158 hours of classroom and simulator training designed to increase their ship-driving skills by exposing them to a variety of scenarios involving different maneuvers, and varying sea and weather conditions. The Navy plans to expand this course into a 6 week ship-driving training course (Officer of the Deck Phase I), scheduled to begin in June 2021. Officer of the Deck Phase I course. According to Commander, Naval Surface Forces documentation, the Junior Officer of the Deck course will expand into the Officer of the Deck Phase I course. Officer of the Deck Phase I is under development and will be 6 weeks long (an additional 2 weeks longer than Junior Officer of the Deck), and will take place after SWO candidates complete the Basic Division Officer Course and before they begin their first at-sea assignment. Officer of the Deck Phase I is intended to build on the Junior Officer of the Deck curriculum by increasing the required number of ship-driving training hours from 158 to 241, and expanding the course content to include instruction on more advanced radar navigation techniques. Surface Warfare Officers School Command and Commander, Naval Surface Forces officials expect the Officer of the Deck Phase I course to begin in June 2021. Officer of the Deck Phase II course. According to Navy documentation, the Officer of the Deck Phase II course that is under development will be 3 weeks long, and will take place after SWOs have completed their first at-sea assignment and before they attend the Advanced Division Officer Course. This course is intended to continue the development of ship- driving skills through an additional 102 hours of required classroom and simulator training. Surface Warfare Officers School Command and Commander, Naval Surface Forces officials stated that Officer of the Deck Phase II course could begin as early as June 2021. Mariner Skills Training Centers. According to Commander, Naval Surface Forces and Surface Forces documentation, Surface Warfare Officers School Command will provide the Officer of the Deck Phase I and Phase II courses at the Mariner Skills Training Centers new simulator-based facilities expedited after the 2017 collisions. Officials from the Office of the Chief of Naval Operations stated that these facilities including upgraded simulators, the instructors, classrooms, and the curriculum development for the Officer of the Deck Phase I and Phase II courses will cost approximately $467.5 million through fiscal year 2025. According to Navy officials, construction on the San Diego, California Mariner Skills Training Center will begin in early fiscal year 2020 and will be complete by June 2021 and Norfolk, Virginia Mariner Skills Training Center will begin in fiscal year 2021 and will be complete in January 2023. The Mariner Skills Training Program is based upon the Littoral Combat Ship ship-driving training program, which according to the Navy, provides a balance of classroom, simulation, and shipboard experience. According to Navy officials, since Littoral Combat Ship SWOs serve in rotating crews and have less opportunity to train aboard their ships, the Navy developed the Littoral Combat Ship Training Facility to support SWOs training ashore (see fig. 4). The foundation of the Littoral Combat Ship ship-driving program is repetitive training in sophisticated simulators to build ship-driving proficiency. According to the Navy, the effectiveness of this training has been validated over the last 10 years by the superior ship-driving proficiency of Littoral Combat Ship officers during at-sea operations and assessment performance when compared with non- Littoral Combat Ship officers, in many cases. <3. The Navy is Implementing Additional Skill Checks but Has Not Taken Other Actions Necessary to Evaluate the Effectiveness of Changes to SWO Ship-Driving Training> The Navy has relied on a series of added skill checks throughout a SWO s career to help validate that SWOs have necessary ship-driving and other skills, but has not developed key processes and assessments to evaluate the overall effectiveness of its existing and planned training programs. <3.1. The Navy is Implementing Additional Skill Checks to Be Conducted throughout SWO Careers> The Navy is implementing a series of ten skill checks on ship-driving and other mariner tasks at various career points for example, before a SWO begins leading a ship department and before the SWO takes command of a ship. The Commander, Naval Surface Forces, issued an instruction in September 2018 detailing ten skill checks to be conducted over the course of a SWO s career to periodically gauge SWOs ship-driving skills. These checks, summarized in appendix IV, are to occur at standardized points in a SWO s career, either during training or at the beginning or conclusion of certain at-sea assignments. Four of the ten checks were already in place at the time the instruction was issued in September 2018, with a preliminary version of a fifth check also in place. According to Navy documentation, three more of the ten checks had also been implemented as of August 2019, and Navy guidance states that the remaining checks are scheduled to be in place by 2021 or earlier. Navy officials stated they were making these checks more rigorous. For example, according to Navy officials, previously Department Heads were allowed to retake the Command Qualification Assessment ship-handling test as many times as they needed to pass the assessment. According to these officials, in 2018 Surface Warfare Officers School Command allowed only three chances to take the test, leading to five of the 256 Department Heads assessed in 2018 to be disqualified from advancing beyond the role of Department Head. Navy officials report that these skill checks are intended to enhance the development and sustainment of ship-driving proficiency across a SWO s career and to ensure that the changes in training are resulting in competent SWOs at each level of their careers essentially that SWOs have the skills required to perform their duties. Surface Warfare Officers School Command will administer checks during SWO training on ship- driving to better evaluate individual proficiency and target remediation for those whose performance presents significant concerns. Ship Commanding Officers will also observe and evaluate SWOs on a series of ship-driving scenarios before the completion of their first Division Officer assignment and later as a Department Head to certify that they are prepared for more advanced ship-driving training and responsibilities. <3.2. The Navy Has Not Put Key Processes and Assessments in Place to Evaluate the Effectiveness of Changes to SWO Training> While the planned skill checks are designed to help ensure that SWOs have the skills required to perform their duties, senior Navy officials stated that it could take 16 years or more to know if the planned changes to SWO training were effective in increasing Commanding Officer ship- driving proficiency across the fleet. These officials stated that they intend to closely monitor the implementation of changes to the training; however, we found a number of interrelated challenges that limit the Navy s ability to determine in the near term if the significant investments it is making to expand and enhance SWO ship-driving training are effective. Specifically and described in detail below, in planning an approach for evaluating its efforts, the Navy has not (1) solicited fleet-wide feedback on the quality of the increased ship-driving training, (2) planned to routinely conduct ship- driving competency assessments, (3) provided standard criteria for qualifying Officer of the Deck candidates, and (4) determined how to analyze and use information from logbooks that SWOs are required to complete. The Navy s Comprehensive Review of Recent Surface Force Incidents one of the internal reviews completed after the 2017 mishaps notes the importance of assessing and monitoring performance so that corrective actions can take place. In addition, federal government internal control standards state that management should use quality information and monitoring activities to ensure the agency s objectives are achieved. Moreover, our prior work on assessing training efforts in the federal government states that an agency should evaluate the effectiveness of its training and development efforts, to include obtaining feedback, assessing competency, and analyzing relevant data. <3.2.1. The Navy Has Not Solicited Fleet-Wide Feedback on the Quality of Increased Ship- Driving Training> We found that while the Navy collects feedback from certain groups of SWOs, it did not have a formal fleet-wide process to solicit feedback from SWOs on the quality of the increased amount of ship-driving training or to gauge the health of the SWO community. In group discussions we held as part of our review, SWOs identified challenges that Division Officers experience in applying classroom and simulator training to their duties. According to SWOs in 19 of 24 group discussions with Department Heads and Division Officers, Division Officers have challenges in applying the ship-driving training they receive, due to factors such as differences between training curriculum and actual duties, extended lengths of time elapsed between training and application, varying ship-driving opportunities during Division Officer assignments, and difficulty retaining the large volume of course material. SWOs that participated in our discussion groups and interviews identified positive aspects of ship-driving training, as well as concerns about training material. During five of 12 ship group discussions with Division Officers, those Division Officers that had taken the Basic Division Officer Course identified positive aspects of the training such as valuable practical exercises and simulator time. However, SWOs in all 12 Division Officer group discussions also identified challenges related to this training, such as the information covered in training being too broad, and a lack of connection to actual duties on their ship. More experienced Division Officers in four of 12 Division Officer group discussions identified challenges related to the Advanced Division Officer Course, such as insufficient time in ship-driving simulators, and too much time spent covering material that Division Officers were already expected to learn during their first at-sea assignment. Commanding Officers and Executive Officers in seven of 12 interviews, and Department Heads in four of 12 group discussions likewise identified positive aspects of the Basic Division Officer Course, such as improved knowledge of ship operations for Divisions Officers that recently completed the course. However, Commanding Officers and Executive Officers in three of 12 interviews and Department Heads in seven of 12 group discussions identified challenges with the course, including areas where they had to compensate with on-the-job training for skills they felt should have been addressed in initial training, such as ship-driving proficiency in high-traffic environments. Our prior work on assessing training efforts in the federal government states that an agency should evaluate the effectiveness of its training and development efforts, to include obtaining and analyzing feedback. However, the Navy does not currently have a formal fleet-wide method of soliciting feedback from SWOs to obtain input on the quality of their classroom, simulator, and at-sea training on Division Officer performance and evaluate trends in feedback, and instead uses more limited means to assess training. For example: According to Navy officials, Surface Warfare Officers School Command conducts end-of-class surveys at the end of officer training, but no follow-up is conducted by the command after SWOs have assumed their ship duties or to obtain input from the trainees superior officers on the value of the training. The Navy had a survey for Division Officers and Department Heads in the past, but this survey gave little helpful feedback on training and, according to Navy officials, the Navy discontinued the survey after 2015. Surface Warfare Officers School Command assembles a board of officers from the fleet each year to review areas of its training curriculum, but Navy officials stated that participants are invited based on their expertise. As a result, only those selected to serve on the board (not officers across the fleet) have the opportunity to provide feedback. The Navy s current means to assess training do not allow for the full range of junior and senior officers across the fleet to provide feedback on how well training prepares SWOs for their ship duties. Senior Navy officials acknowledged the value of conducting fleet-wide surveys of SWOs to obtain feedback on how to improve SWO training and gauge the health and morale of the SWO community. SWOs experiences in the fleet are diverse, therefore fleet-wide data is of particular value as centralized organizations like Naval Surface Forces, Surface Warfare Officers School Command, and the Office of the Chief of Naval Operations consider costly and consequential training investments. Without a method to regularly collect and analyze information from SWOs across the fleet, such as in a survey, regarding the quality of the increased classroom, simulator, and at-sea training on Division Officer performance, and evaluate trends in feedback received, Navy decision makers lack valuable information that could help them to assess the effects of training on SWO performance. <3.2.2. The Navy Developed a Ship- Driving Competency Assessment Conducted by Independent Inspectors, but Has Not Fully Planned to Routinely Conduct the Assessments> Navy Surface Warfare Officer School Command training experts developed a ship-driving proficiency measurement system and used it in fiscal year 2018 to conduct ship-driving competency assessments. Specifically, from January through March 2018 Surface Warfare Officers School Command conducted spot check ship-driving competency assessments of 164 SWOs that had recently qualified as Officers of the Deck during their first at-sea assignment. Each assessment was conducted by three Navy inspectors that were independent of the assessed SWOs chain of command. The independent Navy inspectors found concerns in the ship-driving competency levels of more than 80 percent of these SWOs (see fig. 5). Specifically, Surface Warfare Officers School Command found that 29 SWOs (18 percent) had significant competency problems and 108 had some concerns (66 percent). According to Surface Warfare Officers School Command officials, those SWOs who experienced significant problems in their assessments likely should not have been qualified as Officer of the Deck at the time of the assessment because they violated fundamental ship-driving rules, among other issues. Navy guidance to the fleet emphasizes that these assessments performed by independent experts are valuable in supporting impartial results and providing quality information for analysis. According to Navy documentation, the Navy also used the 2018 competency assessments to help validate its new Junior Officer of the Deck and Officer of the Deck training curriculum. Specifically, Surface Warfare Officers School Command used the same Officer of the Deck competency assessment criteria to assess six officers in May 2018 and 12 in July 2018 that completed a pilot version of the Junior Officer of the Deck course. Surface Warfare Officer School Command found that the students with no at-sea experience that had completed a pilot of the new Junior Officer of the Deck training course in some cases outperformed qualified Officers of the Deck that had over a year of at-sea experience. According to Navy officials, the ability to compare ship-driving proficiency among populations and with earlier baselines using these competency assessments was valuable to the Navy in identifying the effects of changes to training, and could also be valuable in the future, as well. However, when we visited Surface Warfare Officers School Command in February 2019, officials told us they did not plan to conduct additional competency assessments until 2020. In meetings with Surface Warfare Officers School Command and senior Navy leaders, we noted that delaying additional assessments could limit visibility over ship driving proficiency trends and that small sample sizes could affect the Navy s ability to make comparisons over time. In response, the Navy accelerated and expanded additional competency assessments. According to Navy officials, in spring 2019, Surface Warfare Officers School Command began to assess a sample of Division Officers using the Officer of the Deck competency assessment at the beginning of each Advanced Division Officer Course to collect and analyze performance data and refine training curriculum. Further, as of July 2019, the Navy had assessed 38 SWOs from three courses and found that the proficiency level of the SWOs assessed had not improved from the proficiency levels seen in the 2018 assessments. Senior Navy officials we met with as part of this review stated that they recognize the value in implementing periodic ship-driving competency assessments by independent inspectors to identify trends in ship-driving proficiency over time. However, we also found that the Navy has not planned to routinely conduct these assessments in the future. Specifically, in July 2019, Navy officials stated that they do not plan to complete these Officer of the Deck competency assessments beyond 2021 and plan to replace them with a different assessment at the end of the planned Officer of the Deck Phase II course. However, our analysis shows that mid-fiscal year 2024 is the first time Officer of the Deck Phase I course graduates will have completed their first at-sea assignment and be available to have their ship-driving training assessed, resulting in a multi-year gap in planned competency assessments. In order to measure the effectiveness of the full complement of Navy s new and enhanced ship-driving training, the independent Navy inspectors will need to continue administering the Officer of the Deck competency assessments beyond 2021. In addition, an assessment performed at the end of training, such as the planned Officer of the Deck Phase II assessment, indicates the SWOs proficiency after additional training and may give a less accurate indication of prior at-sea proficiency. According to federal government internal control standards, management should use quality information and monitoring activities to ensure the entity s objectives are achieved. Moreover, our prior work on assessing training efforts in the federal government states that an agency should evaluate the effectiveness of its training and development efforts, to include assessing competency and analyzing relevant data. Without routinely conducting Officer of the Deck competency assessments across the fleet using samples of sufficient size and selection methods, the Navy will be hindered in its ability to gauge fleet-wide ship driving proficiency trends and determine the effectiveness of the changes made to training, and the Navy may not know whether additional changes are needed. <3.2.3. The Navy Lacks Standard Criteria for Informing the Qualification of Officer of the Deck Candidates> We found that the Navy has not provided standard criteria to ship Commanding Officers on fleet-wide ship driving proficiency expectations to inform the qualification of Officer of the Deck candidates. Instead, the Navy has determined that ship Commanding Officers should use their individual judgment in granting this qualification based on a set of required officer experiences, which the Navy refers to as Personnel Qualification Standards. Following the 2017 collisions, Surface Warfare Officers School Command developed proficiency standards to measure and test Officer of the Deck ship-driving proficiency to implement the Officer of the Deck competency assessments described above. The proficiency standards require an Officer of the Deck to demonstrate knowledge of navigation systems, rules of the road, and effective bridge resource management and to demonstrate the ability to successfully navigate high-traffic environments. However, the varying at-sea experiences of officers and subjective nature of some requirements have led to different experiences for SWO candidates working to qualify as Officer of the Deck. SWOs must complete a standard series of requirements in ship-driving and other experience before they are eligible to qualify as Officer of the Deck, with Commanding Officers granting qualification after their assessment of the SWO s performance and fitness. However, when we held group discussions with SWOs on ships in the fleet, SWOs in nine of 12 group discussions with Division Officers, eight of 12 group discussions with Department Heads, and three of 12 interviews with Commanding Officers and Executive Officers identified significant differences in opportunities, experiences, and assessments that Division Officers experience in earning their qualification as Officers of the Deck during their first Division Officer assignment. For example: In one group discussion, Division Officers reported being qualified as Officers of the Deck without ever having stood watch at sea, with the Commanding Officer granting qualifications based on their classroom and simulator experience alone. In five of 12 group discussions with Division Officers, Division Officers stated that SWOs on ships in maintenance had few opportunities to stand watch on the bridge at sea to build proficiency in difficult ship- driving operations, but still received their qualifications. SWOs in 17 of 24 group discussions stated that some Division Officers get more ship driving experience than others before earning their Officer of the Deck qualifications. For example, Division Officers assigned to ships with more time at sea or fewer Division Officers get more experience to practice ship driving than those on ships with little time at sea or that must divide ship-driving opportunities among numerous Division Officers. Commanding Officers in three of 12 interviews reported that they had to temporarily place their Division Officers on other ships to gain qualifying experience, and had to rely on the judgment of the other ships Commanding Officers in determining their qualifications as Officers of the Deck. According to Navy officials, the Navy has not provided Officer of the Deck assessment criteria based on the developed proficiency standards to ship Commanding Officers, out of deference to their judgment in interpreting an officer s preparedness to drive their ship. Navy officials emphasized the importance of allowing ship Commanding Officers to make their own determination of an officer s preparedness to drive a ship, due to their knowledge of the ship s operating conditions. Navy officials also stated that they considered the Officer of the Deck assessment standards to be a resource for use by Surface Warfare Officer Schools Command in assessing training curriculum and had not considered using the standards in the fleet for other purposes. However, the Navy s 2018 and 2019 Officer of the Deck competency assessments identified significant variance in the ship-driving competency levels of recently qualified Officers of the Deck. Since the Navy has developed fleet-wide standards for assessing Officer of the Deck proficiency, the Navy could use these to provide standard Officer of the Deck assessment criteria in guidance to ship Commanding Officers. Federal government internal control standards state that management should internally communicate the necessary quality information to achieve the entity s objectives and ensure decisions are made based on consistent standards. A SWO s assigned ship, Commanding Officer, and operating conditions may change during a career, so a standard set of criteria would help Commanding Officers to determine what is expected of Officers of the Deck elsewhere in the fleet as they determine a junior officer s qualification. Without providing standard Officer of the Deck assessment criteria and incorporating them into surface fleet guidance to Commanding Officers, the Navy risks creating uncertainty in Officer of the Deck qualification expectations which can contribute to variations in ship-driving proficiency among SWOs that could jeopardize safe operations at sea. <3.2.4. The Navy Has Not Determined How to Analyze and Use Surface Warfare Mariner Skills Logbook Data> In September 2018, the Commander, Naval Surface Forces, U.S. Pacific Fleet and Commander, Naval Surface Forces Atlantic, began requiring SWOs to document their ship-driving and related experience in a handwritten logbook. The logbook referred to as the Surface Warfare Mariner Skills Logbook (see fig. 6) captures an officer s experience gained during each watch aboard a ship, special evolution (e.g., underway replenishment, flight operations, and sea and anchor duty), and simulator training session. During our ship discussion groups, SWOs at the Division Officer and Department Head levels reported that they had begun filling out their logbooks and having them reviewed as required, but some acknowledged that they are inconsistently filling them out or that they were not entering any information in them. Specifically, SWOs in five of 24 discussion groups reported that logbooks are completed with inconsistent quality or not completed at all. Additionally, SWOs in four of 24 discussion groups reported that they are unaware of any plans to use the logbook information to identify any additional training needs and provide opportunities for SWOs to improve their ship-driving proficiency. Navy Personnel Command officials told us that, as of July 2019, they had received 174 summaries of Surface Warfare Mariner Skills Logbook data from Commanding Officers. Navy officials stated that over time, as they gather these data, they intend to examine the link between ship-driving proficiency and SWO experience. However, officials did not have any specific, measurable plans to analyze and use these data or to assess the completeness of these data. Federal internal control standards state that management should obtain relevant data from reliable sources and process those data into quality information to aid decision-making. Furthermore, Naval Surface Forces guidance states that the surface warfare community should analyze and use logbook data to link SWO experience with ship-driving proficiency. Despite this guidance, the Navy does not yet have a plan that includes specific steps to analyze and use logbook information to link SWO experience with ship-driving proficiency. According to senior Navy officials, while the Surface Warfare Mariner Skills Logbook is still relatively new, developing a plan to use the information would be a logical next step. Without a plan for analyzing and using Surface Warfare Mariner Skills Logbook data, the Navy cannot determine the relationship between SWO experience and ship-driving proficiency or use these data to aid decision-making. <4. Conclusions> SWOs play a critical role in Navy surface fleet readiness, as they are responsible for safely driving ships at sea and successfully leading ships in Navy operations across the world. The Navy is making numerous changes and investments to enhance Surface Warfare Officer ship- driving training following the 2017 collisions at sea with plans to triple initial training hours and spend nearly half a billion dollars to build simulator capacity to deliver this training. The Navy s oversight of these efforts is centered on a series of added checks throughout SWOs careers to ensure that they have basic ship-driving and other skills. These checks are steps in the right direction but may not provide adequate assessment mechanisms in the near term and might lead to missed opportunities going forward. For example, the Navy is expanding its ship- driving training but is not planning to collect fleet-wide feedback on classroom, simulator, and at-sea training received. In addition, the Navy developed standards for conducting spot checks on ship-driving competency but is planning to stop those checks in 2021, missing an opportunity for an outside assessment and to evaluate how well new and updated training is working. Moreover, ship commanders are expected to qualify SWOs on ship driving but have not been provided standard guidance for how to do this, which can contribute to wide variations in SWO competence. Finally, the Navy has developed detailed logbooks for SWOs to track their experiences but the Navy has not developed a specific plan to analyze and use the logbook data. Without actions to address these challenges, the Navy cannot fully assess in the near term if the significant investments it is making to expand and enhance SWO ship-driving training are effective; further adjustments are necessary; and, ultimately, Navy ships are being operated safely at sea. <5. Recommendations for Executive Action> We are making the following four recommendations to the Department of Navy: We recommend that the Secretary of the Navy ensure that the Commander, Naval Surface Forces, in coordination with Surface Warfare Officers School Command, develop a method to regularly collect feedback from SWOs across the fleet, such as in a survey, regarding the quality of their classroom, simulator, and at-sea training on Division Officer performance; and evaluates trends in the feedback received for the purpose of improving SWO training. (Recommendation 1) We recommend that the Secretary of the Navy ensure that the Commander, Naval Surface Forces, routinely conduct regular Officer of the Deck competency assessments using samples of sufficient size and using selection methods to gauge the level of fleet-wide ship-driving proficiency trends following the implementation of the planned ship- driving training programs. (Recommendation 2) We recommend that the Secretary of the Navy ensure that the Commander, Naval Surface Forces, in coordination with Surface Warfare Officers School Command, provide Commanding Officers with standard criteria to inform their evaluation of candidates for their Officer of the Deck qualification and incorporates these criteria into surface fleet guidance. (Recommendation 3) We recommend that the Secretary of the Navy ensure that the Commander, Naval Surface Forces, in coordination with Surface Warfare Officers School Command, develop a plan to analyze and use Mariner Skills Logbook information to inform decision-making. (Recommendation 4) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In written comments provided by the Navy through DOD (reprinted in their entirety in appendix V), the Navy concurred with all four of our recommendations and identified actions it plans to take to evaluate the effectiveness of changes to SWO training. The Navy also provided additional information and context in its comments and provided technical comments, which we incorporated as appropriate. The Navy concurred with our first recommendation that the Commander, Naval Surface Forces, in coordination with Surface Warfare Officers School Command, develop a method to regularly collect feedback from SWOs across the fleet, such as in a survey, regarding the quality of their classroom, simulator, and at-sea training on Division Officer performance; and evaluate trends in the feedback received for the purpose of improving SWO training. The Navy stated that it plans to explore additional means of garnering holistic SWO feedback regarding newly-implemented SWO training and assessments as well as gathering additional targeted feedback. However, the Navy stated that the use of performance data will remain the primary focus of surface force training improvement efforts. While using performance data is valuable, it will be important that the Navy follow through to develop a holistic means of collecting feedback, such as in a survey of SWOs across the fleet, on the effectiveness of Division Officer training on SWO performance to ensure a variety of perspectives are considered. In its comments, the Navy noted that the SWOs who participated in our ship visits and discussion groups had not experienced the changes made or planned to SWO training. We agree that our ship visits did not include officers who had experienced the expanded Division Officer training courses, as they were first introduced to the fleet in June 2019, after we had completed the majority of our work. While our discussion groups pre- date the implementation of new SWO training courses, the discussion groups we conducted with over 200 SWOs reinforced the our finding that the Navy needs to develop a method to regularly collect feedback from SWOs across the fleet. Also, the Navy plans to more than triple initial training, so routinely soliciting and analyzing feedback from SWOs on Division Officer training will be needed to determine the effectiveness of the Navy s investments in these training programs and inform the Navy s decisions on whether further adjustments are necessary. The Navy acknowledged that only officers participating in the Surface Warfare Officers School Command s Board of Visitors provide direct feedback on the training curriculum. The Navy noted, however, that all available Surface Warfare units are invited to participate in Surface Warfare Officer School Board of Visitors events and so could provide feedback then. In addition, the Navy noted that Surface Warfare Officer School Command also solicits feedback through visits to fleet concentration areas and through semiannual symposiums of ship Commanding Officers. While such targeted means of collecting feedback may provide valuable information, officers may not be able to participate due to their deployment status, position on shore duty, timing of events during other personal responsibilities, or other factors. We believe that developing a method to regularly collect feedback from SWOs across the fleet would provide decision makers with valuable information that could help them assess the effects of training on SWO performance. The Navy concurred with our second recommendation that the Commander, Naval Surface Forces, routinely conduct regular Officer of the Deck competency assessments using samples of sufficient size and using selection methods to gauge the level of fleet-wide ship-driving proficiency trends following the implementation of the planned ship- driving training programs. The Navy stated that it plans to routinely collect and analyze standardized mariner skills performance data across an officer s career path. However, the Navy stated it will use training checks, rather than the current Officer of the Deck competency assessment, to evaluate SWO performance after 2020. This presents two problems in meeting the intent of our recommendation. First, the Navy will need to ensure that the training checks are sufficiently rigorous to assess competency. Second, the Navy will not have valid data to compare the effects of training changes on competency if it changes its assessment approach. In 2018, the Navy used the Officer of the Deck competency assessment to establish a baseline of SWO ship-driving proficiency. We found that the 2018 competency assessments showed significant variation in ship- driving proficiency and the 2019 follow up assessments found that competency had not improved. In currently documented plans, the Officer of the Deck Phase II check after a Division Officer s first assignment will occur at the end of the course. Even if the Navy changes the Officer of the Deck Phase II check to occur at the beginning of training as stated in its comments, performance data from this check cannot be directly compared with the results of the current competency assessment. Differences in assessment content or difficulty, remediation attempts, and the fact that the new check may have career implications for SWOs as a go/no-go assessment may affect proficiency measurements and pass rates. Due to these factors, we believe that a comparison between the current Officer of the Deck competency assessment and the planned Officer of the Deck Phase II check or another standard should not be considered as valid means for demonstrating changes in ship-driving proficiency over time. That is, adopting a new standard may affect the Navy s ability to determine the impact of training on ship-driving proficiency compared with the 2018 baseline results. The Navy also stated in its comments that the SWO training and assessment continuum is designed to provide training and evaluation at all career milestone levels. The planned system of additional skills checks will provide the Navy with more insight into SWO proficiency levels over the course of an officer s career and help the Navy to understand the effects of changes to training. As we stated in the report, we believe these checks are significant steps in the right direction but may not provide adequate assessment mechanisms in the near term. The more robust Officer of the Deck competency assessments are necessary to gauge the level of fleet-wide ship-driving proficiency trends following the implementation of the planned ship-driving training programs. Further, the Navy stated in its comments that while numerous means of assessing SWO mariner skills proficiency at various milestone levels are in place, the ultimate SWO career path goal is to develop the most proficient, experienced, and confident Commanding Officers, which occurs approximately 16 years into the SWO career path. While the quality of ship Commanding Officers is a vital component of Navy readiness and capability, the majority of SWOs do not remain in the Navy long enough to advance beyond the position of Division Officer, according to Navy documentation. Similarly few advance to the position of Commanding Officer during their career as a SWO. Since Division Officers constitute over one third of the SWO workforce and by design of the SWO career path do most of the ship-driving, it is of utmost importance to build and evaluate fundamental ship-driving skills for all Division Officers to support excellence in the ship-driving proficiency across the Navy. Finally, the Navy stated in its comments that our report language implies an absence of any Officer of the Deck assessments from 2021 through 2024. We acknowledge that the Navy will conduct assessments of Officers of the Deck during this time period in line with its planned system of ten checks over a SWO s career. However, without maintaining the current Officer of the Deck competency assessments through at least 2024, the Navy will be unable to demonstrate any proficiency improvement, compared with the 2018 baseline, resulting from its new training programs. Further, the Navy stated in its comments that it is important to clarify that the SWOs who received competency checks in 2019 had not benefitted from the new and expanded ship-driving training courses. Our ship visits did not include officers who had experienced the expanded Division Officer training courses, as they were first introduced to the fleet in June 2019. Nonetheless, it is concerning that SWO competency had not improved in the 2 years since the 2017 collisions despite the fleet-wide attention to improving ship-driving skills. The Navy concurred with our third recommendation that the Commander, Naval Surface Forces, in coordination with Surface Warfare Officers School Command, provide Commanding Officers with standard criteria to inform their evaluation of candidates for their Officer of the Deck qualification and incorporate these criteria into surface fleet guidance. However, the Navy stated that such criteria are already in place. Specifically, the Navy noted that existing Personnel Qualification Standards provide the standard evaluation criteria for the Officer of the Deck qualification. We agree that the Personnel Qualification Standards are in place, but disagree that Qualification Standards provide standard evaluation criteria. Unless the Navy provides additional guidance for Commanding Officers to measure proficiency in addition to the list of required experiences present in the Personnel Qualification Standards, the actions the Navy identified as addressing our recommendation will not meet the intent of our recommendation. The Navy s Officer of the Deck Personnel Qualification Standards provide a list of required experiences; however, the 2018 and 2019 competency assessments indicate that these existing criteria have not resulted in high levels of proficiency among Officers of the Deck. The Navy s Personnel Qualification Standards do not require SWOs to demonstrate a standard level of proficiency, but rather that SWOs participate in a required number of ship-driving experiences at a level determined by his or her Commanding Officer. The absence of a common proficiency standard across the Navy may contribute to inconsistency in ship-driving skills among SWOs. Since the Officer of the Deck competency assessment provides a means to measure proficiency, communicating appropriate standards in line with those used in the current assessments as qualification criteria would help ensure a common understanding of proficiency expectations. In comments, the Navy stated that for junior officers whose ships experience maintenance periods, it is an historic surface force-wide practice for Commanding Officers to temporarily assign those officers to similar ships whose operational schedule better support qualification. This practice is understandable and may contribute to SWO career development, but can lead to significant differences in opportunities, experiences, and assessments that SWOs receive during their first Division Officer assignment. For example, as noted in our report, some Commanding Officers stated because of this temporary assignment, they had to rely on the judgment of the other ships Commanding Officers to determine their SWOs qualifications as Officers of the Deck. The Navy concurred with our fourth recommendation that Commander, Naval Surface Forces, in coordination with Surface Warfare Officer School Command, develop a plan to analyze and use Mariner Skills Logbook information to inform decision-making. The Navy noted that it would comprehensively evaluate performance data relative to Mariner Skills Logbook data in order to refine mariner skill milestone performance and proficiency criteria. If Navy efforts result in a plan that includes specific and measurable steps for analyzing and using Mariner Skills Logbook data, the efforts will meet the intent of our recommendation. In its comments the Navy stated that during the time we conducted our group discussions (i.e. January through April 2019), Mariner Skills Logbooks were still being introduced to the Fleet and recording practices were still being established. While at the time of our discussion groups the Mariner Skills Logbooks were relatively new, in September 2018, the Navy issued an instruction that established guidance for the implementation and use of the logbooks. In addition, all of the SWOs we met with as part of our review had already received their Mariner Skills Logbooks. We are sending copies of this report to congressional committees, the Secretary of Defense, the Secretary of the Navy, 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) 512-3489 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. Appendix I: Overview of the Nine Navy Surface Ship Classes That Surface Warfare Officers Serve Aboard Appendix II: Status of Navy Review Recommendations Related to Surface Warfare Officer Training Following the four 2017 mishaps at sea, the Navy completed two internal reviews on surface fleet readiness, ultimately compiling 111 recommendations for improvement. The Navy established a Readiness Reform and Oversight Council under the leadership of the Vice Chief of Naval Operations to oversee implementation of these recommendations. The Readiness Reform and Oversight Council reported in February 2019 that it considered 91 of these recommendations to be implemented. We reviewed the recommendations, identified 12 recommendations related to Surface Warfare Officer (SWO) initial ship-driving training, and requested the implementation status of each of these recommendations from the Commander, Naval Surface Forces. The Navy considers a recommendation to be implemented when there is a policy in place or action has been taken to address a recommendation. The Navy considers a recommendation to be transitioned when the Readiness Reform and Oversight Council no longer maintains regular oversight of a recommendation and has transitioned oversight to another Navy organization. As of August 2019, the Navy considered all 12 of the recommendations related to ship-driving training as implemented with the final recommendation estimated to transition by September 30, 2019. Table 1 lists the 12 recommendations related to SWO initial ship-driving training, and our summary of the Navy s explanation for why they are considered to be implemented. Appendix III: Scope and Methodology The John S. McCain National Defense Authorization Act for Fiscal Year 2019 and Senate Armed Services Committee report 115-262 to accompany a bill for the National Defense Authorization Act for Fiscal Year 2019 contained provisions that we review Surface Warfare Officer (SWO) training and career paths. This report (1) describes the changes the Navy has made or planned to SWO ship-driving training since the 2017 collisions and (2) assesses the extent to which the Navy has taken actions to evaluate the effectiveness of those changes. We plan to issue a separate report on SWO career paths in the future. For objective one, we reviewed Navy documentation from Commander, Naval Surface Forces, Surface Warfare Officers School Command, and the Office of the Chief of Naval Operations on the content, purpose, cost, and status of changes made and further changes planned to ship-driving training since the 2017 collisions. We focused our analysis on changes made to SWOs ship-driving training at the junior officer level as the Navy prioritizes ship-driving training and ship-driving experience for junior officers, and the Navy has identified actions it is taking to address recommendations from the Navy s two 2017 internal reviews to ensure safe operations at sea through improvements to junior officer training. We analyzed planned investments from fiscal year 2018 through fiscal year 2025 for the construction of two ship-driving training facilities and the development of three ship-driving training courses, which includes the cost of purchasing new simulators, hiring new instructors, military construction, and course curriculum development. We discussed implementation plans for the 2017 internal reviews recommendations with the Commander, Naval Surface Forces; officials from the Surface Warfare Officers School Command; and officials from the Readiness and Reform Oversight Council, a group within the Office of the Chief of Naval Operations established to monitor the implementation of the internal reviews recommendations. For objective two, we reviewed Navy documentation and interviewed Navy officials on how they evaluate SWOs throughout their careers, gather and use feedback from SWOs, assess the effectiveness of SWO ship-driving training, and use available data to inform decisions regarding SWO training. Specifically, we reviewed the implementation of the 10 career milestone checks outlined in Naval Surface Forces Instruction 1412.5 Surface Warfare Officer Milestone Mariner Skills Assessments, Evaluations, and Competency Checks that are to be administered during a SWO s career; Navy s efforts to collect feedback from the surface fleet on the quality of SWO ship-driving training and the health of the SWO community; Navy s 2018 Officer of the Deck competency assessment results, criteria, and plans to continue evaluating SWO ship-driving competency; extent to which the Navy had provided standardized criteria for ships Commanding Officers to use when evaluating SWO s for ship-driving qualification; and format of SWO Mariner Skills Logbooks used to track SWO ship- driving experiences, and Navy policies regarding the logbooks. To do this we compared the Navy s practices with relevant Navy reviews, instructions, and guidance, Standards for Internal Control in the Federal Government, and our prior work on assessing training efforts in the federal government. We assessed the reliability of the results of the Navy s 2018 Officer of the Deck competency assessments by examining them for missing values, comparing other sources that provide the same types of data to ensure consistency, and interviewing knowledgeable agency officials regarding the assessments accuracy and completeness. In addition, we reviewed the Navy s internal controls for performing the assessments, such as grading criteria and use of independent inspectors to ensure quality and consistency in the information. We determined that the results of the Navy s 2018 Officer of the Deck competency assessments were sufficiently reliable for the purposes of reporting on the number and percentage of the graded categories. In addition to meeting with Navy offices, we visited 12 surface ships in the Pacific and Atlantic fleets from January through April 2019, selected according to which ships and crews were available at each of the sites we visited. Aboard the ships we held group discussions and interviews with approximately 225 SWOs to discuss their views on the sufficiency and appropriateness of SWO training. Discussion group sizes ranged from two to 20 SWOs. In conducting these group discussions, we held 24 group discussions, with two separate discussions for each of the 12 ships one with Department Heads and one with Division Officers; interviewed Commanding and Executive Officers aboard each of the 12 ships, where available; and conducted each group discussion without the group s supervisors or subordinates present. The ship crews we visited were those the Navy identified as available to hold group discussions with us during site visits, and the results of these group discussions are not generalizable to anyone outside these groups. Due to the timing of our work, the interviews and group discussions did not include SWOs that experienced changes made or planned for SWO training beyond April 2019. We asked each group a standard set of questions to obtain their views on the following topics: the sufficiency and appropriateness of SWO training programs in preparing SWOs for their ship responsibilities, including ship driving; the SWO career path, including the potential benefits and drawbacks of more specialized career paths; and any opportunities to improve the SWO community. We conducted an analysis of the discussion group responses to identify common themes and provide illustrative examples in our report. Specifically, we reviewed the responses received during discussion groups, grouped the responses by themes, and counted how many discussion groups and interviews provided similar feedback to our questions. One GAO analyst conducted this analysis, coding the information and entering it into a record of summary, and a different GAO analyst checked the information for accuracy and agreement on themes. Any initial disagreements in the coding were discussed and reconciled by the analysts. The analysts then tallied the responses to determine the extent to which the certain themes were covered during our discussion groups and interviews. We interviewed officials, or where appropriate, obtained documentation at the organizations listed below: Office of the Chief of Naval Operations Director of Surface Warfare (N96) Surface Warfare (N96) Manpower and Training Readiness Reform and Oversight Council Commander, Naval Surface Forces, U.S. Pacific Fleet Littoral Combat Ship Training Facility Navigation, Seamanship, and Ship-handling Training facility USS Ardent (MCM 12) USS Lake Champlain (CG 57) USS New Orleans (LPD 18) USS Paul Hamilton (DDG 60) USS Tulsa (LCS 16) Commander, Naval Surface Forces, Atlantic Navigation, Seamanship, and Ship-handling Training facility USS Bataan (LHD 5) USS Cole (DDG 67) USS Mahan (DDG 72) USS Mesa Verde (LPD 19) USS Oak Hill (LSD 51) USS San Antonio (LPD 17) USS San Jacinto (CG 56) Surface Warfare Officer School Command Basic Division Officer Course facilities San Diego, California and Surface Warfare Officer (PERS-41) We conducted this performance audit from November 2018 to November 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix IV: Current and Planned Ship- Driving Skill Checks to Be Conducted during a Surface Warfare Officer s Career The Commander, Naval Surface Forces, issued an instruction in September 2018 listing ten ship-driving skill checks to be conducted periodically over the course of a Surface Warfare Officer s (SWO) career. Failure to pass some of the checks can result in required remediation or disqualification from career advancement. Table 2 lists the ten current and planned checks as of August 2019, as well as information on their timing and content as described in the instruction. Appendix V: Comments from the Department of Defense <7. GAO Contact> <8. Staff Acknowledgments:> In addition to the contact named above, Chris Watson (Assistant Director), Tobin McMurdie (Analyst-in-Charge), David Beardwood, Vincent Buquicchio, Mae Jones, Amie Lesser, Shahrzad Nikoo, Michael Silver, and Brandon Voss made key contributions to this report.

Why GAO Did This Study In 2017, the Navy had four mishaps at sea including two collisions that resulted in the loss of 17 sailors' lives and hundreds of millions of dollars in damage to Navy ships. In the wake of those mishaps, the Navy identified deficiencies in SWO ship-driving training and related experience as contributing factors and has undertaken a number of efforts to improve these areas. Senate Report 115-262, accompanying a bill for the Fiscal Year 2019 National Defense Authorization Act, contained a provision that GAO assess SWO training. This report (1) describes the changes the Navy has made to SWO ship-driving training since the 2017 collisions and (2) assesses the extent to which the Navy has taken actions to evaluate the effectiveness of changes made to SWO ship-driving training. GAO reviewed and analyzed changes made to Navy training and assessment practices and related investments; interviewed cognizant officials; and conducted discussions with SWOs aboard 12 ships. What GAO Found Since 2017, the Navy has made numerous changes and plans additional changes to enhance Surface Warfare Officer (SWO) ship-driving training. The Navy plans for these changes to result in a threefold increase in the number of initial ship-driving training hours for SWOs by 2021, compared with the number of training hours prior to the 2017 collisions (see fig.). The Navy added classroom and simulator time to existing training courses to improve ship-driving skills and is developing two additional simulator-based ship-driving courses planned for 2021. These plans hinge on the completion of two new simulator-based training facilities, scheduled for completion in June 2021 and in January 2023. The Navy has relied on added skill checks conducted throughout a SWO's career to ensure that each SWO has basic ship-driving skills, but has not put key processes and assessments in place to evaluate comprehensively the effectiveness of its changes to ship-driving training. Senior Navy officials stated that it could take 16 years or more to know if the planned changes to SWO training were effective in increasing Commanding Officer ship-driving proficiency across the fleet and stated that they intend to closely monitor the implementation of changes to the training. However, GAO found that in planning an approach for evaluating the changes, the Navy has not: (1) identified a method to solicit fleet-wide feedback on the quality of the increased ship-driving training received by SWOs; (2) planned to routinely conduct ship-driving competency “spot checks” that were instituted after the 2017 collisions despite Navy inspectors having found concerns with more than 80 percent of SWOs' ship-driving skills; (3) provided standard criteria to ship Commanding Officers for qualifying SWOs to drive ships, contributing to significant variance in ship-driving experience and competency levels across the fleet; nor (4) developed a specific plan to analyze and use information from logbooks in which SWOs are to document ship-driving and related experience. Without addressing these challenges, the Navy cannot assess in the near term if the significant investments made to expand and enhance SWO ship-driving training are effective; further adjustments are necessary; and Navy ships are being operated safely at sea. What GAO Recommends GAO is making four recommendations to the Navy to routinely evaluate SWO training, including that the Navy collect and evaluate fleet-wide feedback on the quality of training; routinely conduct ship-driving competency assessments; provide standard criteria for qualifying ship drivers; and develop a plan to analyze and use logbook information. The Navy concurred with GAO's recommendations.

gao_GAO-19-599

gao_GAO-19-599_0

<1. Background> <1.1. Care Provided in Nursing Homes and Assisted Living Facilities> Nursing homes and assisted living facilities provide important long-term care to vulnerable individuals in institutional or residential settings. Specifically, nursing homes provide care to elderly and disabled individuals, many of whom have physical and cognitive limitations requiring skilled nursing care. Assisted living facilities provide a residential alternative to nursing home care for individuals who prefer to live independently but need assistance to maintain their independence. Like nursing homes, they may provide residents with a variety of services to assist with activities of daily living, such as bathing and dressing, but the facilities are generally not licensed to provide 24-hour skilled nursing care and typically offer a more limited range of medical care. As we reported in our January 2018 report on CMS s oversight of assisted living facilities under the Medicaid program, the demand for assisted living services, which offer the benefit of community living, is expected to increase as a result of the aging of the nation s population, increased life expectancy, and older adults desire to remain in the community. Additionally, the cost of nursing home care for an individual generally exceeds the cost of assisted living facility services, further incentivizing a shift among consumers and payers to assisted living for elderly individuals, including those with increasingly complex health needs who would otherwise need nursing home care. <1.2. Long-Term Care Facility Oversight> Oversight of nursing homes is a shared federal-state responsibility. Federal law imposes both a comprehensive set of quality standards that nursing homes must meet to participate in the Medicare and Medicaid programs, and federal and state oversight responsibilities to enforce these standards. CMS, which is charged with implementing these standards and conducting federal oversight, contracts with state survey agencies to perform both routine inspections known as standard surveys and conduct investigations of elder abuse incidents, including complaints and facility-reported incidents. CMS provides guidance implementing statutory and regulatory requirements to protect residents from elder abuse in its State Operations Manual, which specifies requirements for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes. CMS regional offices monitor state compliance with federal requirements for nursing home oversight. Generally, states establish their own oversight requirements for assisted living facilities. These facilities are largely overseen by state agencies within, for example, the state health or aging departments; however, when assisted living facilities provide services to Medicaid beneficiaries, they are also indirectly subject to CMS oversight through the agency s oversight of state Medicaid agencies. As we have previously reported, states can provide Medicaid coverage for assisted living services under multiple authorities, but most commonly states use an HCBS waiver under section 1915(c) of the SSA. Under these waivers, CMS requires states to develop a quality assurance system that monitors beneficiary health and welfare including tracking and responding to incidents that may cause harm to a beneficiary s health and welfare, such as elder abuse. States must demonstrate to CMS that they are meeting these quality assurance obligations in their waiver renewal reports, typically submitted about 2 years before an HCBS waiver is scheduled to end. States must also report summary information annually to CMS on any health and welfare deficiencies occurring under their HCBS waivers. CMS regional offices oversee state compliance with waiver requirements. In addition to state survey agencies, state Medicaid agencies, and the agencies that license and regulate assisted living facilities, there are other entities charged with protecting nursing home and assisted living facility residents from elder abuse. These agencies roles and missions can vary by state. For example, Adult Protective Services (APS) programs in each state are generally responsible for identifying, investigating, resolving, and preventing abuse of older adults, and such programs may investigate complaints of elder abuse in nursing homes and assisted living facilities. Additionally, Medicaid Fraud Control Units and local law enforcement can also play a role in investigating elder abuse. Consequently, incident management may be coordinated among multiple separate agencies. <2. Federal Requirements Specify Elder Abuse Reporting, Investigation, and Notification in Nursing Homes and Direct States to Establish Assisted Living Facility Requirements> Federal requirements include those for nursing homes and state survey agencies specific to reporting, investigating, and notifying law enforcement of elder abuse in nursing homes. For example, federal requirements specify the time frames within which nursing homes must report alleged elder abuse to state survey agencies and, similarly, specify time frames for state survey agencies to report elder abuse to CMS. In contrast, there are no similar requirements for assisted living facilities and, instead, states must establish their own policies to ensure the reporting and investigation of elder abuse in assisted living facilities covered by Medicaid. (See fig. 1 for federal requirements for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes and assisted living facilities.) As illustrated in figure 1, there are key differences between federal requirements for reporting, investigating, and notifying law enforcement about elder abuse occurring in nursing homes compared to assisted living facilities. CMS officials told us that the difference in requirements between nursing homes and assisted living facilities reflects the different regulatory relationship between the agency and the two facility types. According to CMS officials, CMS has direct regulatory authority over nursing homes, but does not have direct authority over assisted living facilities. As noted, states are largely responsible for establishing their own policies for overseeing the reporting and investigation of abuse in assisted living facilities. (See app. I for profiles of selected states with HCBS waivers regarding elder abuse reporting, investigating, and notification.) Differences in federal requirements include the following: Reporting. Federal law and CMS policy define specific time frames for nursing home staff and state survey agencies to report incidents of abuse that occur in nursing homes, respectively, and CMS requires states to establish their own reporting time frames for assisted living facilities serving HCBS waiver participants. Nursing homes must ensure that allegations of elder abuse are reported to the state survey agency immediately, but no later than 2 hours after the allegation is made if the incident involves serious bodily injuries and within 24 hours if it does not. In addition, state survey agencies must report to CMS all complaints and certain facility-reported incidents of abuse through a computer-based complaint and incident tracking system and immediately alert CMS regional offices when an especially significant or sensitive incident occurs that attracts public or broad media attention. In contrast, CMS requires state Medicaid agencies that pay for care in assisted living facilities through HCBS waivers to establish their own required time frames for reporting incidents. Consequently, reporting time frames and processes for assisted living facilities can vary by state. For example, Connecticut requires incidents to be reported to the state Medicaid agency and Adult Protective Services within 2 business days, while Oklahoma requires that initial incident reports are submitted within 1 business day. Investigation. CMS prescribes investigation time frames and priority categories for incidents occurring in nursing homes and requires states to establish their own time frames and priority categories for incidents in assisted living facilities. CMS requires state survey agencies to assess reports of elder abuse in nursing homes and assign a priority investigation status based on the seriousness of the allegations. The required investigation time frames are tied to the priority status. For example, if the allegation indicates that there continues to be an immediate risk of serious injury, harm, impairment, or death of a resident unless immediate corrective action is taken, the survey agency must initiate an onsite investigation within 2 business days of receiving the report. CMS also requires nursing homes to have written policies and procedures for conducting internal investigations of suspected elder abuse and to submit findings from these investigations to the state survey agency within 5 business days of the incident. In contrast, CMS does not prescribe investigation time frames or define priorities for incidents occurring in assisted living facilities; instead, CMS requires that state Medicaid agencies with HCBS waivers establish their own policies for prioritizing reports of abuse and initiating investigations in assisted living facilities. Consequently, investigation time frames and prioritization can vary by state. For example, Connecticut does not specify a process for prioritizing incident investigations in its HCBS waiver, but officials told us the state requires the Medicaid program to initiate an investigation immediately; whereas South Dakota requires face-to- face contact with a victim within 24 hours if the incident is life or health-threatening. Family or Legal Guardian Notification Although the Centers for Medicare & Medicaid Services (CMS) requires facilities to notify a resident s representative of a deterioration in the resident s condition, CMS does not require nursing homes, assisted living facilities, state survey agencies, or state Medicaid agencies to notify a victim s family or legal guardian of alleged elder abuse. However, CMS s guidance for nursing homes notes the importance of family or legal guardian notification. Specifically, CMS guidance requires facilities to take actions to prevent further harm from occurring to a victim of alleged elder abuse and cites law enforcement notification, as well as family or legal guardian notification as examples of protective measures facilities may take to comply with that requirement. In addition, CMS requires states to develop a policy for notifying participants, family, or legal guardians of the findings of any critical incident investigations under its home and community-based services waiver program. CMS officials told us family or legal guardian notification is generally a state responsibility, and state officials told us that it is largely a facility responsibility governed by the facility s policies. Some states include family or guardian notification requirements in state guidance on mandatory reporting of elder abuse. In interviews with stakeholders representing consumers and elder abuse investigators we learned that family notification can both help but also pose some privacy challenges. Law enforcement notification. Although federal law requires nursing homes to establish policies for ensuring that law enforcement is notified of elder abuse that occurs in their facilities, and CMS policy requires state survey agencies to notify law enforcement of substantiated findings of elder abuse that occur in nursing homes, these actions are not required when a similar incident occurs in an assisted living facility. Furthermore, CMS also does not require state Medicaid agencies to establish their own law enforcement notification requirements for assisted living facilities as part of the state s HCBS waiver agreements. CMS and state officials told us that, generally, state agencies coordinate with law enforcement regardless of where the abuse occurs. Some states also require law enforcement notification as part of their state mandatory reporter laws. (See app. I for descriptions of selected state mandatory reporter laws.) For example, Connecticut requires Medicaid waiver program staff members to inform law enforcement of all suspected crimes, including abuse. Both GAO and HHS-OIG have identified, among other things, gaps in notifying law enforcement about abuse in nursing homes and recommended that CMS make changes to help ensure that nursing homes and state survey agencies notify law enforcement. In the course of our review, we found states may align certain requirements for investigating, reporting, and notifying law enforcement about elder abuse in assisted living facilities with federal requirements for nursing homes. Officials from all three selected states in our review told us they apply certain federal nursing home requirements and time frames to assisted living facilities when overseeing reports and investigations of alleged elder abuse. For example, officials from Oklahoma and South Dakota told us they align or are in the process of aligning time frames within which assisted living facilities are required to report incidents of elder abuse to state authorities with the time frames federally required for nursing homes, and said that alignment reduces confusion, especially among facilities that offer both types of residential care. Given its attenuated role in overseeing the reporting, investigation, and law enforcement notification of elder abuse in assisted living facilities, CMS officials told us the agency is taking steps to gather and disseminate best practices to help states better manage their response to elder abuse incidents in assisted living facilities. Specifically, officials told us that CMS has initiated an effort to more closely examine how states operate their incident management systems, which are used to track reports and investigations of elder abuse in assisted living facilities covered by their HCBS waivers. In May 2018, CMS surveyed states requesting information on how those states operate an incident management system for their HCBS waiver programs to track reports and investigations of elder abuse. CMS officials said they will take information learned through the survey as well as through on-site reviews that the agency has been conducting in five states since June 2019, to develop best practices and technical guidance on collecting and reporting critical incidents. <3. Agency Comments> We provided a draft of this report to HHS for review and comment. HHS noted that federal oversight of nursing homes and assisted living facilities is not directly comparable given the differences between HHS s statutory authority to oversee both facility types. HHS noted that although CMS s oversight of assisted living facilities is more limited, CMS works in partnership with states through providing guidance, technical support, training, and oversight of states quality reporting to ensure the safety of Medicaid beneficiaries in assisted living facilities. We recognize that CMS is operating in different statutory frameworks with respect to both nursing homes and assisted living facilities, and we have noted the distinction in our report. HHS further noted that CMS is undertaking efforts to strengthen federal oversight of nursing homes and states with HCBS programs, including through addressing our past recommendations. HHS comments are reproduced in appendix III. HHS also provided technical comments, which were incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services, appropriate congressional committees, and other interested parties. The correspondence is also 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 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 IV. Appendix I: Summary of Selected States Requirements for Reporting, Investigating, and Notifying Law Enforcement about Elder Abuse in Assisted Living Facilities We reviewed state-level requirements for reporting, investigating, and notifying law enforcement about elder abuse in three selected states that cover services in assisted living facilities under their Home and Community-based Services (HCBS) waivers Connecticut, Oklahoma, and South Dakota. These states are collectively responsible for safeguarding as many as 16,800 assisted living residents 2,751 of whom are covered by Medicaid from elder abuse. All three states have mandatory reporting requirements that typically require various identified health care providers and facility staff to report suspected elder abuse to adult protective services or law enforcement, regardless of the setting in which the victim was abused or whether the victim is an HCBS waiver participant who would be protected under the Centers for Medicare & Medicaid Services (CMS) program requirements. Further, the states developed guidance for their HCBS programs that establishes additional reporting, investigation, and notification requirements beyond their mandatory reporting law requirements that caregivers, facilities, program staff, and state agencies must follow in response to incidents that occur to residents receiving services under Medicaid waiver programs. Selected information about assisted living facilities and state- level requirements for each of the three states is summarized in figures 2 through 4. Appendix II: Summary of Selected Federal and State Audits of Oversight of the Reporting, Investigation, and Notification of Law Enforcement about Elder Abuse in Nursing Homes and Assisted Living Facilities GAO has issued reports reviewing the Centers for Medicare & Medicaid Services (CMS) oversight of the health and welfare of residents in nursing homes and assisted living facilities. For example, selected GAO reports from approximately the past 5 years included a review of the incidence of abuse in nursing homes and a review of what is known about the incidence of abuse in assisted living facilities. Reports often included key recommendations. (See table 1.) In addition to GAO s audits of federal oversight of nursing homes and assisted living facilities, the Office of Inspector General within the Department of Health and Human Services (HHS-OIG) routinely audits a broad range of both the Centers for Medicare & Medicaid Services (CMS) and states oversight activities related to long-term care facilities. We identified three HHS-OIG reports issued between 2014 and 2018 that provide examples of HHS-OIG s examinations of the reporting, investigation, and notification of law enforcement of elder abuse in nursing homes. (See table 2.) Although the specific scope of these reports varied, common findings included gaps in notifying law enforcement. For example, HHS-OIG examined Medicare claims data to identify cases where hospital staff had identified potential abuse and found that nursing homes failed to report many of these incidents to state survey agencies or notify law enforcement despite federal and state requirements and recommended that CMS provide training, clarify guidance, and track referrals to law enforcement. State auditors may also audit their states oversight of nursing homes and assisted living facilities. We identified nine reports issued by state auditors between 2014 and 2018 that examined their states oversight of elder abuse reporting and investigation across both settings. (See table 3.) Although the scope of individual reports across the states varied, state auditors identified instances of state entities not complying with state or federal requirements for a variety of reasons including weaknesses in policies and procedures, resource constraints, and information management challenges and recommended improvements. For example, in 2014 California state auditors found that thousands of complaint investigations including over 300 classified as immediate jeopardy were left open for almost a year, in part because the state did not specify time frames for completing investigations. Appendix III: Comments from the Department of Health & Human Services Appendix IV: GAO Contact and Staff Acknowledgments <4. GAO Contact> John E. Dicken, (202) 512-7114 or [email protected]. <5. Staff Acknowledgments> In addition to the contact named above, Karin Wallestad (Assistant Director); Jasleen Modi (Analyst-in-Charge); and Elise Pressma made key contributions to this report. Also contributing were Thomas Garloch, Cathy Hamann, Laurie Pachter, and Jennifer Whitworth.

Why GAO Did This Study The federal government and states share responsibility for the health and welfare of about 1.5 million individuals—most of them vulnerable older adults—receiving long-term care in nursing homes and assisted living facilities covered by Medicare and Medicaid. For nursing homes, which provide skilled nursing care, federal law defines applicable quality standards and CMS provides guidance for nursing homes and the state survey agencies to help protect residents from elder abuse. For assisted living facilities, which provide assistance with activities of daily living in a residential setting, CMS defines the framework states must establish to oversee these facilities if covered under Medicaid. This includes requiring states to demonstrate to CMS that they are assuring quality including the obligation to protect against elder abuse. GAO was asked to review federal oversight of elder abuse reporting, investigation, and law enforcement notification in both nursing homes and assisted living facilities. In this report, GAO describes federal requirements for reporting, investigating, and notifying law enforcement about elder abuse in both types of facilities. GAO reviewed relevant laws and regulations and agency guidance, and interviewed CMS and state officials from three states selected for variation in HCBS waiver program size and geography. GAO also interviewed representatives from national stakeholder groups representing consumers, facilities, Medicaid directors, and abuse investigators. In comments on this report, HHS highlighted the distinct oversight frameworks for the two settings and noted that CMS is undertaking efforts to strengthen oversight. What GAO Found The Centers for Medicare & Medicaid Services (CMS) oversees the Medicare and Medicaid programs and is responsible for safeguarding the health and welfare of beneficiaries living in nursing homes and assisted living facilities. This includes safeguarding older residents from abuse—referred to as elder abuse. CMS delegates responsibility for overseeing this issue to state survey agencies, which are responsible for overseeing nursing homes. When assisted living facilities provide services to Medicaid beneficiaries, they are indirectly subject to CMS oversight through the agency's oversight of state Medicaid agencies. GAO found that there are specific federal requirements for nursing homes and state survey agencies for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes. (See table below). For example, state survey agencies must prioritize reports of elder abuse in nursing homes based on CMS's specified criteria and investigate within specific time frames. In contrast, there are no similar federal requirements for assisted living facilities—which are licensed and regulated by states. Instead, CMS requires state Medicaid agencies to develop policies to ensure the reporting and investigation of elder abuse in assisted living facilities. For example, CMS requires that state Medicaid agencies establish their own policies and standards for prioritizing reports when investigating incidents in assisted living facilities. Officials from the three selected states in GAO's review said they apply certain federal nursing home requirements and investigation time frames for assisted living facilities when overseeing elder abuse.

gao_GAO-19-246

gao_GAO-19-246_0

<1. Secret Service has Processes to Vet Individuals Based on Their Expected Proximity to the President> The Secret Service has processes to vet individuals differently depending on the person s expected proximity to the President, using a combination of physical screening and background checks, as illustrated in figure 1. According to Secret Service officials, physical screening includes the use of equipment such as wands and magnetometers to secure the property. Background checks assess in part whether an individual has a history of criminal activity. In some cases, enhanced background checks identify other types of threats. The Secret Service develops and executes a security plan to ensure that the outer, middle, and inner layers at the travel location are secure. Officials from the Secret Service confirmed that agency policies aim to provide comprehensive planning guidance for their agents activities but are not meant to be all inclusive. Outer Layer: The Secret Service uses physical screening measures to establish a layer of security around the Mar-a-Lago property. According to Secret Service officials, state and local law enforcement and the U.S. Coast Guard may monitor entry onto the property or perform visual checks of individuals entering the property and surrounding waterways. Depending on where the President is, guests may be required to pass through a physical security checkpoint that employs magnetometers, wands, and visual checks to assess physical threats. Middle Layer: Officials from the Secret Service said that they use physical screening measures for individuals and any rooms that the President may access during his visit. Officials told us that if they are notified of the President s planned arrival to a specific room, they will secure that room. Inner Layer: In advance of the President s arrival, the Secret Service has a process requiring vetting of individuals who are expected to be within close proximity to the President for a planned purpose or in certain secure areas. According to Secret Service officials, individuals who need access to secure areas but who are not expected to interact directly with the President, such as wait staff and other workers, are to undergo a background check in addition to physical screening. Individuals who are expected to meet the President are to undergo a background check and an enhanced background check. Officials from the Secret Service said that they are responsible for collecting the findings from these checks and making recommendations to the Executive Office of the President on whether individuals with derogatory findings should be allowed to access a space. According to officials from the Secret Service, staff at Mar-a-Lago routinely undergo background checks. In order to conduct the background check, the Secret Service is to use personally identifiable information for each individual, and those Individuals names may be checked against indexes maintained by the Secret Service and other federal, state, and local law enforcement organizations. The Secret Service s guidance notes that submission of the requested information to run a background check is based on individuals voluntarily providing the needed information. In order to conduct an enhanced background check, the Secret Service collaborates with the Federal Bureau of Investigation and other federal agency partners. According to officials from the Secret Service, the Executive Office of the President is responsible for identifying individuals who are expected to meet with the President and providing the Secret Service with the names and the personally identifiable information needed to complete these checks. According to Secret Service guidance, White House staff is expected to submit all names to the Secret Service at least 72 hours in advance of the President s arrival. Advance agents are also responsible for setting deadlines for completing background checks. Officials from the Secret Service said that, based on the information received from these checks, the Secret Service will make a recommendation to the Executive Office of the President on whether an individual should be granted access to the President. According to these officials, the Executive Office of the President ultimately determines whether or not an individual will have access. However, the Secret Service is responsible for ensuring that the area is safe and that the individual is physically screened. <2. DOD and the Secret Service Provide Secure Areas for the Handling of Classified Information When the President Travels to Mar-a-Lago> DOD s White House Communications Agency and the Secret Service each have specific responsibilities for establishing secure communications and secure areas for handling classified information when the President travels to domestic locations, such as Mar-a-Lago. DOD s White House Communications Agency: This organization is an information technology unit within DOD that supports the President and his staff during presidential trips. This organization s mission is to provide information services to the President, Vice President, National Security Staff, Secret Service, and others when directed. According to agency guidance and officials, the White House Communications Agency is responsible for installing secure communications equipment that enables the exchange of classified information in areas that may be used by these entities. Secret Service: According to officials from the Secret Service, they send an advance team that coordinates with the White House Communications Agency to set up a conference center for the President where classified information may be exchanged, among other things. These officials stated that they provide security at the entrance of this conference center and perform security sweeps to ensure that it is safe and secure. DOD and the Secret Service coordinate to establish and secure several areas that are available for handling classified information when the President travels to locations such as Mar-a-Lago, as shown in figure 2. These areas include a conference center, spaces used by staff of the National Security Council and Executive Office of the President, and presidential transportation vehicles. Details associated with these areas and facilities are sensitive and have been omitted from this report. <3. Regulations and Processes Governing Secret Service and DOD Expenditures on Employee Per Diem Expenses for Travel and Operational Space in Support of the President> The Secret Service and DOD are subject to regulations governing reimbursements to employees for official travel. Processes exist to review these travel-related expenses when personnel from these agencies travel. These processes are the same when personnel accompany the President to Mar-a-Lago. <3.1. Federal Regulations Govern Agencies Policies for Paying Or Reimbursing Employees Official Duty Travel Expenses> Two regulations implement statutory requirements and executive branch policies for travel, allowing agencies to pay for or reimburse their employees per diem expenses (lodging, meals and incidental expenses) and other travel-related expenses: The Federal Travel Regulation (FTR), issued by the General Services Administration applies to the Secret Service s personnel. The Joint Travel Regulations (JTR), issued by the Department of Defense apply to DOD personnel. Both regulations allow agencies to pay for employees daily expenses when they are traveling within the continental United States, based on allowances set by the General Services Administration for the applicable location and date (per diem rates) or the actual expense of travel. Under the Federal Travel Regulation, the maximum amount that a civilian employee may be reimbursed is 300 percent of the applicable per diem rate. The Joint Travel Regulations allow uniformed service members to be reimbursed up to 300 percent of the per diem rate when they are traveling in the continental United States, but they can be reimbursed more than 300 percent of the per diem rate for lodging when traveling outside the continental United States. <3.2. The Secret Service Has a Standard Process for Overseeing Costs for Lodging, Meals and Incidental Expenses, and Operational Space during Presidential Travel> Officials from the Secret Service stated that they apply the same cost oversight processes for all presidential travel. Expenses for lodging and operational space are centrally billed to the agency, and employee meals and incidental expenses are reimbursed to the traveler. In accordance with policy, the Secret Service tries to acquire lodging at the General Services Administration s per diem lodging rate and must submit a waiver request for any room that exceeds this designated rate by any amount. The Secret Service field office closest to the travel destination is responsible for arranging for these spaces, negotiating rates, and if necessary submitting a waiver request to officials in the Secret Service s Logistics Resource Center. The Logistics Resource Center is to review the waiver request, determine whether a more cost effective method exists to meet the need, and approve or reject the request. In some cases, the Secret Service may not be able to acquire rooms at the per diem lodging rate, or agents may need rooms for operational purposes that exceed 300 percent of the per diem rate, which is more than is allowed for lodging under the Federal Travel Regulation. For example, the Secret Service may use a room for operational purposes or reserve rooms adjacent to the President to better protect him. In addition, to meet operational demands, the Secret Service may require a certain number of agents to stay at the hotel in which the President is staying, so that they are within a certain proximity of the President at all times. Furthermore, officials from the Secret Service said that members of the Secret Service canine teams must stay at hotels that allow animals, and rooms at these hotels may exceed the General Services Administration lodging rate. The authorities the Secret Service has relied on to pay for hotel rooms needed to meet its operational requirements do not limit how much the agency can pay. Further, Congress passed a law in May of 2017 excepting the Secret Service from regulatory caps on room rentals, regardless of room purpose. Nevertheless, consistent with the Secret Service waiver process, personnel are still required to submit waiver requests for operational spaces to justify the need to book rooms during the President s trips to Mar-a-Lago at prices higher than the General Service Administration lodging rates. We confirmed that a blanket waiver request was submitted and approved for all rooms at Mar-a-Lago that exceeded the General Services Administration per diem lodging rate during the President s trips to Mar-a-Lago that are covered by this review. Additionally, we reviewed Secret Service documentation and confirmed that Secret Service personnel did not exceed the 300 percent threshold for lodging. For meals and incidental expenses, the Secret Service s employees who are on official duty are to submit a claim for reimbursement electronically or by paper and receipts, as applicable, at the conclusion of the trip. Approving officials are to approve (or deny) expenses, and the Secret Service s Financial Management Division authorizes reimbursement for approved travel. <3.3. DOD Has a Standard Process to Oversee Costs for Lodging, Meals and Incidental Expenses, and Operational Space during Presidential Travel To Mar- A-Lago> DOD personnel use the same processes for travel to Mar-a-Lago as they do for other Presidential trips to oversee costs for lodging, meals, and incidental expenses. According to officials from DOD s Defense Travel Management Office, their office establishes travel policy that applies to the four organizations that travel in support of the President s trips. DOD personnel use the Defense Travel System to submit travel documents, including vouchers and receipts, as applicable. According to officials, lodging may be booked and reimbursed on an individual basis or centrally billed if a block of rooms is needed over the same period. Meals and incidental expenses are reimbursed to the traveler. Like Secret Service s personnel, DOD personnel must obtain approval from an authorizing official prior to the trip to exceed the General Services Administration per diem lodging rate, consistent with the Federal Travel Regulation and Joint Travel Regulations. According to officials from the Defense Travel Management Office, DOD typically would not reimburse expenses above the approved lodging rate if lodging at the approved rate was available within the region. However, officials from the Defense Finance and Accounting Service indicated that presidential trips may require such a deviation. These approvals are to be tracked in the Defense Travel System. The White House Military Office, which includes the White House Communications Agency, also sends personnel with the President when he travels. White House Communications Agency officials told us that its lodging and operational space for these personnel are typically coordinated by the White House Travel Office and that DOD personnel pay for the associated costs and seek reimbursement from DOD after the trip is complete. According to officials from the White House Communications Agency, some personnel are required to remain at, or near, the Mar-a-Lago property. If they are not required to stay at or near the property, they will try to obtain lodging at hotels in the area at the General Services Administration s per diem rate for lodging. DOD officials told us that according to the Joint Travel Regulations, DOD is not authorized to pay or reimburse daily expenses above the 300 percent ceiling. In connection with the President s travel to Mar-a-Lago between February 3, 2017 and March 5, 2017, DOD personnel exceeded the General Services Administration per diem rate but did not exceed the 300 percent threshold. According to officials from the Defense Travel Management Office, operational space used for official business is governed by the Federal Acquisition Regulation. White House Communications Agency officials told us that they have generally used space near the Mar-a-Lago property but leased property, effective September 2017, near Mar-a-Lago to reduce the cost of supporting the President s trips to the property. <4. Payments Received by the U.S. Treasury Department from The Trump Organization through Treasury s Donation Processes> Treasury has regular processes for receiving payments designated as gifts to the United States and gifts to reduce the public debt. Treasury officials stated that any payments received from The Trump Organization or the President that are designated as gifts would be handled using these processes. Under federal law, Treasury may receive general gifts to the U.S. Government and may also receive gifts to reduce the public debt. Treasury has developed processes to accept these types of payments, as shown in figure 3. Treasury officials said there are three accounts available to receive payments as gifts a general gift account, a general fund receipts account, and an account for gifts to reduce the public debt. Any of these accounts could receive payments designated as gifts by the President or The Trump Organization. Treasury officials told us they would deposit such payments into the account for gifts to the U.S. Government unless the payment source specified that the funds should be used to reduce the public debt. Treasury received one payment from The Trump Organization, for $151,470 that was submitted through Treasury s processes on February 22, 2018. In May 2017, The Trump Organization issued a policy addressing profits generated from foreign government patronage at its businesses. The Trump Organization s policy states that it will make a single lump-sum payment annually after the end of its fiscal year, which ends on December 31st. We did not identify any other payments that Treasury received from The Trump Organization or the President between January 21, 2017, and August 1, 2018. In September 2018, an attorney for The Trump Organization confirmed that the organization had not made any payments since February 22, 2018. <5. Agency Comments and Our Evaluation> We provided copies of this draft report to DOD, DHS, the Department of Justice, the General Services Administration, the Department of Treasury, and the Executive Office of the President for comment. We also provided a section to the Trump Organization for comment. DHS provided written comments, which are reprinted in their entirety in appendix I. DHS, DOD, the Department of Treasury and the Department of Justice also provided technical comments, which we incorporated into this report as appropriate. The Executive Office of the President and the Trump Organization provided no comments. As agreed with your offices, unless you publicly release this report earlier, we will not issue the report until 30 days from the report date. At that time, we will also provide copies to the Secretary of Defense, the Director of the Secret Service, the Secretary of Homeland Security, the Attorney General, the Director of the Federal Bureau of Investigation, the Administrator of the General Services Administration, and the Secretary of the Treasury. In addition, this report will be available at no charge on the GAO website at www.gao.gov. If you or your staff have any questions about this report, please contact Joseph (Joe) Kirschbaum at (202) 512-9971 or at [email protected] or Diana Maurer at (202) 512-9627 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. GAO staff who made key contributions to this report are listed in Appendix II. Appendix I: Comments from the Department of Homeland Security Appendix II: GAO Contacts and Staff Acknowledgments <6. Staff Acknowledgments:> In addition to the contacts named above, Gina R. Hoffman, Assistant Director; Joseph P. Cruz, Assistant Director; Tracy Barnes, Nicholas Benne, Jennifer Kamara, Joanne Landesman, Amie Lesser, Thomas Lombardi, Carol Petersen, Michael Silver, Janet Temko-Blinder, Christopher Turner, Kayli Westling, and Alex Winograd made key contributions to this report.

Why GAO Did This Study The President has made numerous trips to the Mar-a-Lago property in Palm Beach, Florida, during which he met with foreign leaders and conducted presidential activities. GAO was asked to review the establishment of secure areas for use by the President at Mar-a-Lago. This report provides information on, among other things, (1) vetting of individuals expected to be near the President; (2) efforts to establish secure areas for handling classified information; and (3) regulations and processes for agency expenditures on employees who travel with the President. This is a public version of a sensitive report that GAO issued in October 2018. Information that the Secret Service and DOD deemed sensitive has been omitted. GAO analyzed laws, regulations, policies, and procedures; reviewed agreements between federal agencies and trip after-action reports; and interviewed DOD and Secret Service officials. GAO also reviewed vouchers from the four presidential trips to Mar-a-Lago from February 3, 2017 through March 5, 2017.GAO also reviewed documentation and descriptions of specific security practices with DOD and Secret Service officials. The Executive Office of the President has not responded to requests regarding its role in assisting DOD and the Secret Service in carrying out their responsibilities. What GAO Found The U.S. Secret Service (Secret Service) vets individuals differently depending on the person's expected proximity to the President when he travels, including during his visits to Mar-a-Lago. According to Secret Service officials, vetting may include using physical screening (measures to detect physical threats to the president and secure the property) and background checks intended to identify individuals who have prior criminal activity or present other types of threats. Individuals at Mar-a-Lago who are not expected to meet with the President or enter spaces the President may visit pass through an outer layer of security consisting of physical screening checkpoints surrounding the property. The Secret Service physically screens all individuals who will access areas where the President will be present, such as a dining room. According to Secret Service officials, individuals who have a meeting with the President generally undergo both physical screening and enhanced background checks. The Department of Defense (DOD) and the Secret Service coordinate to establish and secure several areas that are suitable for handling classified information when the President travels to Mar-a-Lago. These areas include a conference center, spaces used by staff of the National Security Council and the Executive Office of the President, and presidential transportation vehicles. Details associated with these areas and facilities are sensitive and have been omitted from this report. The Secret Service and DOD are subject to regulations that govern the reimbursement of employees for official travel expenses. Both organizations have processes to review these travel-related expenses when their personnel travel with the President and try to acquire lodging at the General Services Administration's per diem lodging rate. When the Secret Service is not able to acquire rooms at the per diem lodging rate, including when it needs rooms for operational purposes that exceed 300 percent of the per diem rate (a threshold set by the General Services Administration), employees must submit a waiver request. DOD personnel must also obtain approval when costs exceed the General Services Administration's lodging rate. Our review of DOD vouchers and Secret Service documentation confirmed that personnel did not exceed the 300 percent threshold for lodging during the Mar-a-Lago trips examined in this review. We assessed the costs of Presidential travel in a separate report.

gao_GAO-20-168

gao_GAO-20-168_0

<1. Background> Federal agencies can respond to a disaster when effective response and recovery are beyond the capabilities of affected state and local governments. In such cases, the President can declare a major disaster in response to a request by the governor of a state or territory or the chief executive of a tribal government. The SBA Administrator also can issue an agency physical disaster declaration for events that do not rise to the level of a major Presidential disaster declaration in response to a timely request by a state governor. The National Response Framework governs any type of federal disaster or emergency response. Under this framework, FEMA has lead responsibility and offers disaster assistance. At least 30 other federal agencies, including SBA, also administer disaster assistance programs and activities. <1.1. SBA s Office of Disaster Assistance> The Small Business Act authorizes SBA to make direct loans to help businesses, nonprofit organizations, homeowners, and renters repair or replace property damaged or destroyed in a declared disaster (declared by the President or SBA). ODA is responsible for administering the SBA disaster loan program, primarily through the following offices: Customer Service Center is a single nationwide point of contact for disaster survivors who have questions about SBA disaster loans. It provides a call center, email response, disaster application mailings, and pre-application entry. Field Operations Centers coordinate disaster field operations and publicize ODA s Disaster Loan Program before and after disasters. Field Operations Centers establish, staff, and maintain field operations in declared disaster areas, including Disaster Recovery Centers, Business Recovery Centers, and Disaster Loan Outreach Centers. Processing and Disbursement Center screens all applications, reviews and processes those that are complete, closes all approved loans, and disburses loan proceeds. In addition, ODA works with resource partners, such as SBDCs, to provide disaster assistance to businesses. SBDCs help SBA by conducting local outreach to disaster victims; assisting those who have had their business loan application denied or withdrawn with applications for reconsideration or re-acceptance; assisting declined applicants in remedying issues that initially precluded loan approvals; and providing business loan applicants with technical assistance, including to reconstruct business records, to better understand requirements to complete a loan application, and for compiling financial statements and collecting required documents. <1.2. SBA Disaster Loans and Loan Processing> The Small Business Act authorizes SBA to make available two different types of direct disaster loans to survivors located in a declared disaster area (see table 1): Physical disaster loans are for the permanent rebuilding and replacement of uninsured or underinsured disaster-damaged property. They are available to homeowners, renters, most types of businesses regardless of size, and nonprofit organizations. Businesses in agriculture-related industries also known as agricultural enterprises are not eligible. Economic injury disaster loans help meet working capital needs (until normal operations resume) for most disrupted small businesses and private nonprofit organizations that utilized all reasonable available funds and were not able to obtain credit elsewhere after a disaster declaration. The loans cover operating expenses the businesses could have paid had the disaster not occurred. Business eligibility for the loans also differs. Certain businesses of all sizes are eligible for physical disaster loans, but only small businesses are eligible for economic injury disaster loans. Small businesses that did not sustain physical damage from a disaster cannot apply for physical disaster business loans but can apply for economic injury disaster loans. And, applicants seeking both types of loans may be approved for one type of disaster loan but denied for the other. SBA procedures generally require that applications for a physical disaster loan be submitted no later than 60 days following the disaster declaration and no later than 9 months after this date for an economic injury disaster loan. SBA may authorize an extension of the filing period, and did so for each of the 2017 hurricanes. Applicants can apply for a loan (1) at a FEMA Disaster Recovery Center, (2) at a Business Recovery Center or SBA Disaster Loan Outreach Center, (3) by mail, or (4) online through SBA s electronic loan application system. SBA requires applicants seeking any disaster loan to submit documents with their application package, including permission for SBA to access applicants tax return information. SBA s regulations contain underwriting criteria that require reasonable assurance of repayment. The regulations state that SBA must have reasonable assurance that all disaster loan applicants can repay their loans based on SBA s analysis of the applicants credit or personal or business cash flow. Processing of disaster loan applications involves several stages (see fig. 1). For example, loss verifiers conduct desktop or on-site inspections for physical disaster loan applications to estimate the cost of restoring damaged property to predisaster condition. The verified loss becomes the basis for the loan amount. Loan officers determine eligibility during processing, taking into consideration any insurance or other recoveries, and make the decision to approve or decline an application. Case managers work with borrowers through the disbursement process (until the loan is fully disbursed). <1.3. SBA Disaster Response Planning> To plan for its response to Presidentially declared disasters, SBA maintains long-term disaster planning documentation, conducts disaster simulations, maintains an outreach plan, and creates action plans for specific disasters. Disaster planning documents. SBA s major planning documents for disasters include its Disaster Preparedness and Recovery Plan and its Disaster Playbook. The Disaster Preparedness and Recovery Plan outlines SBA s responsibilities as part of federal disaster response efforts. The plan is intended to ensure a broad scope of coordination, awareness, and support throughout the organization, and describes how SBA conducts its disaster-related missions. The plan also includes appendixes describing different aspects of SBA s disaster response operations, including SBA s forecasting and modelling to predict internal resource requirements such as staff. The document is revised annually. The Disaster Playbook outlines the roles and responsibilities of ODA departments, resource partners, and other private-sector partners at each major phase of the disaster recovery process. For example, it describes the steps taken by each ODA department to receive and process incoming disaster loan applications. According to SBA officials, the Disaster Playbook that guided the disaster response for the 2017 hurricanes was issued in 2014. Disaster simulations. SBA also participates in external and internal disaster simulation exercises. SBA participates in the FEMA-led National Exercise Program, which is a 2-year cycle of exercises that examine and validate capabilities in the National Preparedness System mission areas. SBA s internal disaster simulations occur at SBA s biennial Senior Leadership Summit. SBA is required by law to conduct an internal disaster simulation exercise at least once every 2 fiscal years. The exercises are designed to improve understanding of preparedness concepts, identify opportunities or problems in SBA s response to disasters, and discuss solutions for improvement. Outreach plan. SBA maintains a marketing and outreach plan with the goal of continuing and strengthening lines of communication with stakeholders to build strong and productive partnerships. The plan describes how SBA promotes awareness of the risk of natural disasters, the need to be prepared, and SBA s role in disaster recovery. The plan also outlines areas of responsibility, disaster event scenarios, strategies for achieving its outreach goals, and implementation of outreach efforts. According to the plan, implementation of outreach efforts should include distribution of SBA disaster information products by public information officers and SBA s resource partners, including SBDCs. Action plans. SBA Field Operations Centers create disaster-specific action plans to guide disaster responses. According to officials from the centers, action plans outline projected resource requirements, such as staff, and may include descriptions of the impending disaster scenario, SBA leadership responsibilities, and operational support requirements. SBA has designated response levels that correlate staffing levels with anticipated numbers of applications. SBA has four response levels based on the number of loan applications it expects to receive (see fig. 2). Each level has different goals for staffing and processing applications. The 2017 hurricanes triggered a level III response from SBA. <1.4. Express Bridge Loan Pilot Program> SBA established the Express Bridge Loan Pilot Program to supplement the agency s disaster response capabilities. The pilot program became available for use on October 16, 2017, and is set to expire on September 30, 2020. The pilot allows 7(a) lenders with SBA Express lending authority to deliver SBA-guaranteed financing for disaster-related purposes to eligible small businesses on an emergency basis while the businesses apply for and await long-term financing. The businesses must be located in, or contiguous to, communities with Presidentially declared disasters and have a pre-existing banking relationship with the 7(a) lender. Loan applications are subject to a streamlined underwriting process to ensure that small business owners receive a quick decision. <2. SBA Conducted Broad Outreach, but Lacks Guidance to Help It Plan for and Respond to Disasters> <2.1. SBA s Disaster Planning Does Not Incorporate Risk Analysis or Guidance on Developing Action Plans for Specific Disasters> <2.1.1. Disaster Planning Documentation> SBA s major disaster planning documentation lacks an in-depth discussion of risks SBA could face when responding to disasters. The Disaster Preparedness and Recovery Plan states that SBA must assess risk from two perspectives. First, it must address risk to its own resources and capabilities through its employee safety and continuity of operations plans to preserve its mission-essential functions, including the Disaster Loan Program. Second, SBA must evaluate the demands various disaster scenarios can place on the agency regardless of the impact to its own assets. However, the Disaster Preparedness and Recovery Plan does not include a description of potential risks that may prevent SBA from successfully executing the Disaster Loan Program or discuss how SBA is to conduct risk analysis. Furthermore, SBA s Disaster Playbook does not include any mention of risk and risk-mitigation techniques. Federal internal control standards state that management should identify, analyze, and respond to risks related to achieving defined objectives. For example, the types of challenges SBA faced in executing its response to Hurricane Maria in Puerto Rico and the U.S. Virgin Islands represent potential risks to the program because they could compromise SBA s ability to successfully execute the program. These challenges included Loss of electricity: Electrical outages restricted SBA s ability to quickly establish operations and help survivors access disaster loans. According to SBA officials, ODA established its base of operations at the SBA District Office in San Juan (which had generator power) because they had difficulty locating other usable office space due to power outages. In a report issued after the 2017 hurricanes, SBA noted that periodic outages also prevented applicant access to the online Disaster Loan Application Portal. Other infrastructure damage: Physical infrastructure damage restricted SBA s mobility around Puerto Rico and the U.S. Virgin Islands following Hurricane Maria, delaying SBA s execution of the Disaster Loan Program. According to SBA officials, there were no flights into or out of the islands, and driving was difficult due to damage to and debris on the roads. No or intermittent communications services: According to SBA officials, telephone lines were down and cellular phone service was intermittent in Puerto Rico immediately after Hurricane Maria, which made communicating with staff and disaster survivors more difficult. We present applicant, other stakeholder, and SBA perspectives on these and other challenges later in this report. SBA officials told us that the agency contracts with an outside firm to conduct monthly portfolio analysis reports. Officials also told us that they use this report to identify areas of credit risk and make adjustments to program parameters, such as minimum acceptable credit scores. However, officials told us that they do not formally document other types of risks, including operational risks, or the steps taken to mitigate these risks. For example, SBA s major planning documentation does not include any discussion of steps taken by ODA to mitigate the risk to the program posed by the major infrastructure damage that occurred in Puerto Rico after Hurricane Maria. Without identifying risk elements associated with its disaster response and documenting how it plans to mitigate these risks, SBA may not be adequately prepared to respond to challenges that arise during its disaster response efforts. <2.1.2. Action Plans for Specific Disasters> The action plans created for the 2017 hurricanes contained varied information and in some cases did not discuss certain resource requirements for responding to the disaster, such as equipment needs. For example, the Hurricane Harvey action plan is less detailed than the plans for Hurricanes Irma and Maria and only discusses the anticipated staffing needs and strategies to meet those needs. The action plans for Hurricanes Irma and Maria identified additional resource needs and issues unique to a particular location. FEMA provides guidance on developing disaster plans for local, state, and federal government planners to guide their on-site response to disasters. These plans should focus on managing personnel, equipment, and resources that play a direct role in the response. The plans are to define how specific actions will be performed to achieve a planned outcome and include the who, what, where, and when in describing deployment and direction of resources. SBA officials told us they created a template to help in estimating staffing needs, but SBA has not identified whether any other elements, such as those defined by FEMA, should be included in these plans. Moreover, SBA has not provided guidance to the Field Operations Centers that is specific to preparing action plans for impending disasters. In addition, SBA s major disaster planning documents, the Disaster Preparedness and Recovery Plan and the Disaster Playbook, do not mention action plans. According to SBA officials, these plans are internal documents, and the template and the Field Operations Center director s prior experience creating action plans are sufficient guidance. Without identifying the key elements of a disaster action plan and providing additional guidance to staff on how to incorporate these elements in future action plans, SBA s Field Operations Centers may miss opportunities to better tailor their response to individual disasters, decreasing the effectiveness of their responses. <2.1.3. External and Internal Simulations> As discussed previously, SBA participates in external and internal disaster simulation exercises to help it prepare for disasters. For instance, SBA participated in the 2019 National Level Exercise, which simulated the interagency response to a large earthquake in Tennessee. Prior to the 2017 hurricanes, SBA conducted an internal disaster simulation at its biennial leadership seminar in 2016. SBA simulated a series of three progressively more challenging events, including a simulated earthquake that, according to SBA officials, took out power to two major West Coast cities. According to SBA officials, this exercise helped them prepare for the widespread power outages encountered during the disaster response in Puerto Rico after Hurricane Maria. SBA officials told us that after an internal simulation, SBA prepares a report that summarizes the events and recommends disaster response improvements. For example, after the 2016 simulation, SBA determined it did not currently have the resources to adequately respond to a large event. Suggested improvements to increase SBA s response capacity included establishing timelines for screening and training of new hires. <2.2. SBA Increased Staffing and Established Business Recovery Centers during Its Initial Response to the 2017 Hurricanes> <2.2.1. Staffing> In response to the 2017 hurricanes, SBA forecasted the need for additional staff and hired staff as outlined in its Staffing Strategy. SBA also encountered several challenges associated with its hiring and training processes. The Staffing Strategy used by SBA in its response to the 2017 hurricanes describes the types of staff SBA hires for disaster response, how SBA determines and manages staffing levels, and factors to consider when hiring new or returning staff. For example, the guidance describes business needs SBA should consider when making hiring decisions, such as workload, special skills required, and cost-saving measures. Before an impending disaster, SBA uses a model to forecast staffing levels. According to SBA officials, the model helps identify the expected number of staff needed in each ODA office and peak need based on the anticipated number of applications received. The officials noted that predicted applications typically peak about 3 4 weeks into the disaster response. Key assumptions and inputs to the model include the target application review and decision time frame; the requirements for specialized staff skills such as loss verification, loan processing, and legal review in the application process; staff productivity and training requirements; the total expected loan volume; and the type of disaster. As shown in figure 3, SBA s actual staffing lagged behind its predicted levels for the first 4 months following the 2017 hurricanes. Officials told us that SBA encountered challenges quickly hiring and getting new staff on board immediately following the 2017 hurricanes. Due to the rapid need for qualified staff to respond to the 2017 hurricanes, SBA faced a variety of self-identified challenges in hiring the staff. Recruitment: ODA lacked a national recruitment strategy and vehicle for advertising vacant positions. In addition, SBA processed resumes manually, without the ability to effectively match resumes with required skillsets. Due in part to its manual processes, it took SBA time to hire qualified human resources specialists to process the large number of applicants for positions, which affected the ability to hire and deploy new staff to disaster areas. Hiring: Because of the size of the 2017 hurricanes, ODA initially was unable to effectively support staffing needs of centers. In addition, SBA officials said that the agency had to hire Puerto Rican attorneys because secured loans must be signed by a notary and in Puerto Rico, notaries must be lawyers. On-boarding : ODA s on-boarding processes were manual, heavily paper-based, and inefficient and caused delays in processing new staff. In addition, not enough time was devoted to the on-boarding process, and delays, disruptions, and unforeseen issues routinely extended the process. Training: New staff required significant training that SBA did not have time to provide. Shortened or omitted training created a greater need to provide on-the-job training. In response to these challenges, SBA s after-action report for the 2017 hurricanes and its 2018 Staffing Strategy made recommendations to improve SBA s hiring processes. These recommendations included establishing regular intermittent postings; creating an enhanced recruitment toolkit that includes social media, advertisement, third-party partnerships, and an outreach plan; establishing interagency agreements for detailee staff; developing a template for deployment of staff; reviewing and updating position descriptions; building an applicant pipeline; developing an on-boarding plan; and implementing an integrated technology solution that includes recruitment, hiring, on-boarding, benefits, training, performance management, and off-boarding. SBA officials told us they have begun implementing these recommendations. For example, the agency consolidated its hiring processes for new staff through USA Staffing, a federal online recruitment, evaluation, and hiring system. <2.2.2. Business Recovery Centers> SBA establishes outreach locations for businesses and individual disaster survivors, including Business Recovery Centers, in disaster areas. The SBA OIG noted that while the centers are designed to assist business owners, staff also were available to assist homeowners and renters. Based on our analysis of SBA data, SBA operated six such centers in response to Hurricane Harvey, 18 in response to Hurricane Irma, and 85 in response to Hurricane Maria. According to SBA officials, the number of Business Recovery Centers opened is dependent on two key data points the number of declared counties with the greatest impact from the disaster and the business and population density. Officials told us that SBA opened the most centers in response to Hurricane Maria in Puerto Rico because of the high number of affected municipalities. Staffing levels at the centers are based on the number of businesses categorized as major and on population density, and then refined based on actual daily activity at the center. See figure 4 for a photograph of SBA staff at a center in a municipal sports complex in Bayam n, Puerto Rico. In some locations we visited, SBA worked with its district office or local SBDCs to set up and staff Business Recovery Centers. For example, the Field Operations Center East and the Florida SBDC Network created a staffing and deployment plan that outlined center locations in the Florida counties most affected by Hurricane Irma. The Florida centers were jointly staffed by SBA and SBDC employees, and included a mobile center. According to SBA officials, SBA and SBDC representatives drove the mobile center to locations without a dedicated Business Recovery Center, such as the Florida Keys. Similarly, the Field Operations Center East created a staffing and deployment strategy for Business Recovery Centers with SBA s District Office in Puerto Rico. They established fixed and mobile centers and each week staff traveled to multiple municipalities without fixed centers. The SBA District Office coordinated with local mayors and other officials to select the locations and ensure the public was informed. SBA officials noted that staff visited all the Puerto Rican municipalities over about 7 months. <2.3. SBA Conducted Outreach after the 2017 Hurricanes, but Has Not Incorporated Region-Specific Risks or Evaluated Its Efforts> SBA s outreach for the 2017 hurricanes included local partners, generally was favorably regarded by stakeholders we interviewed, and met statutory requirements. But SBA s current guidance on outreach efforts does not incorporate region-specific risks (such as those encountered after the 2017 hurricanes), and SBA has not evaluated its efforts. <2.3.1. Outreach Methods> According to SBA officials, SBA relied on public information officers, staff at recovery centers, local partners such as SBDCs and local government, and media contacts to disseminate information about the Disaster Loan Program to disaster survivors. When communicating with disaster survivors was difficult immediately after Hurricane Maria struck Puerto Rico, SBA officials told us they worked with the only operational radio station on the island to broadcast information about the program. During our site visits to selected areas in the states and territories most affected by the 2017 hurricanes, stakeholders including business owners and local SBA partners told us they generally were satisfied with SBA s outreach efforts to disaster survivors. Officials at one SBDC told us that they believed SBA public information officers did a good job reaching out to local businesses and keeping the SBDC informed about upcoming SBA disaster loan presentations and media outreach and went door-to- door to reach small businesses. Similarly, officials at an SBDC in Puerto Rico told us that SBA staff visited all the municipalities in their region, and that they participated in presentations about disaster assistance with SBA and FEMA. Nine of the 24 business owners with whom we talked told us they first learned about SBA s disaster loans from prior experience with the loans or through the agency s outreach efforts (presented online or on other media). As discussed in more detail below, SBA does not have metrics that allow it to assess the effectiveness of its outreach efforts. <2.3.2. Outreach Materials> Outreach materials SBA provided to us contained required statutory elements. By statute, if a disaster is declared, SBA must make every effort to communicate through radio, television, print and web-based outlets, all relevant information needed by disaster loan applicants. SBA must include (1) the date of the declaration; (2) cities and towns in the areas of the declaration; (3) loan application deadlines related to the disaster; (4) all relevant contact information for victim services available through SBA (including links to SBDC websites); (5) links to relevant state and federal disaster assistance websites, including links that provide information on assistance available through FEMA; (6) information on eligibility criteria for SBA loan programs, including where applications can be found; and (7) application materials that clearly state SBA s function as the federal source of disaster loans for homeowners and renters. We reviewed SBA Disaster Loan fact sheets available for Hurricanes Harvey, Irma, and Maria and other outreach materials distributed to disaster survivors and found they collectively included the required elements (see fig. 5 for examples). For example, the Hurricane Harvey fact sheet contains the date of the declaration and counties included in the declaration, as well as information about SBA s function to provide disaster loans, the types of loans available, loan eligibility requirements, deadlines, and contact information for SBA disaster assistance. SBA s guidance on outreach does not include steps on identifying regional disaster risks. In 2009, we recommended that SBA develop procedures to enable it to meet the region-specific requirements of the Small Business Act. Specifically, we recommended that SBA include likely scenarios for certain regions prone to disasters. In 2012, SBA completed a marketing and outreach plan that stated SBA would develop webinars for specific regional risks. However, SBA s 2018 Marketing and Outreach Plan did not mention or incorporate regional challenges such as those SBA encountered responding to the 2017 hurricanes in Puerto Rico and the U.S. Virgin Islands. SBA officials told us that they experienced challenges in conducting outreach to the territories. As previously mentioned, SBA used the only operational media outlet in Puerto Rico a radio station immediately after Hurricane Maria to broadcast information. SBA officials told us that language barriers also presented a challenge during the response to Hurricane Maria. Outreach materials had to be printed in both Spanish and English (see fig. 6). Federal internal control standards state that management should internally communicate the necessary quality information to achieve the agency s objectives. However, SBA s guidance on outreach does not identify regional disaster risks. SBA officials told us that they have not considered documenting these challenges in their outreach guidance, although they may do so in the future. Without updating its outreach guidance to discuss region-specific challenges, such as those faced in responding to disasters in the U.S. territories, SBA misses a key opportunity to better ensure staff are adequately prepared to conduct outreach in similar situations and locations. <2.3.3. Metrics to Evaluate Outreach Efforts> SBA does not have metrics for how well its outreach efforts informed disaster survivors about the Disaster Loan Program. Although SBA surveyed a sample of disaster loan applicants in August 2018, the survey did not include questions specific to applicants perception of SBA s outreach efforts that the agency could use to measure the success of its efforts. Officials told us the survey was primarily used to evaluate SBA s loan processing and not its outreach efforts. In past work, we convened an expert panel to discuss challenges with consumer education and key planning components to overcome these challenges. One of the key practices identified in the expert panel was the need to establish metrics to measure success in achieving the objectives of an outreach campaign. For example, process metrics can help ensure the quality, quantity, and timeliness of a campaign, and outcome metrics evaluate how well the campaign influenced the attitudes and behaviors of the target audience. Without metrics evaluating its disaster outreach efforts, SBA will not be able to determine how well and to what extent its outreach efforts have informed disaster survivors about the Disaster Loan Program. <3. SBA Expedited Its Application Processing, but Applicants Cited Continuing Challenges> Since 2005, SBA has streamlined its loan application and review process and recognized such changes resulted in a need for earlier staff activation. SBA s approval rate for all disaster loan applications following the 2017 hurricanes was approximately 49 percent and Hurricane Maria had the highest approval rate (62 percent). Disaster loan applicants, SBA resource partners, and SBA officials identified challenges that affected application or review processes, including burdensome documentation requests and translation issues. <3.1. SBA Changes Expedited and Simplified Loan Application and Processing, Creating Need to Activate Staff Earlier> <3.1.1. Loan Application and Processing Changes> Since 2005, SBA has made changes to its disaster loan program to streamline the loan application and review process. Some of the changes SBA implemented include Using electronic loan applications. In 2008, SBA created an online portal for the Disaster Loan Program, which eliminated the need for applicants to mail in applications or visit a recovery center. According to SBA officials, they typically receive paper applications within 14 days and electronic loan applications within 1 2 days after a disaster. They also indicated that increased usage of electronic loan applications has reduced data entry errors and improved loan processing times. The vast majority (96 percent) of the approximately 340,000 applications SBA accepted after the 2017 hurricanes were submitted electronically. Expediting declines for applicants with poor credit. According to SBA officials, in 2005 SBA established automatic declination for applicants with poor credit (instead of moving forward with full processing of all applications). SBA refers homeowners who are automatically declined to FEMA for a potential grant and refers such businesses to resource partners for assistance. Overall, more than half (55 percent) of the approximately 146,000 applications declined after the 2017 hurricanes were automatically declined. Expediting approvals for applicants with strong credit. In 2014, SBA revised its disaster loan program regulations for physical disaster loans to allow it to consider an applicant s credit instead of only looking at a full cash flow analysis when determining an applicant s ability to repay. Overall, SBA processed 28 percent of the applications approved after the 2017 hurricanes using this revised method. Using desktop verification. In 2017, SBA began conducting desktop verification to evaluate the cause and extent of property damage. The process involves an initial loss verification through interviews with the applicant and use of third-party information (such as from a tax assessor s website or Google maps) to estimate the cost of repairs. SBA is to conduct a post-desktop review following the initial disbursement using FEMA s inspection report, SBA s on-site inspection, or supporting documentation to validate the initial estimate. In a September 2019 report, the SBA OIG found that the use of desktop loss verification contributed to SBA meeting its timeliness goals for processing loan applications for the 2017 hurricanes. Standardizing loan terms. In 2017, SBA established 15- and 30-year fixed terms for loans, which streamlined the loan process by using the loan amount (instead of income) to determine repayment. According to SBA officials, the use of fixed loan terms is consistent with standard private-sector lending practices and therefore is easier for borrowers to understand. SBA also has continued to make technological changes to streamline DCMS and the web portal. The DCMS version SBA used for the 2017 hurricanes supported up to 10,000 concurrent users. According to SBA officials, they have been transitioning to DCMS 2.0, which is expected to support more concurrent users. As noted in SBA s fiscal year 2019 Congressional Budget Justification and its 2017 Annual Performance Report, SBA anticipates that DCMS improvements will increase loan officer productivity from processing three to processing six loan applications per day. Similarly, SBA integrated new features into the online portal to improve applicants access to information resources during the application process. For example, applicants can readily access general questions and information, check the status of their applications, receive status notifications, and electronically upload and sign documents such as Internal Revenue Service Form 4506-T. <3.1.2. Effect of Changes on Timeliness> According to SBA officials, electronic loan application and other changes have reduced SBA s processing times. For Hurricanes Harvey and Irma, the number of applications to be processed peaked about 2 months after each disaster; applications for Hurricane Maria peaked nearly 3 months after the disaster (see fig. 7). The number of business applications to be processed peaked more than 3 months after Hurricane Sandy made landfall on October 29, 2012. Our analysis of SBA data found that despite a high volume of applications, SBA exceeded its goal for the 2017 hurricanes of processing at least 85 percent of applications from receipt to decision within 45 days (see fig. 8). More specifically, SBA processed 96 percent of its applications within 45 days. As noted previously, SBA s processing goal varies based on expected application volume. The average processing times for loans submitted after Hurricanes Harvey, Irma, and Maria were 16, 16, and 18 days, respectively. In general, SBA processed loans for homeowners faster than loans for businesses after the 2017 hurricanes. In contrast, SBA did not meet its 21-day processing goal after 2012 s Hurricane Sandy and developed a backlog of more than 6,000 applications that lasted approximately 4 weeks. The SBA OIG noted issues with and recommended two improvements to how SBA calculates processing time from acceptance to decision. In a June 2014 report, the OIG found that SBA included times for automatically declined applications in its average processing times. The OIG recommended SBA report processing times for automatically declined applications separately from applications requiring more processing. In the summary data SBA provided for the 2017 hurricanes, SBA continued to include automatically declined applications, which require significantly less time to process than other accepted loans, in its average processing times. The OIG also found SBA s computation did not include all the processing time for applications previously submitted and withdrawn, but later reaccepted. SBA used only the days elapsed between the reacceptance and the decision date. As discussed in more detail later in the report, SBA and applicants can withdraw and later resubmit applications. The OIG recommended that SBA establish processing time goals that consider the full processing time for withdrawn applications that later are reaccepted. According to OIG officials, the OIG closed this recommendation although SBA did not implement it because SBA officials stated that system limitations would not allow for this measurement to be readily accomplished and reaccepted loans require a level of analysis and diligence that justifies separate measurement of processing time. Although SBA officials told us there are no timeliness goals associated with closing a loan, approved borrowers have up to 60 calendar days from the date of the loan authorization and agreement to sign and return all loan closing documents to close the loan. For Hurricanes Harvey and Irma, SBA took less than 50 days on average to close a loan, with business loans taking the longest. For Hurricane Maria, it took more than 53 days on average to close loans. In comparison, for Hurricane Sandy SBA took 66 days on average from approval to close a physical disaster business loan and 43 days for an economic injury loan. After the 2017 hurricanes, SBA also met its disbursement goal of providing initial disbursements to 95 percent of borrowers within 5 days of loan closing. On average, SBA provided initial disbursements to approved borrowers within about 4 days of closing. SBA also had met its initial disbursement goal following Hurricane Sandy. As a result of SBA s changes to its loan processing and review functions, SBA reduced its overall processing times. For the 2017 hurricanes, SBA took about 70 days on average to go from acceptance to initial disbursement, which is much less time than it took for Hurricane Sandy and the 2005 Gulf Coast hurricanes (see fig. 9). According to SBA officials, increased usage of electronic loan applications and expedited loan processing has resulted in the need to activate staff earlier, although SBA still faced challenges doing so. The number of applications that SBA received peaked at 95,000 applications in October 2017. SBA began adding staff immediately after the hurricanes, but the number of staff in ODA s Processing and Disbursement Center did not peak until December 2017 (see fig. 10). In contrast, following Hurricane Sandy, application numbers peaked in December 2012 but ODA s Processing and Disbursement Center did not reach peak staffing until March 2013. While hiring processes were ongoing, SBA temporarily utilized staff from other SBA divisions to assist with reviewing applications. ODA then hired additional loan officers and also used other SBA employees and detailees from other federal agencies to process loans. By October 2017, ODA had more than quadrupled processing staff (from 536 in August to 2,302 in October), and the workload for those staff had peaked (see fig. 11). Each loan officer averaged more than 50 new loan applications in September 2017, but by January 2018 the average decreased to about six or fewer new applications per month. As discussed earlier, SBA anticipates its DCMS update will double loan officer productivity. <3.2. Overall Approval Rates for the 2017 Hurricanes Were Higher Than for the 2005 Gulf Coast Hurricanes, but Lower Than for Hurricane Sandy> In response to the 2017 hurricanes, SBA accepted about 340,000 applications and approved about 141,000 of them, making about $7.2 billion in loans (see fig. 12). SBA accepted the most applications for Hurricane Irma, but about half of the total approved loan amount was for applicants affected by Hurricane Harvey. Overall, SBA s approval rate for all disaster loan applications following the 2017 hurricanes was approximately 49 percent (see fig. 13). Of the three 2017 hurricanes, Hurricane Maria had the highest approval rate, 62 percent. The approval rate for physical disaster loans for homeowners was higher for Hurricane Maria (64 percent) than for Harvey (46 percent) and Irma (42 percent). There was not much variation in approval rates for physical and economic injury disaster loans for businesses. As shown in figure 14, the overall approval rate for loan applications was lower for Hurricanes Harvey, Irma, and Maria than for Hurricane Sandy, but higher than the combined rate for Hurricanes Katrina, Rita, and Wilma. Following the 2017 hurricanes, SBA declined about 146,000 loan applications. The primary reasons for declining applications were lack of repayment ability and unsatisfactory credit history. Other common reasons included unsatisfactory history on a federal obligation and that the damaged property was not an applicant s primary residence or a qualified rental property. Declined applicants can request that SBA reconsider their applications. SBA received about 15,000 such requests after the 2017 hurricanes. Of the requests SBA accepted, about half had their applications approved, and about 30 percent were denied. Applicants who have their reconsideration requests denied can appeal SBA s decision. Ninety-one percent of applicants who were denied after the 2017 hurricanes and subsequently appealed won their appeal. We also discuss withdrawal and cancellation rates for the 2017 and prior hurricanes in appendix II. <3.3. Applicants and SBA Identified a Number of Challenges Faced after the 2017 Hurricanes> Disaster loan applicants, SBA resource partners, and SBA officials we interviewed in Florida, Puerto Rico, Texas, and the U.S. Virgin Islands identified a number of challenges that affected the application or review processes following the 2017 hurricanes. <3.3.1. Challenges Identified by Applicants and SBA Resource Partners> Disaster loan applicants and SBA resource partners we interviewed identified the following challenges that applicants had when applying for SBA disaster loans following the 2017 hurricanes: Providing required loan documentation. Eight (of the 24) business loan applicants and officials from 10 entities, including from five SBDCs, felt that meeting SBA s loan documentation requirements was time-consuming or burdensome. Following the hurricanes, applicants experienced difficulty readily producing required documentation (such as insurance policies, property titles, and tax returns) because of extensive physical damage and power issues or outages. Additionally, 11 applicants reported that follow-up requests from SBA for additional documentation delayed processing, added confusion, or led some to withdraw their applications. According to the results of a 2018 customer satisfaction survey conducted for SBA, the satisfaction of business loan applicants with the disaster loan application process had decreased by 9 percentage points since the previous survey in 2017. The lowest-rated aspects of the application process for businesses were ease of attaining information required for completing the application, the amount of paperwork involved, and the overall ease of filling out the application. According to SBA officials, they are statutorily required to request certain information from disaster victims who apply for a disaster loan. Although more documentation is requested for business loans than for home loans, the officials believe the information requested from business applicants is similar to information requested from individuals applying for a loan at a commercial bank. In response to previous recommendations we made, SBA recently has taken steps to streamline the application process by improving accessibility and consistency of loan-related information and requirements in paper and electronic resources. For example, SBA added a list of frequently asked questions to its Disaster Loan Application Portal with a list of documents required to file an application. The paper applications for both home and business loans list potential additional documents that SBA may request as well as when they may be required. Officials from all three SBDCs in Puerto Rico told us that applicants in Puerto Rico particularly had difficulty accessing tax documentation in a timely manner. SBA has an automated process to request and obtain tax transcripts from the Internal Revenue Service for final approval of loans. However, in Puerto Rico SBA must use a manual process with the Departamento de Hacienda (Puerto Rican taxing authority). Further delays occurred due to widespread physical damage to infrastructure, including the Departamento de Hacienda. As a result, SBA permitted applicants in Puerto Rico to postpone submitting tax documentation until later in the application process. Instead of submitting tax documentation during the loan decision process, SBA allowed applicants to submit such documentation during conditional commitment (the point at which SBA s recommendation for loan approval is contingent on the applicant submitting additional required documents). In addition, ODA co- located loan officers with staff from the commitments department to facilitate prompt access to the tax transcripts they were awaiting from the Departamento de Hacienda. Meeting flood insurance requirements. Officials from two Florida entities told us many of the small businesses with which they worked had problems submitting insurance documentation as part of their application. Officials from one SBDC in Puerto Rico told us they had a client who was unable to obtain flood insurance. By law, SBA requires borrowers whose damaged or collateral property is located in a special flood hazard area to obtain and maintain appropriate flood insurance for the term of the loan. Delays also occurred as a result of miscommunication between SBA and loan applicants about flood insurance requirements, according to an applicant we interviewed. That business owner told us that when he submitted a disaster loan application for physical and economic injury damages, SBA informed him the insurance requirements applied only to the physical damage portion of the loan. However, SBA later told the individual that insurance coverage was necessary for the entire loan, not just physical damages. Frequent changes in loan officers or case managers. More than two-thirds (17 of 24) of the business owners we interviewed and officials at four of the nine SBDCs told us they (or their clients) worked with more than one case manager or loan officer during the loan application process. Two small business owners said they had interacted with as many as nine. These changes led to the applicants having to repeat or resubmit information. In addition, they sometimes received different answers to questions when a new loan officer or case manager was assigned. SBA officials told us that SBA does not track the extent to which applicants work with multiple loan officers and case managers but that applicants should generally have only one of each. According to SBA officials, one loan officer is typically assigned to an application until a loan decision is made. Once a loan is approved, one case manager is assigned until the loan is fully disbursed. However, according to SBA officials, an applicant may interact with more than one loan officer and case manager for reasons such as staff turnover and staff downsizing. In addition, whenever an applicant requests reconsideration of a declined application, the application is to be assigned to a new loan officer for processing. According to SBA officials, a newly assigned loan officer or case manager should be able to use DCMS to access an applicant s loan file, including records of past communication between prior loan officers and the applicant, loss verification reports, and previously submitted documents. When an applicant electronically submits a document through the web portal, ODA scans and uploads it into DCMS (typically in 24 48 hours), at which point it is viewable in DCMS. The officials explained that document storage methods in DCMS are uniform, which should minimize the possibility of documents being improperly stored. Poor customer service and translation issues. Five of the applicants (of 24) and officials from four entities we interviewed said disaster loan applicants perceived a lack of SBA responsiveness after submitting their applications. Staff from two of the entities attributed this lack of responsiveness to SBA having an inadequate amount of staff to handle the number of applications. SBA officials indicated that Processing and Disbursement Center staff strive to contact each applicant within 3 days of assigning a loan officer and within 5 days of assigning a case manager. They also stated the center should contact each applicant at least every 30 days using whatever available forms of communication, including mail, email, and telephone. But two applicants told us they only heard from their case manager after the applicant initiated the contact. Nine applicants also stated that when they did talk to their loan officer or case manager that person was not very helpful. For example, officials from one SBDC told us they talked to some loan officers on behalf of their clients and those loan officers were not able to clarify what documentation their clients needed to provide to SBA to complete their applications. One Puerto Rican applicant and officials from all three Puerto Rican SBDCs told us that applicants in Puerto Rico faced translation issues. They believed SBA had insufficient staff who spoke Spanish, which made it difficult to communicate with applicants regarding status updates and requests for additional documentation. The SBA OIG reported that SBA officials estimated that some disaster survivors waited more than 45 minutes for an interpreter or experienced dropped calls. In addition, officials from one Puerto Rican SBDC told us SBA only would accept official responses in English and believed that many applicants were denied in part because the documents with applicants personal and financial information were in Spanish. The SBDC officials were told only an SBA translator could translate official documentation between SBA and applicants from English to Spanish. According to SBA officials, they tried to hire as many Spanish- speaking staff as possible and relied on a contractor to provide interpretation services during telephone communications with applicants. But the volume of calls was higher than anticipated, resulting in long wait times and many lost telephone connections. Following Hurricane Maria, SBA replaced the contractor with three new language service providers, which SBA used during its response to Hurricanes Florence and Michael in 2018. Disbursement delays. Eight business disaster loan applicants and officials from three SBDCs told us that applicants experienced delays receiving disbursements after their initial disbursement. Although applicants said they received initial disbursements within expected time frames, subsequent disbursements took longer than anticipated. For example, three small business owners told us it took more than a year from the time they applied to receive their full loan disbursement, and two others had to contact their federal representative to help get their disbursements because of delays. SBA data show that after the 2017 hurricanes it took, on average, about 141 days after applying for a loan for businesses to receive their full disbursement, including an average of 63 days from closing to final disbursement. Similarly, business respondents to the 2018 customer satisfaction survey conducted for SBA expressed concerns about the timeliness of disbursements following loan closing. The lowest-rated aspect of the loan closing process was timeliness of receiving loan funds after the closing was complete. As a result, the firm that conducted the survey recommended that SBA examine data on the timing of loan disbursements over the past several years, determine whether the timing had changed significantly, determine the root causes of any notable changes, and develop plans to address any root causes. SBA guidance requires approved borrowers to arrange for and obtain all loan funds within 6 months from the date of the loan authorization and agreement. However, SBA may extend the time frame on a case- by-case basis for ongoing projects. According to SBA officials, there are no timeliness goals for subsequent disbursements because the time frame for receiving further disbursements is contingent on the borrower s ability to meet insurance requirements, secure a contractor to repair damages, and submit receipts to SBA. SBA also has improved features within the web portal so that borrowers can now use direct deposit to receive disbursements and commence repairs more quickly. Additionally, the portal now enables borrowers to electronically submit receipts for repairs or invoices to loan officers, who in turn can verify the use of disbursed funds and make additional disbursements much sooner than before. <3.3.2. Challenges Identified by SBA> During interviews and in an after-action report, SBA also identified challenges it experienced after the 2017 hurricanes that included a prolonged loss of electricity, DCMS performance issues, and unique loan closing requirements in Puerto Rico. Loss of electricity. As discussed previously, a prolonged loss of electricity adversely affected application submission and loan processing, especially in Puerto Rico. DCMS performance issues. SBA officials said the agency increased staffing to process incoming loan applications and the multitude of concurrent users caused technical issues and delays. Loan applicants also encountered periodic system outages. SBA released DCMS updates throughout the first few months of its response to the 2017 hurricanes to address system performance issues. As previously mentioned, SBA expects that DCMS 2.0 will address concurrent user issues. Unique loan closing requirements in Puerto Rico. SBA officials said they were initially unaware of loan closing requirements unique to Puerto Rico, which led to processing delays. They told us that secured loans must be signed by a notary, who in Puerto Rico must be a Puerto Rican-licensed attorney. As a result, SBA had to hire additional locally licensed attorneys and devote resources toward training attorneys and other staff involved in processing and closing loans in Puerto Rico, a process hampered by the previously discussed hiring challenges for the 2017 hurricanes. SBA has been implementing changes to its hiring process for future disasters. <4. SBA Implemented the Express Bridge Loan Pilot Program, Issuing Few Loans, and Has No Plans to Evaluate It> <4.1. Express Bridge Loan Pilot Has Issued Very Few Loans, and SBA Generally Did Not Target Outreach to Disaster-Prone Areas and Has No Plans to Evaluate the Pilot> Number of loans. As of September 2019, lenders had issued two loans totaling $50,000 under SBA s Express Bridge Loan Pilot Program. The loans were issued by one lender in 2018 to small businesses in North Carolina and South Carolina recovering from Hurricane Florence. Outreach. SBA generally has not targeted its outreach for the program to disaster-prone areas. According to SBA officials, to market the pilot program OCA issued two Federal Register notices and a program guide, and encouraged district office staff to notify area lenders of the program. Additionally, SBA officials told us that before anticipated disasters, they have mentioned the program on quarterly telephone conferences attended by 1,000 1,500 7(a) lenders, and referred to the pilot in press releases. One lender told us that it was notified of the pilot program through an SBA policy notice with program guide attached, while another noted receiving an email promoting the program. According to SBA officials, this same email was sent to OCA field staff to be shared with all 7(a) Express lenders before the 2019 hurricane season. Internally, according to SBA officials, OCA has made information on the Express Bridge Loan Pilot Program available to all SBA employees on an internal website. However, OCA has not marketed the Express Bridge Loan Pilot Program to ODA. OCA officials were unaware of any conversation with ODA (whose staff are on the ground after disasters and therefore most likely to interact with small business owners) about the pilot program, but assumed that ODA officials had high-level information about the pilot. However, staff we interviewed from both Field Operations Centers were unaware of the program. OCA also has not targeted its external marketing to partners, such as 7(a) Express lenders and SBDCs, in disaster-prone areas. Although SBA officials told us that they made presentations at a 2019 lender conference in Florida, they did not point to similar outreach in other disaster-prone areas. The small business owners and SBDC officials with whom we spoke in Florida, Puerto Rico, Texas, and the U.S. Virgin Islands generally were unaware of the SBA Express Bridge Loan Program. During our February 2019 interview with the Florida Department of Economic Opportunity (which helps administer the state s bridge loan program), officials stated they were unaware of program specifics and asked if it had started. Evaluation. SBA officials do not currently plan to evaluate the program or determine why so few loans have been issued. SBA officials explained that the Express Bridge Loan Pilot Program s performance during the 2019 hurricane season would determine whether SBA would continue or terminate the program after its pilot period. When SBA announced the pilot, SBA stated it planned to evaluate the program using three principal measures: (1) the number of small businesses served, (2) the percentage of loans made that were paid off or down using lower fixed-rate disaster loans versus those held to term, and (3) the default rate on Express Bridge Loans compared to regular SBA Express loans of similar size in the 7(a) portfolio. SBA officials told us they were not planning to conduct an evaluation because only two loans had been made, which the officials believe is not a large enough sample size to conduct a meaningful evaluation of the program. Although SBA has guaranteed only two loans issued under the Express Bridge Loan Pilot Program, the program received 93 applications. While most of the applications were not completed, they suggest a potentially larger demand for the program than initially indicated by the two completed loans. We discuss demand for bridge loans in more detail in the following section. SBA has guidelines for evaluating pilot programs. SBA issued a Policy Notice on September 29, 2016, that called for it to evaluate any pilot program. SBA subsequently incorporated this requirement in one of its standard operating procedures. In addition, our guide for designing evaluations states that an evaluation gives an agency the opportunity to refine the design of a program and provides a useful tool to determine whether program operations have resulted in the desired benefits for participants. We also previously reported that an evaluation can be valuable in determining why goals were not met, and can provide feedback on both program design and execution. Such an evaluation can help determine what program changes might be warranted to achieve the desired impact. In the absence of loan data, an evaluation could include consideration of feedback from lenders in disaster-prone areas on the pilot or their experiences with other bridge loan programs, such as the Florida program discussed in the following section. According to SBA officials, SBA had not actively solicited lender feedback on the current pilot since it became operational. However, SBA sought feedback from lenders on prior efforts to develop a bridge loan program. SBA officials told us that lenders commented on a prior proposal for a bridge loan pilot (the Immediate Disaster Assistance Program) and indicated that private lenders were not interested in participating in such a pilot because they considered disaster relief to be a governmental responsibility. Additionally, SBA officials told us during our previous work looking at the Immediate Disaster Assistance Program that they performed initial outreach to lenders such as those who participated in SBA s Gulf Opportunity Pilot Loan Program in the aftermath of Hurricanes Katrina and Rita to obtain their reaction to and interest in the program. The current pilot provides a similar opportunity to obtain feedback from lenders on loan terms that could affect their willingness to participate in this or a potentially redesigned program. For example, one 7(a) lender with whom we spoke did not like the Express Bridge Loan Pilot Program due to the maximum loan amount and the SBA guaranteed percentage. Without evaluating the pilot program, including assessing potential demand and why so few loans have been made and the sufficiency of its outreach efforts, OCA will have limited information to inform its decision on the future of the pilot, including loan terms it may offer. Additional feedback, such as from lenders, could help SBA determine if design changes are warranted. <4.2. Interviews with Affected Small Business Owners and Use of Florida s Bridge Loan Program Indicate Demand for Bridge Financing> The very low level of loans guaranteed under SBA s bridge loan pilot contrasts with the desire for such loans indicated by our interviewees and the experience of the Florida Small Business Emergency Bridge Loan program. We interviewed small business owners and those who work with small businesses. Almost two-thirds of all the entities (16 of 26) we interviewed and six small business owners told us that businesses needed immediate financial support after a disaster (for example, to help remove debris, make repairs, and replace inventory). Although many businesses ultimately receive insurance payments to help cover losses, the payments may not be received for several months. Representatives from one municipality told us a lot of people, including the city itself, still were awaiting their insurance payments more than a year after the disaster. To help fund their immediate recovery, small business owners with whom we talked often relied on their own savings, credit cards, or other sources of credit. However, these financing sources typically have interest rates higher than those offered by the Express Bridge Loan Pilot Program. In addition, it can take applicants approved for SBA Disaster Loans months to receive funds time that could determine whether a business remains in operation. Florida s Small Business Emergency Bridge Loan program provides small business owners with interim disaster financing, similar to the Express Bridge Loan Pilot Program, but some structural differences exist (see table 2 for a comparison of principal terms and features). In particular, the Florida program uses public funds rather than being funded by financial institutions. Officials of the Florida Department of Economic Opportunity, which administers the program in partnership with the Florida SBDC Network and a third-party fiscal administrator, told us the Florida program is not focused on generating a return on investment. Rather, the program is focused on helping small businesses bridge the gap between the time their businesses incur damages and the time they secure other financial resources. Although SBA officials told us that the State of Florida s program is not a valid comparison to SBA s Express Bridge Loan Pilot Program because the loans for SBA s program are made by private, for-profit lenders, the Florida program demonstrates demand for bridge financing for small business owners. Officials from the Florida Department of Economic Opportunity stated that when the Governor s office activates the Florida Small Business Emergency Bridge Loan program, the department uses various outreach media, including social media, public-private partners, and state emergency response to disseminate information about the program. The program s fiscal administrator and the Florida SBDC Network also circulate information about the program, including by providing hyperlinks to the loan application on their websites. Finally, the program has been in place since 1992, which likely contributed to word-of-mouth about the program. According to officials of the Florida Department of Economic Opportunity, following Hurricane Irma the program received 1,167 applications, of which 883 were approved, totaling $35 million in disaster bridge financing. Following Hurricane Michael, the program received 742 applications, of which 590 were approved, totaling $34.3 million in disaster bridge financing. Florida Department of Economic Opportunity officials attributed the wide utilization of the Florida Small Business Emergency Bridge Loan to expedited access to funding and favorable terms. For example, the program offers survivors a zero percent interest rate for the term of the loan, which is generally 1 year. Given the difference in loan terms between Florida s program and SBA s pilot program, the demand for SBA s higher-interest loans may not equal the demand for Florida s loans. However, in disaster areas in which there is no state bridge loan program, SBA s pilot program could meet at least some of the need for bridge financing. <5. Conclusions> Following Hurricanes Harvey, Irma, and Maria in 2017, SBA faced difficulties in delivering its disaster loans due to the magnitude of the storms and resulting infrastructure damage, especially in Puerto Rico and the U.S. Virgin Islands. Nevertheless, SBA accepted about 340,000 applications and approved about 141,000 of them, making more than $7 billion in loans to help business owners, homeowners, renters, and nonprofits recover. However, the planning documents and guidance to the field that SBA used to guide its response to the 2017 hurricanes did not identify risks and focus on risk assessments or include detailed instructions on how to prepare disaster-specific action plans. And after the 2017 hurricanes, the documents and guidance, including for outreach on disaster loans, has not incorporated lessons learned particularly as they related to region- specific risks that could hamper the operations of the Disaster Loan Program. By identifying risks and enhancing guidance on actions plans and outreach efforts, SBA can better design its plans for and implementation of disaster response efforts and help ensure staff are adequately prepared to conduct operations in situations such as those encountered in Puerto Rico and the U.S. Virgin Islands. SBA also has not established metrics to measure the success of its outreach efforts. By establishing metrics, such as including questions when surveying disaster loan applicants on their perception of SBA s outreach efforts, SBA would be better able to determine how well its outreach efforts have informed disaster survivors about the Disaster Loan Program and make adjustments to improve the effectiveness of such efforts. SBA also can improve its Express Bridge Loan Pilot Program, which offers small businesses the opportunity to quickly receive funding after disasters. The success of a Florida program offering a similar product and our own work suggest considerable demand for bridge loans. SBA has no plans to evaluate the program because it has issued so few loans. While SBA does not have the information needed to conduct a loan performance evaluation, it has the opportunity to conduct an evaluation of the pilot program s design and implementation. Such an evaluation could help determine why so few loans were issued, what role program design and internal and external outreach may have played, and what, if any, changes to the pilot might be warranted. By evaluating the Express Bridge Loan Pilot Program, including obtaining lender feedback, OCA will be able to make an informed decision about the program s future. <6. Recommendations for Executive Action> We are making the following five recommendations to SBA: The Associate Administrator for the Office of Disaster Assistance should identify and document risks associated with its disaster response and plans to mitigate these risks in its disaster planning documentation. (Recommendation 1) The Associate Administrator for the Office of Disaster Assistance should identify the key elements of a disaster action plan and provide additional guidance to staff on how to incorporate these elements into future action plans. (Recommendation 2) The Associate Administrator for the Office of Disaster Assistance should update its outreach plan to include information on region-specific risks or challenges, such as those encountered after the 2017 hurricanes. (Recommendation 3) The Associate Administrator for the Office of Disaster Assistance should establish metrics to measure the success of its outreach efforts during the response to a disaster. (Recommendation 4) The Associate Administrator for the Office of Capital Access should evaluate the implementation of the Express Bridge Loan Pilot Program to determine why so few loans have been made and if any design changes may be warranted before the end of the pilot. Such an evaluation could include assessing SBA s outreach efforts and seeking feedback from lenders. (Recommendation 5) <7. Agency Comments and Our Evaluation> We provided a draft of this report to SBA for review and comment. In written comments, which are reproduced in appendix III, SBA stated that overall it agreed with the report s recommendations and provided comments, as summarized below. SBA described actions it planned to take to address the first four recommendations, which if implemented as planned would address them. For the first recommendation to identify and document risks and plans to mitigate those risks in its disaster planning documents, SBA noted that ODA would work with SBA s Office of Continuous Operations and Risk Management, which updates and publishes the annual Disaster Preparedness and Recovery Plan, to identify and document known risks associated with SBA s disaster response and implement a risk-informed approach to its direct response and recovery operations. SBA expected that its fiscal year 2021 plan would include this information. For the second recommendation to identify the key elements of a disaster action plan and provide related guidance to staff, SBA agreed and noted that ODA would develop the key elements of and templates for a disaster action plan, provide guidance to Field Operations Centers, and coordinate with the Office of Continuous Operations and Risk Management on including the information in appendixes to the Disaster Preparedness and Recovery Plan. For the third recommendation to update its outreach plan to include information on region-specific risks or challenges, SBA agreed and stated that ODA would update its outreach plan to include risks and challenges experienced during the 2017 hurricane season. For the fourth recommendation to establish metrics to measure its disaster outreach efforts, SBA agreed and noted that it would explore potential new metrics to measure the effectiveness of its outreach efforts, such as adding a question about the efforts to the annual American Customer Satisfaction Index survey. For the fifth recommendation to evaluate the implementation of the Express Bridge Loan Pilot Program to determine why so few loans have been made and if any design changes may be warranted before the end of the pilot (which could include assessing SBA s outreach efforts and seeking feedback from lenders), SBA described some actions it planned to take in response to the recommendation that would partially address it. The agency also commented on some of our findings, which we discuss below. We maintain our recommendation. In its comments, SBA noted it would seek feedback from SBA Express Lenders during the upcoming spring National Association of Government Guaranteed Lenders conference on their interest and participation in the pilot. SBA also noted that it would provide ODA with information and a set of frequently asked questions about the pilot program that ODA could distribute to small business owners at Business Recovery Centers. Although beginning to seek lender feedback and improving its internal outreach are good first steps, SBA would still need to conduct an evaluation to determine if any design changes were warranted to fully address the recommendation. SBA stated it did not currently have adequate data to evaluate the effectiveness of the program because only two loans had been funded. It also noted that while there were more than 90 incomplete applications for the Express Bridge Loan Pilot Program, the agency had concluded that there were not sufficient data to suggest the applications were actual attempts to originate loans and that lenders likely started the loans in error. In the draft report, we acknowledged only two loans had been issued and included SBA s views about why other applications were not completed. As we note in the report, in the absence of loan data an evaluation instead could focus on the pilot s design and implementation, and include feedback from lenders. Therefore, we maintain that SBA can and should evaluate the pilot program. SBA noted it previously sought feedback from lenders on the Immediate Disaster Assistance Program (a prior proposal for a bridge loan program) and at that time, there was very little lender interest in the program. The draft report included this information and noted that the current pilot provides a similar opportunity to solicit lender feedback, including on loan terms. In response to this, SBA stated that making significant changes to the size and guarantee on the pilot loans based on lender feedback would affect the subsidy for the program. However, SBA will not know how lenders feel about the current pilot or what types of changes they might recommend until it seeks lender feedback. Lenders could call for changes to the program that were minor but still would improve their willingness to participate. In addition, if lender feedback suggested that the program would not work without significant changes and additional subsidy, such information could inform future actions to address borrower demand for bridge loans. SBA also stated that it did not believe our comparison of the Express Bridge Loan Pilot Program to the Florida Small Business Emergency Bridge Loan was appropriate. SBA stated the Florida program provides direct loans in contrast to SBA s limited guarantee to lenders, and had been in existence since 1992 and was well known (versus a 2017 program start and less knowledge about SBA s program). We highlighted both differences in the draft report. SBA also stated the Florida program has a larger pool of eligible applicants because it is not limited to Presidentially declared disasters or delivered only by certain lenders, as is the case with the SBA program. However, we note that the SBA program is available nationwide and the Florida program is limited to the state. In summary, SBA stated in its comments that the characteristics of the Florida program contributed to the demand for the program. We acknowledged this in the draft report, stating that given the differences between the programs, the demand for SBA s loans may not be equivalent to the demand for Florida s loans. Despite the program differences, we continue to believe that including a discussion of the Florida Small Business Emergency Bridge Loan program in the report was appropriate because its use indicates demand for bridge financing. In disaster areas in other states with no state bridge loan program, SBA s pilot program, with changes determined to be appropriate, could meet at least some of the demand for bridge financing identified by people we interviewed. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees and the Administrator of SBA. 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 William B. Shear 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. Major contributors to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology Our objectives were to examine the Small Business Administration s (SBA) (1) planning for and initial response to Hurricanes Harvey, Irma, and Maria (hereinafter referred to as the 2017 hurricanes); (2) loan application and review process (including changes since Hurricane Katrina in 2005), timeliness, and approval rates; and (3) implementation of the Express Bridge Loan Pilot Program. We focused our review on Florida, Texas, Puerto Rico, and the U.S. Virgin Islands the states and territories most directly affected by the 2017 hurricanes. For all of our objectives, we visited two areas each in Florida, Texas, and the U.S. Virgin Islands, and three areas in Puerto Rico. We selected these areas based on the high numbers of approved homeowner and business disaster loans, high population, geographic diversity, presence of a Small Business Development Center (SBDC), and presence of an SBA district office. To help ensure geographic diversity, we selected locations from different metropolitan statistical areas in each state and Puerto Rico. In each location, we conducted a group interview with small business owners who applied for a disaster loan with SBA to learn about their experiences applying for a loan and working with SBA while their loan was processed and funds disbursed, and their need for bridge financing. These small businesses were recruited by representatives of the local SBDC and were selected to represent a range of outcomes (approved, denied, and withdrawn applications). Overall, we interviewed 24 small business owners across the nine areas we visited. In addition to small business owners, we met with officials from the SBDC and the local SBA district office responsible for each of the areas we visited. We also met with officials from seven local governments that oversaw eight of the areas we visited either from a mayor s office or economic development office. Lastly, we interviewed officials from six chambers of commerce or business associations, one in every area except one. While the results of these interviews are not generalizable to all areas affected by the 2017 hurricanes, they provided insight into the experiences of small businesses and local communities with the SBA Disaster Loan Program. In addition to the site visit interviews, we interviewed officials from SBA s Office of Disaster Assistance, including officials from both Field Operations Centers and the Processing and Disbursement Center, to discuss the Disaster Loan Program and SBA s response to the 2017 hurricanes. For our analysis of open-ended responses from these interviews, we used a software program designed for analyzing qualitative information. For each open-ended response, we coded, organized, and analyzed responses under a number of relevant themes. Specifically, team members independently reviewed a segment of the interview transcripts to code the responses to identify themes. Once each analyst had completed coding his or her respective sections, the documents were merged into a master file that was reviewed by the engagement s methodologist. Possible alternative categorizations of the material were discussed and resolved jointly. This code-based method constituted our primary approach to validating the results of our analysis. All categorizations were sourced to the original interviews through the use of the qualitative analysis software. To evaluate SBA s planning for and initial response to the 2017 hurricanes, we reviewed SBA planning documents in effect for the hurricanes SBA s 2017 Disaster Preparedness and Recovery Plan and its 2014 Disaster Playbook as well as the targeted action plans SBA created for each of the hurricanes and summaries of exercises SBA conducted. We also reviewed the Office of Disaster Assistance s after- action report following Hurricanes Harvey, Irma, and Maria; SBA s 2017 and 2018 Staffing Strategies; models SBA used to guide its response; and reports issued by the SBA Office of Inspector General (OIG). We used these sources to identify challenges SBA faced planning for and responding to the 2017 hurricanes, including those it faced responding to Hurricane Maria in Puerto Rico and the U.S. Virgin Islands and with its hiring. We reviewed SBA data on hiring and compared SBA s staffing modeling efforts to the actual staff activated after the 2017 hurricanes. We determined that these data were sufficiently reliable for the purposes of discussing SBA s staffing after the 2017 hurricanes by interviewing knowledgeable officials about the data. We compared SBA s planning efforts against federal internal control standards for identifying, analyzing, and responding to risks, and against Federal Emergency Management Agency guidance on disaster planning. To examine SBA outreach on disaster loans after the 2017 hurricanes, we reviewed marketing and outreach plans from 2012 and 2018 and a sample of outreach materials SBA used during its response to Hurricanes Harvey, Irma, and Maria. We compared SBA s outreach efforts against federal internal control standards for internal communication and against key consumer education practices. To evaluate SBA s loan application and review process, we reviewed prior GAO and SBA OIG reports on SBA s Disaster Loan Program to help identify changes SBA made since Hurricane Katrina in 2005. We also analyzed summary data from SBA s Disaster Credit Management System for applications submitted between August 31, 2017, and September 24, 2018. The August date corresponds to the date SBA received the first applications from the 2017 hurricanes and the September date to the one-year anniversary of Hurricane Maria, the last of the three 2017 hurricanes. SBA completed processing more than 99 percent of the applications for each hurricane during the period covered by our data. Because the hurricanes occurred in quick succession and SBA treated them as one event, we compared the combined data for the 2017 hurricanes to those from Hurricane Sandy and the combined data for Hurricanes Katrina, Rita, and Wilma, which SBA also treated as one event. We determined these data were sufficiently reliable for describing characteristics associated with SBA s processing of applications by reviewing related documentation, interviewing knowledgeable agency officials, and reviewing related internal controls. We used the results from our thematic qualitative analysis and interviews with SBA officials to identify challenges associated with applying for or processing applications following the 2017 hurricanes. To evaluate SBA s implementation of the Express Bridge Loan Pilot Program, we reviewed Federal Register notices and a program guide SBA published about the program. We interviewed SBA officials from its Office of Capital Access about their implementation of the program, and officials from three lenders to discuss their perspectives on and awareness of the program. We selected one lender because it had made loans under the pilot program, another because it had begun the most applications for the program, and the third because it was a 7(a) lender located in a state affected by Hurricane Florence or Michael. We chose those hurricanes because they occurred about 1 year after SBA began its pilot (in September and October 2018, respectively), allowing time for SBA to fully launch the pilot. We also interviewed officials from the Florida Department of Economic Opportunity to discuss the Florida Small Business Emergency Bridge Loan Program, which it helps administer. We compared SBA s plans to evaluate the Express Bridge Loan Pilot Program against guidance for designing evaluations. We conducted this performance audit from September 2018 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. Appendix II: Withdrawal and Cancellation Rates for 2017 and Prior Hurricanes This appendix presents withdrawal and cancellation rates for disaster loan applications the Small Business Administration (SBA) accepted after Hurricanes Harvey, Irma, and Maria (the 2017 hurricanes), after Hurricane Sandy in 2012, and after Hurricanes Katrina, Wilma, and Rita (the 2005 Gulf Coast hurricanes). <8. Withdrawal and Cancellation Rates for 2017 Hurricanes Were Lower Than for Previous Hurricanes> <8.1. Withdrawal Rates> For the 2017 hurricanes, withdrawal rates were generally comparable for each type of disaster loan, as shown in figure 15. Of the disaster loan applications SBA accepted for Hurricanes Harvey, Irma, and Maria, about 52,000 were withdrawn from consideration by SBA or the applicant. Of these, approximately 32,000 were withdrawn by SBA, and the rest were withdrawn at the applicant s request. The leading reason for an SBA withdrawal was a lack of contact with the applicant to discuss disaster damages (inability to verify losses). Other common SBA-initiated reasons for withdrawals were the Internal Revenue Service having no record of the applicant filing taxes in the required time period and an applicant s failure to provide requested additional information. The main reason for withdrawal by applicant was a change of plans. Applicants who withdrew their applications or had applications withdrawn by SBA could request that SBA reaccept their application. Nearly half (48 percent) of the approximately 52,000 withdrawn applications were submitted for reacceptance. Of those, 67 percent were approved, 20 percent were declined, and 13 percent were withdrawn again. As shown in figure 16, the overall withdrawal rate for the 2017 hurricanes was lower than that for Hurricane Sandy and the combined rate for the 2005 Gulf Coast hurricanes. Across each of the disasters, home disaster loan applications had the lowest withdrawal rates while nonprofit applications had the highest withdrawal rates. Among the 2017 hurricanes, Hurricane Harvey had the most cancelled disaster loans (10,945) with an overall cancellation rate of 25 percent (see fig. 17). More than half (56 percent) of the cancelled loans were due to the borrower s decision, including receiving sufficient support from other sources and reluctance to incur additional debt. Of the loans SBA cancelled, the most common reasons included the borrower s failure to complete and return all loan closing documents and an adverse change in the borrower s credit or financial condition that required a referral to the Federal Emergency Management Agency s Individuals and Household Program. As shown in figure 18, the overall cancellation rate for the 2017 hurricanes was lower than that for Hurricane Sandy and the combined rate for the 2005 Gulf Coast hurricanes. Appendix III: Comments from the U.S. Small Business Administration Appendix IV: GAO Contact and Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact name above, Paige Smith (Assistant Director), Daniel Newman (Analyst in Charge), Laura Gibbons, Marshall Hamlett, Marc Molino, Patrick Netherclift, Barbara Roesmann, Jessica Sandler, Cynthia Saunders, and Nina Thomas-Diggs made significant contributions to this report.

Why GAO Did This Study SBA assists most types of businesses regardless of size and others affected by natural and other declared disasters through its Disaster Loan Program. Disaster loans can be used to help rebuild or replace damaged property or continue business operations. GAO was asked to review SBA's response to three 2017 hurricanes (Harvey, Irma, and Maria). This report examines SBA's (1) planning for and response to the 2017 hurricanes; (2) disaster loan application and review process; and (3) implementation of the Express Bridge Loan Pilot Program. GAO analyzed SBA planning documents; summary data from SBA's Disaster Credit Management System for applications submitted between August 31, 2017, and September 24, 2018 (the period in which SBA processed nearly all loan applications for each hurricane); and SBA guidance on the bridge loan program. GAO interviewed small business owners and officials from local governments, business advocacy organizations, and Small Business Development Centers in Florida, Texas, Puerto Rico, and the U.S. Virgin Islands. What GAO Found The Small Business Administration's (SBA) Office of Disaster Assistance, which administers the Disaster Loan Program, regularly develops disaster plans but does not discuss risks and risk mitigation in detail in its planning documents. Specifically, SBA's current Disaster Preparedness and Recovery Plan lacks an in-depth discussion of risks (including extended power and communications outages) that could affect its disaster response. SBA's disaster response includes deploying staff to and establishing centers in disaster areas to accept loan applications. The aftermath of the 2017 hurricanes (Harvey, Irma, and Maria) illustrates how the risks affected SBA's disaster loan operations. For example, because of widespread power outages (particularly in Puerto Rico), loan applicants often could not submit applications electronically and SBA often could not call or e-mail applicants. As a result, SBA may not be adequately prepared to respond to challenges that arise during its disaster response efforts. Changes SBA made to the loan application process since 2005 (such as implementing electronic applications) improved timeliness. For the 2017 hurricanes, SBA processed more than 90 percent of all loan applications (including those quickly declined or withdrawn) within its 45-day goal, averaging less than 18 days for each hurricane. Overall, about 49 percent of applications submitted after the 2017 hurricanes were approved (see figure). Applicants and others with whom GAO spoke noted some application challenges, including frequent changes to SBA contact staff and having to resend documents. According to SBA officials, staff changes resulted from turnover, among other reasons. Many applicants in Puerto Rico also encountered translation challenges during interactions with SBA. SBA has no plans to evaluate its Express Bridge Loan Pilot Program, a loan guarantee program that began in October 2017 and is set to expire on September 30, 2020, and is intended to offer small businesses quicker funding after disasters. As of September 2019, SBA had received 93 applications, but most of them were incomplete and SBA had guaranteed only two loans. The Office of Capital Access, which manages the pilot, had not sought feedback from lenders on why so few loans had been made. Without evaluating program design and implementation, SBA's ability to make an informed decision on the program's future, including assessing potential demand for bridge loans, is limited. What GAO Recommends GAO is making five recommendations to SBA, including that it more comprehensively document risks and plans to mitigate these risks and evaluate the implementation of the Express Bridge Loan Pilot Program. Overall, SBA agreed with the recommendations, but described actions that partially address the recommendation for evaluating the pilot. GAO maintains it should be fully implemented, as discussed in the report.

gao_GAO-20-230

gao_GAO-20-230_0

<1. Background> The Immigration and Nationality Act (INA) of 1952, as amended by the Immigration Reform and Control Act of 1986, authorizes the establishment of the H-2B visa category which allows U.S. employers to bring non-immigrant workers into the United States to perform temporary non-agricultural work. Generally, U.S. employers may apply for H-2B visas when they can establish that (1) their need for an H-2B worker s labor is temporary, meaning a one-time occurrence, a seasonal need, a peak load need, or an intermittent need; (2) qualified U.S. workers are unavailable to perform the work; and (3) the employment of an H-2B worker will not adversely affect the wages or working conditions of similarly-employed U.S. workers. Generally, an H-2B worker s authorized stay per the TLC will be no more than 10 months. However, DHS may authorize an extension of up to one year to H-2B workers already in the United States, based on a subsequent TLC, with a maximum stay of up to three years. Pursuant to the INA, as amended by the Immigration Act of 1990, the H- 2B visa program is subject to an annual cap of 66,000 visas. These visas are divided into two semiannual allocations: up to 33,000 workers may be issued H-2B visas or provided H-2B nonimmigrant status in the first half of the fiscal year(October 1 March 31), and the remaining annual allocation will be available in the second half of the fiscal year (April 1 September 30). In fiscal years 2005, 2006, 2007, and 2016, Congress amended the INA to include a provision that established a returning worker exemption. This exemption enabled H-2B workers who were counted against the visa cap during one of the three preceding fiscal years to not be counted against the visa cap for the relevant fiscal year. <1.1. H-2B Program Screening and Approval Process> Federal agencies use a multi-step process to screen employers to ensure eligibility to hire H-2B workers and later screen nonimmigrant workers on eligibility to work under the H-2B visa category (see fig. 1). DOL s Office of Foreign Labor Certification (OFLC) screens and processes TLC applications from employers. OFLC is to review these applications to ensure that no qualified U.S. workers are available for the job in question and that the wages and working conditions offered to H-2B workers will not adversely affect similarly employed U.S. workers. In 2015, DOL and DHS jointly issued regulations that set forth a number of specific requirements that employers must meet in order to obtain a TLC, including taking specific steps to recruit U.S. workers before hiring H-2B workers; paying a wage equal to or exceeding the highest of the prevailing wage or the federal, state, or local minimum wage; paying for H-2B workers transportation costs; and guaranteeing a minimum number of work hours to H-2B workers. Although employers may submit a TLC application requesting a specific number of H-2B workers, DOL may approve all the workers requested, approve a smaller number of workers, or deny the application. Employers can petition DHS s U.S. Citizenship and Immigration Services (USCIS) for a number of workers up to the number approved by DOL, then USCIS screens and processes employer s petitions. DHS is to send the approved petitions to the Department of State, which screens workers that apply for H-2B visas at U.S. embassies and consulates overseas. The Department of State is responsible for interviewing H-2B applicants and reviewing their visa applications and supporting documentation as part of their adjudication process. <1.2. Enforcement of the H-2B Program> DOL is the primary agency that enforces H-2B employer requirements and relevant labor laws. This enforcement authority is delegated within the DOL to the Administrator of the Wage and Hour Division (WHD). WHD conducts investigations, inspections, and law enforcement functions that carry out the provisions of 8 U.S.C. 1184(c), INA section 214(c), and the regulations pertaining to the employment of H 2B workers, any worker in corresponding employment, or any U.S. worker improperly rejected for employment or improperly laid off or displaced, according to DOL. WHD investigates complaints filed by both foreign and U.S. workers affected by the H 2B program, as well as concerns raised by other federal agencies, such as DHS or the Department of State, regarding particular employers and agents. WHD also conducts targeted or directed (i.e., not complaint-based) investigations of H 2B employers to evaluate program compliance. Through OFLC, DOL may audit adjudicated applications to ensure employers compliance with the terms and conditions of their H-2B Registration, Application for Prevailing Wage Determination, Application for Temporary Employment Certification, or H-2B Petition and to fulfill the Secretary s statutory mandate to certify applications only where unemployed U.S. workers capable of performing such services cannot be found. For non-compliant applications, OFLC may request more information from employers prior to possible debarment. Audits can also be used to establish a record of employer compliance or non-compliance with program requirements and because the information they contain assists DOL in determining whether it needs to further investigate an employer or its agent or attorney. In such instances, OFLC refers its audit findings and underlying documentation to DHS, WHD, or other appropriate enforcement agencies, who in their turn might conduct a targeted investigation. Moreover, DOL s Office of Inspector General may conduct investigations of applications suspected of potential fraud. DHS can also conduct certain enforcement activities exercised through USCIS. USCIS has the authority to adjudicate the H-2B petition and conduct inquiries on the employer s H- 2B petition, which includes the approved TLC and any supporting documentation, to prevent fraud and ensure compliance with H-2B requirements. <1.3. Administration of H-2B Visas and Statutory Changes Made in Recent Years> Generally, according to DHS, it processes and approves employers petitions in order of receipt until the cap is reached. However, for the second half of fiscal year 2018, USCIS announced that employers had petitioned for more visas during the first five business days of the filing period than were available under the semiannual allocation. As a result, per its regulations, DHS used a computer-generated process to randomly select petitions to consider for approval. Additionally, during fiscal years 2017, 2018 and 2019, Congress enacted provisions that authorized DHS, after consultation with DOL, to make more visas available beyond the statutory cap of 66,000 if the agencies determined that the needs of U.S. businesses could not be satisfied with willing, qualified and able U.S. workers. Under these provisions, the total number of additional visas that DHS could make available could be up to the highest number of returning workers approved in any fiscal year that the returning worker exemption was in place, which was about 65,000 visas in fiscal year 2007, according to DHS and DOL (therefore up to about 131,000 visas could be made available in each of these fiscal years). The Secretary of Homeland Security, after consultation with DOL, decided to make 15,000 additional visas available for each year in fiscal years 2017 and 2018 (81,000 visas total in each year) and 30,000 additional visas for returning workers in fiscal year 2019 (96,000 visas total). The federal agencies announced the availability of these additional visas during different months, based on the date they received statutory authorization, which were all in the second half of the respective fiscal years (July 2017, May 2018, and May 2019). <2. Demand for H-2B Visa Workers Increased as Unemployment Decreased> Employer demand for H-2B visas increased from 2010 through 2018 as the U.S. economy strengthened. The number of employer-submitted TLC applications that were certified by DOL increased in each year since 2012, and more than doubled from fiscal year 2010 (about 3,700) to 2018 (about 9,500). Additionally, the number of H-2B workers on DOL- certified applications has increased each year since 2012. In fiscal year 2018, DOL certified applications representing about 147,600 H-2B workers, about a 70 percent increase from fiscal year 2010. As the number of certified TLC applications and workers has generally increased since 2010, national unemployment has declined each year since 2010 (see fig. 2). After DOL certifies the TLC, employers petition DHS to obtain H-2B visas for the workers they plan to employ. Employers that filed petitions for H- 2B workers varied in the number of workers requested and most were concentrated in several industries. According to our analysis of DHS data, in fiscal year 2018, DHS approved petitions from about 3,700 H-2B employers. The number of H-2B visa workers that employers were approved for ranged from one to 1,169, with a median of 12 approved H- 2B workers (see fig. 3 for full distribution). Of the about 3,700 employers, 127 were approved for more than 100 visas. The employers were generally concentrated in administrative and support services (including landscaping); hospitality, amusement and recreation; forestry, fishing, and hunting; construction; and manufacturing industries (see table 1). In our analysis, we found that in 2018, H-2B employers were concentrated in 737 counties in the United States that have, on average, larger labor forces and stronger labor markets than counties without H-2B employers. For each fiscal year from 2015 through 2018, there were about 700 counties with H-2B employers and about 2,400 counties without any H-2B employers, according to our analysis of DHS CLAIMS3 data. Our analysis showed counties with H-2B employers have, on average, larger labor forces than those without H-2B employers and are located mostly along the coasts, but can be found throughout the United States (see fig. 4). Our analysis of DHS and DOL data found that counties with H-2B employers generally had lower unemployment rates and higher average weekly wages than counties that do not have any H-2B employers. Specifically, the approximate 700 counties with H-2B employers had, on average, unemployment rates that were about 0.4 of a percentage point lower than those in counties without H-2B employers. Moreover, lower unemployment was consistent in every month from fiscal years 2015 through 2018, regardless of seasonality (see fig. 5). Further, average weekly wages in counties with H-2B employers were higher by about $113 per week r than in counties without H-2B employers (average weekly wage for counties with H-2B employers is $866 and for counties without H-2B employers is $754). This relationship held for every quarter from fiscal years 2015 through 2018 (see fig. 6). The connection between strong labor markets and employers use of H- 2B workers may stem from multiple factors. Counties with strong labor markets may have a smaller pool of unemployed workers to fill seasonal positions leading employers in these counties to use H-2B visas as a way to fill these positions. Alternatively, counties with larger, more urban populations may have stronger labor markets. These larger population counties have more employers than smaller counties; therefore, they are more likely to have at least one employer with H-2B workers. <2.1. Selected Businesses Reported Difficulty with Planning Due to Visa Cap, but Effects on Economic Performance and U.S. Employment Varied across Industries Many Selected Businesses Reported that Uncertainty in Getting H- 2B Visas Presented a Planning Challenge, but Responses about Economic Performance and Employment Were Not as Consistent> Most selected H-2B employers we interviewed said uncertainty in getting H-2B visas is a challenge to their business planning. We interviewed and gave questionnaires to 35 H-2B employers 19 of which operated small businesses. In our interviews, 21 H-2B employers said the uncertainty of receiving H-2B visas affected their ability to plan for possible business growth and investment. Some employers explained that their operations depended on getting H- 2B workers annually and that any decrease in the number of expected H- 2B workers would substantially impact their business decisions. For example, one Texas-based landscaping employer we interviewed cited uncertainty as a reason to stop accepting new contracts and to reduce investments in new equipment, such as trucks and lawn mowers, and other landscaping supplies. In Maryland, one seafood processing employer said that because of the uncertainty related to receiving H-2B visas they could not implement planned investments, such as expanding their facilities or purchasing trucks for transporting goods, and shut down their business for a time. Similarly, one hospitality employer in Michigan told us that due to the uncertainty of getting visas, they opted not to invest in expanding their hotel amenities or make renovations. In addition, of the 35 H-2B employers we interviewed, seven said the lottery system used by DHS exacerbated the uncertainty of getting H-2B visas. Some of these seven employers described the lottery as seemingly unfair to employers who might have been long-time participants of the program and would not be able to predict if they will be getting visas. Some employers stated that they would prefer that DHS use a more equitable method to award and distribute visas, such as giving every employer a proportion of the visas they petition for. Beyond the uncertainty associated with the H-2B program, employers we spoke with reported varying business experiences during fiscal years 2017 and 2018. Specifically, the 29 H-2B employers who completed our questionnaire 15 of whom did not receive all requested H-2B visas under the standard cap in 2018 reported varied experiences in terms of revenue, purchases of goods and services for their businesses, and the employment of U.S. workers. Revenues. Employers who did not receive all requested H-2B visas under the standard cap more frequently reported revenue declines than employers who received visas, according to our analysis of the questionnaire responses (see fig. 7). Some employers reported that the loss of customers or contracts may have also contributed to these revenue declines. According to the questionnaire responses, 12 of the 14 employers who did not receive all requested H-2B visas under the standard cap reported losing customers and contracts in fiscal year 2018. However, employers experiences varied across industries, and other factors besides obtaining H-2B visas may have also affected revenues. For example, seafood processing employers that did not receive all requested H-2B visas under the standard cap more frequently experienced revenue declines than construction employers that did not receive all requested H-2B visas under the standard cap, as the latter may have been better positioned to mitigate the loss of H-2B workers. (Industry and location-specific factors from our case studies are discussed later in this report.) Purchases of goods and services. Based on responses to our questionnaire, employers that did not receive all requested H-2B visas under the standard cap more frequently reported declines in purchases of goods and services than employers who received visas in 2018 (see fig. 8). Employers decisions to delay investments on their businesses may have contributed to declines in the purchases of goods and services. Based on questionnaire responses, 11 of the 15 employers who did not receive all requested H-2B visas under the standard cap reported delayed investments in equipment or maintenance repairs. Additionally, some also reported delayed investments in business expansion. Corroborating what H-2B employers reported, nine of the 12 supply companies we interviewed in our case studies said they experienced decreased demand for their services when H-2B employers did not get visas or got them late. Similar to their experiences with revenues, employers reported experiences with purchases of goods and services varied across industries as other factors apart from obtaining H-2B visas may have affected employers purchases of goods and services. For example, more construction employers who did not receive all requested H-2B visas under the standard cap reported on their questionnaires that they could maintain their levels of purchasing goods and services than hospitality employers who did not receive all requested H-2B visas under the standard cap, possibly due to construction employers ability to mitigate the impacts of not receiving H-2B workers. Employment of U.S. workers. Based on our questionnaire responses, no clear pattern emerged among employers with regard to changes in the employment of U.S. workers (see fig. 9). Mainly there is no evidence of a notable number of layoffs of U.S. workers among employers that did not receive all requested H-2B visas under the standard cap. According to our questionnaire responses, three of the 15 employers who did not receive all requested H-2B visas under the standard cap in fiscal year 2018 reported having to lay off or reduce hours of U.S. workers. However, responses regarding increases in U.S. employment are difficult to interpret because our questionnaire did not ask how long newly hired employees actually stayed with employers. <2.2. Employers in Different Industries and Locations Reported Varying Characteristics and Efforts to Mitigate Effects of Visa Cap> Local and industry-specific characteristics affected how selected employers mitigated impacts from the H-2B visa cap and may help explain the varied outcomes reported in revenue, supply purchases, and employment of U.S. workers. For example, 18 of the 35 employers we interviewed said that the characteristics of their own businesses, such as seasonality, affected how they tried to mitigate impacts from the H-2B visa cap. Employers told us that they used several methods to mitigate the effects of not having H-2B workers; however, their success in mitigating impacts varied (see table 2). <2.2.1. Seafood Processing> Seafood processing employers on Maryland s eastern shore which includes Dorchester County hire H-2B workers for picking meat out of crabs, according to a local trade association (see fig. 10). Typically, crabbing season begins on April 1st and ends in late November. These employers are heavily reliant on H-2B workers, and, on average, 54 percent of their workforce is comprised of H-2B workers for fiscal year 2018, according to questionnaire responses. Seafood processing employers we interviewed were also long-time users of the H-2B program. Of the six seafood processing employers we interviewed, five said they had participated in the H-2B visa program for more than 20 years, while the remaining employer had participated for about two years. Seafood processing employers that did not receive all requested H-2B visas under the standard cap in 2018 reported notable impacts to their businesses. Of the five seafood employers that responded to our questionnaire, three did not receive the H-2B visas they requested under the standard cap, and these employers reported that their revenue declined by more than 10 percent. All three employers attributed their revenue declines to not getting the requested H-2B workers in time for the season. Two of the employers who did not receive H-2B workers in time for the season, told us that they shut down their operations for part of the season. Moreover, seafood processing employers told us that not getting H-2B workers, or getting them late in the season, led to a reduction in U.S. employment. For example, one employer we interviewed said the use of truck drivers and administrative staff declined without H-2B workers to perform the crab picking work. In addition, all of the seafood processing employers who did not get their H-2B workers reported declines in supplies purchased (e.g., crabs, boxes, pots, and packaging). Of the five seafood supply companies we interviewed, all of them confirmed that when H-2B employers did not receive all requested H-2B visas under the standard cap, demand for their services and products declined. Employers told us that impacts of the H-2B visa cap were aggravated by several industry-specific factors. For example, one employer said the strict seasonality of crab picking made delays in receiving H-2B workers problematic. In addition, seafood employers said their efforts to recruit U.S. workers faced challenges. Different employers mentioned challenges including this strict seasonality; the nature of the work, which generally does not appeal to U.S. workers including high school and college students; and the employer s remote location. Finally, some employers emphasized that there was not a good substitute for manual labor when they did not get H-2B workers. One seafood processing employer said the industry had tried to automate crab picking, but was unsuccessful. <2.2.2. Landscaping> Selected landscaping employers we interviewed in Dallas-Ft. Worth, Texas said they typically hire H-2B workers to perform residential and commercial landscaping, such as mowing lawns, planting trees, building outdoor living spaces, and performing other lawn care maintenance (see fig. 11). Landscaping employers told us that their season can begin as early as February and can last until mid-December. On average, among the landscaping employers that responded to our questionnaire, 35 percent of their workforce was comprised of H-2B workers. Of the 11 landscaping employers we interviewed, eight said they have participated for about 10 years or more, while three said they have participated in the H-2B visa program for about three years or less. Of the 11 landscaping employers who responded to our questionnaire, three did not get all visas requested under the standard cap. All three employers who did not receive all requested H-2B visas reported revenue declines and said during our interviews that revenue declines were due to not getting H-2B workers or getting them late in the season. Moreover, of the 11 landscaping employers that responded to our questionnaire, six including employers that did and did not receive all requested visas under the standard cap reported declines in supply purchases. Landscaping employers told us that low local unemployment and the intensive manual labor in the heat were challenges to recruiting more U.S. workers. Of the 11 landscaping employers we interviewed, three said that when they did not get their H-2B workers, they tried to partially mitigate the situation by having existing staff work additional overtime hours. Other efforts to mitigate the impacts of having fewer H-2B workers included spreading their work across the year and helping returning H-2B workers apply for permanent residency using EB-3 visas immigrant visas available to certain categories of skilled and unskilled workers. Some landscaping employers said that using EB-3 visas would enable them to have more workers who are permanent residents, which would help promote a more stable workforce, according to our interviews. <2.2.3. Construction> Selected construction employers we interviewed in Maricopa County, Arizona, said they generally hire H-2B workers to perform manual labor, such as building housing panels or drywalling (see fig. 12). Construction employers said their season generally begins as early as March and lasts until November. On average, among the construction employers that responded to our questionnaire, 8.5 percent of their workforce was comprised of H-2B workers. Of the six construction companies we interviewed, all of them said they have participated in the H-2B visa program for about five years or less. The three construction employers who did not receive all requested H-2B visas under the standard cap in 2018 and responded to our questionnaire reported that they did not experience significant revenue declines. Of these three employers, two reported increased revenues between 2017 and 2018, while one did not report revenue. One employer said during interviews that had they received H-2B workers in 2018 they might have experienced a significant revenue increase compared to 2017 because of the expansion of the construction industry overall in Maricopa County. In addition, among the three construction employers who responded to our questionnaire and did not receive all requested H-2B visas under the standard cap, two reported increased supply purchases during fiscal year 2018. Although construction employers told us that recruiting more U.S. workers was challenging due to low unemployment and the manual nature of the work, several factors may have helped construction employers mitigate the impacts of the visa cap. Of the six construction employers we interviewed, two told us they attempted to mitigate impacts from the visa cap by spreading their work across the year and prebuilding housing frames during the offseason a practice referred to as even-flowing. Moreover, some construction employers said they either subcontracted work during times they could not hire new U.S. workers, or had their existing U.S. workers work additional overtime hours. <2.2.4. Hospitality> Selected hospitality employers in Mackinac Island, Michigan, and Barnstable County, Massachusetts, said they commonly hire H-2B workers to perform work such as housekeeping and working in kitchens (see fig. 13). Generally, some employers said their season begins in April and lasts through the end of October or early November. Of the 12 hospitality employers we interviewed, five said they have participated in the H-2B visa program for between five to 20 years, four said they have participated in the visa program for more than 20 years, and three did not say when they started participating in the visa program. Moreover, H-2B workers comprised an average of 35 percent of the hospitality employers workforce, based on questionnaire responses. Of the nine hospitality employers who responded to our questionnaire, six did not receive all requested H-2B visas they petitioned for under the standard cap in 2018. Of those six employers, three reported revenue declines in 2018, while the other three reported increased revenues. However, some hospitality employers said that the lack of H-2B workers did affect the quality of their services or led them to reduce their operations. For example, one resort we interviewed said they had to close down a signature restaurant because they did not receive the H-2B workers necessary for the season. Of the nine hospitality employers that responded to our questionnaire, five reported a decline in supply purchases for 2018. A variety of factors may help explain the outcomes for hospitality employers. On one hand, hospitality employers told us they were challenged to recruit more U.S. workers due to the seasonality of the work and sparse local population, and the fact that students are not available for the whole season. On the other hand, one hospitality employer that did not receive H-2B visas in 2018 said during interviews that they did not experience a revenue decline because guests had booked their reservations in advance. Also, hospitality employers reported using various strategies to mitigate the impact of the cap. For example, of the six hospitality employers who did not receive all requested H-2B visas in 2018, three employers hired more foreign students under the J-1 exchange program for certain students and other visitors. Moreover, four hospitality employers said they applied for H-2B visa extensions, which according to one employer are for H-2B workers already in the United States. In addition, one employer also mentioned that they contracted their housekeeping services to outside cleaning crews, which negatively affected the establishment s quality of service. <3. Stakeholders Identified Potential Effects of Proposed Changes to the H-2B Visa Program> In response to the increase in demand for H-2B visas and the uncertainty employers expressed regarding whether they would be approved for workers under the H-2B visa cap, stakeholders and others have suggested changes to the H-2B program. Based on interviews with knowledgeable stakeholders and a review of their publications, we identified six proposals for changing the H-2B visa cap. In our discussion groups and interviews, 12 knowledgeable stakeholders henceforth referred to as stakeholders identified potential effects for each of the six proposals. As the stakeholders discussed the various policy proposals, they identified two recurring policy goals: policy proposals should (1) minimize uncertainty and (2) maintain or increase protections for U.S. and H-2B workers. We did not independently assess the individual merits or accuracy of the views expressed by these stakeholders, nor did we assess the feasibility or administrative costs of the proposals discussed. Additionally, we did not assess which options would require Congressional action or which options could be implemented through agency action. Below, we present summaries of the six proposals and some of their potential effects as identified by these stakeholders. The first two proposals listed would eliminate or adjust the cap and the remaining four would keep the current cap in place and address alternative ways to allocate visas. Shortage list. This proposal would eliminate the statutory cap and allow employers to recruit foreign workers for occupations with worker shortages. An expert commission would compile the shortage list annually, based on relevant factors, such as wage growth or job vacancies. Potential effects identified by stakeholders: It would provide more evidence-based and data-driven justifications for the number of visas and the industries/occupations that receive them. It would foster public credibility for the H-2B visa program because it demonstrates a bona fide need for H-2B workers. It would accelerate the H-2B visa approval process for certain industries. Because wage growth would be an indicator of occupational shortages, it may incentivize employers in major H-2B industries to offer higher wages, if economically beneficial. Some employers approved under the current system would not be approved for H-2B visa workers because their occupations are not on the shortage list. It may lack accuracy because national level occupational shortages may not reflect shortages in certain industries and occupations within specific locations or identify local labor market trends. BLS data may not accurately capture such trends. Annual adjustment. This proposal would adjust the cap annually (either up or down) based on economic indicators such as unemployment rate or number of TLC applications approved by DOL. Potential effects identified by stakeholders: It would allow employers to use H-2B workers when U.S. workers are not available due to low unemployment and revert to U.S. workers in times of higher unemployment. Having a flexible cap could be more predictable than the current system. It would be a more accurate reflection of need than using an arbitrary cap. While not discussed in the proposal language, if wage growth is also considered as an economic indicator in the annual adjustment, it might incentivize employers to improve wages, if economically beneficial. Using a national indicator would not fully reflect localized needs for H-2B workers. It would put DOL in a position where it would be determining employers needs. Using approved TLC applications is not a good measure of demand because they may not reflect demand for labor. Any delays in processing TLC applications could lead to difficulties in determining the annual adjustment in a timely manner. Returning workers exemption. This proposal would retain the current H-2B visa cap of 66,000 and make the returning worker exemption permanent. Potential effects identified by stakeholders: It could lead to increased predictability. Employers would have more certainty on whether they will be approved for H-2B visas, and H-2B workers would know whether they would have the option to return to their jobs in the United States. There is familiarity among employers, H-2B workers, and administrators with returning worker exemption as it has been implemented before. It may be more efficient for employers as returning workers already have training. There could be potential cost savings for program as returning workers have already been vetted. It rewards both workers and employers who are compliant with the H-2B program. A permanent returning worker exemption, like any proposed reform that involves eliminating or increasing the cap, requires better enforcement of worker protections. It could increase the possibility that H-2B workers return to poor working conditions because they have no other economic options. One stakeholder said this could be mitigated by allowing returning workers the flexibility to work for different employers than they worked for in prior years if so desired. Priority list. This proposal would retain the current H-2B visa cap of 66,000 and give priority to applications from employers that offer the highest wages or better working conditions. Potential effects identified by stakeholders: It creates incentives for employers to improve working conditions. It may be easy to implement under current law, and may not require new legislation. It alleviates problems associated with calculating the prevailing wage. It does not account for the wage variation among small and large employers, geographical locations, or industries. Using the highest wages to allocate the visas skews the program to certain occupations and higher-paying geographical locations (even within the same industries and among similarly sized employers). If based solely on wages, a priority list could penalize employers that also have to provide workers with additional benefits such as housing at no cost. It would need to be combined with stronger enforcement, such as employer audits, to ensure that workers are getting paid the promised higher wage or better conditions. Quarterly allocation. This proposal would retain the current H-2B visa cap of 66,000 and allocate visas quarterly rather than twice a year. Potential effects identified by stakeholders: It might improve fairness for employers whose season starts late in the semiannual allocations. It helps ease the burden on DOL s computer system. It reduces the number of employers applying for visas before their period of need and spreads demand more evenly across the year. It does not seem to mitigate the issue of having demand exceed the cap. In practical terms, quarterly allocation would result in shifting visas away from certain employers and toward others. Demand for H- 2Bs is especially high in April to June, the third quarter of the fiscal year. This option would reduce the number of visas for the third quarter and shift more visas to the fourth quarter. Auction. This proposal would retain the current H-2B visa cap of 66,000 and the visas would be auctioned to the highest employer bidders. Potential effects identified by stakeholders: It uses market forces; employers evaluate how much an H-2B worker is worth. It demonstrates the economic cost of keeping the cap low and determines whether employers are strictly looking for cheap labor. Auction revenues could be used to ensure the H-2B program has less adverse effects on U.S. and H-2B workers, raises wages, or leads to more audits by DOL. Depending on the design of the auction, it may create a system where larger, better funded employers unfairly benefit. It does not address issues of uncertainty faced by employers of H- 2B workers. It increases labor costs which could reduce the profitability using H-2B workers. <4. Federal Agencies Have Taken Steps to Address H-2B Employers Hiring Needs and Protect U.S. Workers, but Gaps Remain> <4.1. Agencies Made Efforts to Respond to Demand for H-2B Workers but Have Not Fully Considered Alternative Approaches Identified in the 2019 Report> <4.1.1. Alternative Approaches for Visa Allocation> DHS, in consultation with DOL, has identified some alternatives to the current approach for allocating H-2B visas. In the Joint Explanatory Statement accompanying the fiscal year 2018 DHS Appropriations Act, Congress directed DHS in consultation with DOL to review and report on options for addressing the problem of unavailability of H-2B visas for employers that need foreign workers late in each semiannual period of visa availability. In response, DHS issued a report to Congress in June 2019 that laid out six approaches for revising how H-2B visas are allocated among employers some of which were similar to the proposals identified above. The DHS options include (1) a merit-based system for eligibility that prioritizes employers that have made a significant contribution to the U.S. economy, (2) designation of eligible occupations or industries based on factors such as industry unemployment rates, and (3) distributing visas on a quarterly basis. DHS has not assessed which of the options outlined in the June 2019 report could be implemented by agency action alone and which would require Congressional action, nor has it identified which options have the greatest potential benefit for employers. DHS officials have told us that they currently lack the resources to assess or implement the proposals from their June 2019 report or any other alternatives and, while an assessment may be possible in the future, it would have to be balanced against other administration priorities. Standards for internal control in the federal government call on agencies to identify, analyze, and respond to significant change, including change in the economic environment. Moving forward with assessing available reform options would position DHS and DOL to better inform their own and Congress s decision- making. <4.1.2. Consideration of Economic Trends in Determining Additional Visa Numbers> In determining the number of additional H-2B visas to make available beyond the standard cap in fiscal years 2017 to 2019, DHS in consultation with DOL relied on data from prior years. In each of the three years, federal law authorized DHS after consultation with DOL to provide additional H-2B visas beyond the standard cap if the needs of U.S. businesses could not be met with U.S. workers, up to the maximum number of H-2B returning workers in any prior year when the returning worker exemption was in effect (about 65,000 in 2007, according to the agencies). DHS made up to 15,000 additional visas available in fiscal years 2017 and 2018 and up to 30,000 in 2019. In each year, DHS in consultation with DOL determined the appropriate number of additional visas by looking at demand for visas in prior years. Specifically, in 2017 it determined that 15,000 visas would be sufficient to at least meet the same level of demand as in fiscal year 2016. In 2018, DHS used the same rationale to determine that up to 15,000 additional visas would again be sufficient, based on experience with the additional visas in 2017. Most recently, in 2019, DHS in consultation with DOL raised the number of additional visas to 30,000 in recognition partly of the higher demand in 2018 when employers filed petitions for about 29,000 visas during the first five days of the filing period for additional visas. The demand for returning H-2B workers in prior years and the amount of time remaining in the fiscal year were also factors in the agencies decision about how many additional visas to provide. However, using demand in prior years as the primary basis for setting the number of additional visas in the current year is not consistent with standards for internal control in the federal government, which call for agencies to identify, analyze, and respond to significant change, including change in the economic environment. Indeed, the outcome in 2018, when DHS made 15,000 additional visas available but employers applied for almost 30,000 visas, demonstrates the potential limitations of relying solely on past demand as a predictor of future demand. Examples of other types of data that may be relevant to gauging trends in employer demand include unemployment rate, employment, and earnings, which we have previously identified as potential indicators of labor market shortages. Some stakeholders have also suggested that the number of H-2B workers on approved TLC applications is a good measure of visa demand. The agencies said in the 2018 and 2019 temporary rules making additional visas available that they did not have enough time remaining in those fiscal years to conduct a more formal analysis of the adverse effects on U.S. workers that may result from a broader cap increase.Assessing the advantages and disadvantages of considering current economic trends in addition to past demand would help the agencies decide if such an approach would be a better way to estimate employer need in any future years when Congress authorizes visas beyond the H-2B standard cap. According to DHS and DOL, the agencies have also sought to balance employers hiring needs and the interests of U.S. workers by setting a higher standard that employers must meet to qualify for additional H-2B visas. To qualify for visas under the standard cap, employers must have an approved TLC, demonstrating, among other things, that they have a temporary need for labor and have taken steps to recruit workers in the United States. From 2017 to 2019, employers applying for the additional visas were also required to attest that without the visas, they were likely to suffer irreparable harm, i.e., suffer a severe and permanent financial loss. According to the 2017 temporary rule announcing the availability of additional H-2B visas above the statutory cap, DHS decided to focus on businesses likely to suffer a severe and permanent financial loss, in part, to be responsive to some stakeholders that U.S. workers could potentially be adversely affected by a general cap increase applicable to all potential employers. To support their attestation of severe and permanent financial loss, employers were required to retain documentation, such as contracts, reservations, or orders that would have to be cancelled absent the requested H-2B workers. DOL officials told us the agency s Wage and Hour Division evaluates the sufficiency of this documentation in the course of its investigations of H-2B employers, when applicable. Officials said they examine documentation related to loss of contracts and dependence on H-2B workers, among other things, in order to detect significant and voluntary violations of program requirements. <4.1.3. Changes to Procedures for Assigning TLC Applications to Analysts for Review and Processing> DOL has sought to address rising demand for TLCs and H-2B visas through changes to how it assigns TLC applications to analysts for review and processing. Prior to 2018, DOL processed applications sequentially according to the day they were received, and released certifications on a rolling basis as all requirements for certification were met. DOL reported that on January 1, 2018, the first day of the filing period for employers seeking workers to start on April 1, 2018, it received approximately 4,498 applications covering 81,008 worker positions, exceeding the annual visa allotment by nearly 250 percent. According to the agency, this was the first time in recent years that this had happened. On January 17, 208, agency officials announced that beginning February 20, 2018, they would begin to release certified applications sequentially according to the day and time of receipt. This in turn led to a large number of employers with approved TLCs submitting their H-2B visa petitions within a small window. DHS officials explained that receiving a large volume of petitions in a short time frame required USCIS to approve petitions following random selection. In June 2018, anticipating further increases in applications, DOL announced that it would sequentially assign applications to analysts in order of day and in an adjustment from the earlier procedures time of receipt to the millisecond. Once applications were assigned, analysts would initiate review of applications in the order of receipt date and time, issue first actions on a rolling basis, and issue certifications as all regulatory requirements were met. DOL reported that in January 2019, it received approximately 5,276 applications covering more than 96,400 worker positions for start dates of work on April 1, exceeding the semiannual visa allocation by nearly 300 percent. Furthermore, DOL reported that on January 1, 2019, within the first five minutes of the filing period for April 1 start dates of employment, the agency s network infrastructure supporting OFLC s electronic filing system experienced almost 23,000 log-in attempts, in contrast with 721 attempts in the same time period in 2018. This volume of simultaneous system users caused the electronic filing system to become unresponsive, preventing nearly all employers from submitting applications until the system reopened on January 7, 2019.. <4.2. DOL Has Made Efforts to Strengthen U.S. Worker Protections, but Does Not Target Its Audits of H-2B Employers> <4.2.1. Audits of H-2B Employers> DOL s Office of Foreign Labor Certification conducts recordkeeping audits of adjudicated TLCs to assess employers compliance with the terms and conditions attested to in their applications and to fulfill the Secretary s statutory mandate to certify applications only where unemployed U.S. workers capable of performing the needed work cannot be found. DOL officials told us the agency reviews the original TLC application and requests additional documentation of the employer s activities when conducting audits to determine whether the employer is in compliance with program requirements. Specifically, employers with minor violations receive a warning; violations described in 20 C.F.R. 655.71 could lead to increased DOL monitoring and assistance with the employer s recruitment efforts; and employers with violations described in 20 C.F.R. 655.73 could be debarred from the H-2B program. DOL is defending a challenge to its implementation of the randomization process for assigning applications filed by employers seeking H-2B visas, in Padilla Construction Co. v. Scalia, No. 2:18-cv-01214-GW-AGR (C.D. Cal.). While DOL has changed its TLC procedures so they call for a randomization process on an on-going basis, DHS generally processes employers petitions on a first-come, first- served basis except when a large number of petitions are received in the first five days of the filing period. officials reported that during fiscal year 2018 they initiated 493 audits of H-2B employers, representing seven percent of all employers with approved TLCs issued during the year. They also reported that of the 503 audits completed during fiscal year 2018, which includes audits initiated during 2017, more than half resulted in a warning letter being sent to the employer, with only a small number finding more serious violations (see fig. 14). In our review of a non-generalizable sample of letters sent to H-2B employers with audit results, we found several examples of the types of issues identified by DOL. Several warning letters noted violations related to the period of employment of H-2B workers, such as failing to notify OFLC when H-2B workers left their jobs earlier than planned. In letters of assisted recruitment that we reviewed, employer violations included failure to accurately advertise rates of pay and failure to meet requirements for posting job advertisements in newspapers. Finally, the debarment letters we reviewed cited the employer s failure to provide the documentation that DOL requested as part of the audit. DOL has not taken a risk-based approach to selecting employers to audit. OFLC s Certifying Officer has the sole discretion to choose the applications selected for audit, including selecting applications using a random assignment method. DOL officials said the agency has for the most part randomly selected H-2B employers for audits, although they also select some employers because of a prior violation. Officials said that the system currently used to track audits captures data on audit workloads and final audit outcomes, but the agency has a plan to develop a new system that would also track the individual violations found in audits and the industry and job classification associated with the employer. With this capacity, officials said they could take a more risk- based approach to selecting employers for audits, based on trends in violations by industry or job classification. However, officials said that the further development and implementation of this tracking system is currently on hold due to resource constraints with no firm date for moving forward. Standards for internal control in the federal government call on agencies to identify, analyze, and respond to risks to meeting their objectives. Until it implements a risk-based approach to selecting H-2B employers for audits, DOL may miss opportunities to allocate its limited audit resources more efficiently and to detect violations that could adversely affect U.S. and H-2B workers. Taking a more targeted approach is especially important in light of a 2019 Office of Inspector General (OIG) report that stated over the past decade, the OIG and other federal agencies have conducted over 70 criminal investigations in the H- 2B program related to potential fraud involving employers, attorneys, and others. <4.2.2. Determination of Prevailing Wage> DOL also works to protect U.S. workers through setting the prevailing wage that employers must pay and has taken steps to enhance the accuracy of its prevailing wage determination by limiting the use of employer-provided wage surveys. DOL is responsible for determining the prevailing wage applicable to an H-2B application. An employer must pay a wage at least equal to the prevailing wage obtained from the National Prevailing Wage center within OFLC, or the federal, state, or local minimum wage, whichever is the highest. The prevailing wage that H-2B employers must pay their H-2B and U.S. workers is set by BLS s Occupational Employment Statistics (OES) survey in all cases except when a wage is set by a valid and controlling collective bargaining agreement or the employer submits an employer-provided survey that meets DOL s requirements. When they promulgated a final rule in 2015 on the methodology for determining the prevailing wages to be paid H-2B workers, DHS and DOL decided that it would limit the circumstances under which employers may use employer-provided wage surveys to set the prevailing wage. The preamble to the rule described a court decision that found that DOL had arbitrarily allowed wealthy employers to pay for expensive private surveys when other employers in the same occupation who could not afford to conduct such surveys paid the higher OES mean wage. In light of this decision, as well as DOL s own experience that employer-provided surveys are not any more consistent or reliable, and concerns raised by worker advocates, the agencies determined that the options for accepting employer-provided surveys are more limited. The 2015 regulations require, among other things, that employer-provided surveys be conducted independently by a state agency or university, and meet certain methodological standards. Since 2014, the proportion of H- 2B employers using employer-provided wage surveys to set the prevailing wage has declined from almost 20 percent to less than one percent according to our analysis of DOL data (see fig. 15). DOL officials told us the most significant contributor to the decline in employer-provided wage surveys was the requirement to have a state agency or university independently conduct employer-provided wage surveys prohibiting employers from directly paying for these surveys. Officials also said that the seafood industry in locations such as Maryland and Louisiana continues to use employer-provided wage surveys, as state agencies have long histories of conducting wage surveys for seafood employers in these areas. <5. Conclusions> Employers we interviewed who depend on temporary foreign labor said the statutory cap on H-2B visas presents challenges for them, and these challenges can be driven at least partly by demand that fluctuates with the economy. Some employers for example, those with fewer local workers available for hire may face greater financial risks than others when they are denied H-2B workers due to the cap. More broadly, H-2B employers are challenged by uncertainty regarding whether they will receive H-2B workers in any given year, complicating their efforts to plan future operations, such as expansion or investment. DHS and DOL have taken an important first step towards addressing these challenges by identifying options for allocating visas. However, until the agencies assess such options, they cannot determine which, if any, to implement under their current authority or what legislative changes may be needed to improve the program. In the meantime, as long as DHS and DOL continue to rely primarily on prior year demand to determine the appropriate number of additional visas to make available beyond the standard cap when granted this authority by Congress the agencies may miss an opportunity to leverage data on current economic trends and other factors. Assessing the advantages and disadvantages of using current economic data would help the agencies determine the feasibility of more accurate projections, which would help mitigate uncertainty and related challenges for H-2B employers. The steps DOL has taken in recent years to enforce worker protection requirements and promote accurate wage levels so as not to undermine U.S. workers show promise. However, until DOL moves ahead with taking a more targeted approach to selecting employers for audits, it may miss opportunities to efficiently leverage the scarce resources available to identify and prevent worker protection violations. <6. Recommendations for Executive Action> The Director of United States Citizenship and Immigration Services should work with the Assistant Secretary for the Employment and Training Administration to assess options for changing the H-2B visa program and, as warranted, implement changes or submit proposed legislative changes to Congress. DHS and DOL could consider options included in their June 2019 report to Congress and identify those that may be implemented cost effectively and without adversely affecting U.S. workers. (Recommendation 1) The Assistant Secretary for the Employment and Training Administration should work with the Director of United States Citizenship and Immigration Services to assess options for changing the H-2B visa program and, as warranted, implement changes or submit proposed legislative changes to Congress. DOL and DHS could consider options included in their June 2019 report to Congress and identify those that may be implemented cost effectively and without adversely affecting U.S. workers. (Recommendation 2) The Director of United States Citizenship and Immigration Services should work with the Assistant Secretary for the Employment and Training Administration to assess the advantages and disadvantages of considering current economic trends in determining the appropriate number of additional H-2B visas to provide when given this authority by Congress and, as warranted, implement an approach that considers such trends. (Recommendation 3) The Assistant Secretary for the Employment and Training Administration should work with the Director of United States Citizenship and Immigration Services to assess the advantages and disadvantages of considering current economic trends in determining the appropriate number of additional H-2B visas to provide when given this authority by Congress and, as warranted, implement an approach that considers such trends. (Recommendation 4) The Assistant Secretary for the Employment and Training Administration should take steps to target its audits of H-2B employers to employers with the highest likelihood of violating program requirements; such steps could include moving ahead with developing a system for identifying trends in H-2B employer audit outcomes. (Recommendation 5) <7. Agency Comments> We provided a draft of this report to DHS and DOL for their review and comment. Both agencies provided written comments, which are reproduced in appendices III and IV, respectively. Both agencies also provided technical comments, which we incorporated as appropriate. In its comments, DHS agreed with our first recommendation to assess options for changing the H-2B visa program, and noted that it plans to work further with DOL to explore options for improving the H-2B visa program and possibly develop proposals for legislative changes. DHS did not agree with our third recommendation to assess the advantages and disadvantages of considering current economic trends which was the other recommendation we directed to the agency. Specifically, DHS said it would continue to work with DOL as it has done in prior years--if and when Congress delegates the authority to make additional H-2B visas available beyond the statutory cap to DHS. The agency also expressed its view that Congress is better positioned to determine whether and how many additional visas should be made available to meet the needs of U.S. businesses. In fiscal years 2017 through 2020, DHS was authorized to increase the number of H-2B visas beyond the statutory cap, after consulting with DOL to determine that the needs of American businesses be satisfied with United States workers... In exercising this authority in prior years, DHS stated that he scope of the assessment called for by the statute is quite broad, and accordingly delegates the Secretary of Homeland Security broad discretion to identify the business needs he finds most relevant. In light of DHS s broad view of its authority, we continue to believe that it would be appropriate for DHS, in consultation with DOL, to assess the advantages and disadvantages of considering current economic trends in determining the appropriate number of additional H-2B visas to provide. If they determine that using such data would be warranted, the agencies would then be well positioned to implement such an approach if DHS is granted such authority in the future. Moreover, if as DHS stated in its response to our recommendation the agency believes that Congress is best suited to determine what increases in visa numbers may be needed to meet the needs of U.S. businesses, consistent with protecting American workers, it may wish to work with Congress to draft a legislative proposal reflecting this view. DOL agreed with the three recommendations addressed to it. Regarding our second recommendation to work with DHS to assess options for changing the H-2B visa program, DOL said it is prepared to work with DHS to consider options for changing the H-2B program and to provide any technical assistance that Congress may need on this issue. Regarding our fourth recommendation, DOL said it is prepared to draw on its data on labor market and economic trends to provide technical assistance to DHS on the determination of how many additional H-2B visas to make available. Regarding our fifth recommendation, DOL noted that while further development of a system for tracking industry and occupational trends in H-2B employer violations is currently on hold due to budgetary constraints, when this system is available it will provide the capacity to take a risk-based approach to selecting employers for audits. We are sending copies of this report to applicable Congressional committees, the Secretary of Homeland Security, the Secretary of Labor, 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 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 members who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology Our review: (1) describes trends in the demand for H-2B workers, (2) describes selected employers reports of how the visa cap has influenced their economic performance and employment of U.S. workers, (3) summarizes proposals for adjusting the H-2B statutory cap or how visas are allocated, and (4) assesses how the federal agencies that administer H-2B visas sought to meet employers H-2B hiring needs and protect U.S. workers. To address our first objective, we analyzed administrative data sets from the Department of Homeland Security (DHS), the Department or Labor (DOL) Employment and Training Administration, and the Bureau of Labor Statistics (BLS). To address our second objective, we conducted case studies of four industries in specific locations. To address our third objective, we held discussion groups and conducted interviews with knowledgeable stakeholders regarding proposals to change the H-2B visa cap we had identified through background research. To address our fourth objective, we reviewed relevant federal laws, regulations, and other documents; reviewed agency data; and interviewed federal officials. <8. Analysis of National- and County-Level Administrative Data> <8.1. National-Level Data> We used DOL temporary labor certification (TLC) data and national unemployment rate statistics for fiscal years 2010 through 2018 to provide trends in number of applications DOL has received and national unemployment rate. The TLC data are administrative data on applications from employers for H-2B visas, which we found sufficiently reliable for our purposes after reviewing technical documentation and interviewing knowledgeable agency officials. DOL releases public disclosure files that contain administrative data from employers H-2B applications for TLC. Our analysis took the public disclosure files and reported the number of certified applications and workers for each fiscal year from 2010 through 2018. In order to report the national unemployment rate for the United States, we used BLS report on historical national unemployment rates. <8.2. County-Level Data> To address how counties with H-2B employers compare to counties without H-2B employers, we utilized several administrative data sets. We used DHS Computer Linked Application Information Management System (CLAIMS3) data, which we found sufficiently reliable for our purposes by reviewing technical documentation, interviewing knowledgeable agency officials, and electronic testing of data, to identify the counties with H-2B employers for each fiscal year from 2015 through 2018. The CLAIMS3 data track all petitions for H-2B visas (as well as other visas). These data include employer address and number of H-2B visas approved. Using the employer address information, we identified the county in which H-2B visa employer is located. After the county is identified, we then aggregated all of the approved H-2B visa petitions within each county. After identifying the counties with H-2B employers, we then combined this with BLS data sets Local Area Unemployment Statistics (LAUS) and Quarterly Census of Employment and Wages (QCEW) which we found sufficiently reliable after reviewing technical documentation to get county- level data on unemployment rate, labor force, and average weekly wages to make county-level comparisons. The LAUS is a federal-state cooperative effort in which monthly estimates of total employment and unemployment are prepared for counties and county-equivalents. From this data set, we used the unemployment rate and the labor force statistics by county. The QCEW program publishes a quarterly count of employment and wages reported by employers. From this data set, we used the average weekly wages data across counties for fiscal years 2015 through 2018. After we had combined the CLAIMS3 data with the LAUS and QCEW data sets, we compared summary statistics on unemployment rates and average weekly wages for counties with H-2B employers to counties without H-2B employers. The average weekly wages were inflation adjusted at the state level to constant 2018 dollars. To check whether our results of the comparison were being driven by a few outlying counties, we performed several additional analyses. To see if the results were being driven by counties that relied more heavily on H-2B visas, we created quartiles using the number of H-2B petitions approved within a county and also created quartiles using the percentage of H-2B visas as a percent of the total labor force. Next, in order to determine if the results were because of the population sizes of the counties, we spilt the counties in quartiles based on the size of labor force to compare counties with and without H-2B employers by similar sized counties by population. Finally, we incorporated TLC data on industries to provide comparisons between our selected industries noted above (see appendix II). <9. Case Studies of Four Industries> To examine the experiences of H-2B employers and their suppliers with the H-2B program in recent years we conducted case studies of four industries in specific locations: seafood processing in Dorchester County, Maryland; landscaping in Dallas County, Texas; construction in Maricopa County, Arizona; and hospitality in Mackinac County, Michigan (hotels), and Barnstable County, Massachusetts (restaurants). (See fig. 16). We selected these industries because they were among the heaviest users of the H-2B program in fiscal year 2018. Using DOL data on fiscal year 2018 TLCs, we determined the total number of H-2B workers approved across all TLCs associated with each NAICS code, and then identified the NAICS codes with the greatest number of approved workers. The four selected industries were all among the ten leading industries in terms of number of approved workers (see table 3). Amusement, gambling, and recreation industries and support activities for forestry were also among the top ten. However, representatives of these industries told us that employers typically move from location to location during their seasons, making it difficult to conduct a case study of employers in a particular location. For each industry, we selected one or two counties in which to conduct our case study. We selected these counties to achieve diversity in several factors: the total number of H-2B workers approved for employers in the county in fiscal year 2018; the number of H-2B workers approved under TLCs associated with that particular industry in the county in fiscal year 2018 (e.g., the number of H-2B landscaping or hospitality workers); the proportion of all workers in the county who are H-2B workers in 2018; the proportion of workers in that particular industry that are H-2B workers in the county in 2018 (e.g., the proportion of all landscaping workers in the county that are H-2B workers); county unemployment rate in January 2018; and geographic location (see table 4). As part of each case study, we interviewed H-2B employers who received visas during fiscal year 2018, H-2B employers who did not receive visas during fiscal year 2018, and businesses who supply goods or services to H-2B employers. Across the case studies, we interviewed 15 H-2B employers who received visas, 20 H-2B employers who did not receive visas, and 12 supplier businesses. We conducted a mix of individual and group interviews with employers, and generally used the same questions for each category of employers across industries. For all of our case studies, we worked with industry groups to recruit employers to participate in our interviews. These industry groups reached out to local employers to identify H-2B employers and in some cases also supplier businesses who would be willing to speak with us. In a few cases, we also identified supplier businesses for interviews through our case study interviews with employers. In our interviews with employers, we asked about topics including their efforts to recruit U.S. workers, their experiences with the H-2B program in recent years, any impacts on their businesses of being denied H-2B visas, actions taken to adapt to not receiving visas, and any impacts on supplier businesses of being denied H-2B visas. Besides interviewing employers, we also interviewed a state workforce agency as part of each case study, asking questions about topics including the agency s role in helping H-2B employers recruit U.S. workers, the outcomes of H-2B employers recruitment efforts, and any challenges with such recruiting efforts. In addition, as part of our case studies, we asked the H-2B employers we interviewed to complete a questionnaire. This questionnaire covered topics including the employer s gross sales in fiscal years 2017 and 2018; the employer s number of employees in fiscal years 2017 and 2018, both U.S. and H-2B employees; the employer s purchases of goods and services in fiscal years 2017 and 2018; and any challenges created by not receiving H-2B visas in fiscal year 2018. We received responses from 30 employers, including from five seafood processing employers, 11 landscaping employers, four construction employers, and 10 hospitality employers. Some respondents did not answer every question in the questionnaire. We dropped one of the 30 questionnaire responses from our analyses because the employer reported not receiving H-2B visas in 2017 which, if included, could distort our findings. In our analysis of changes to revenues, supply purchases, and employment based on questionnaire responses, we did not control for factors beyond the H-2B visa cap that may have affected the results. So, any results reported from the questionnaire may be due in part to these unobserved factors. Additionally, we did not independently verify the information provided in the questionnaire responses, which could lead to our analysis not completely representing the full effect of the H-2B visa cap. Finally, the questionnaire responses we received are representative of only the firms that responded and may not be more widely generalizable to the industry level or larger geographic regions. <10. Discussion Groups and Interviews with Stakeholders on Proposals to Change the H-2B Visa Cap> As we performed background research on H-2B visas and the cap, we interviewed several knowledgeable stakeholders. We then identified the proposals for changing the H-2B visa cap in the background interviews and publications of these stakeholders (see table 5). To address what options have been proposed for adjusting the H-2B statutory cap or how visas are allocated, we interviewed 12 knowledgeable stakeholders across two discussion groups and two interviews. The discussion groups were held on July 25, 2019 and July 29, 2019, and the interviews were held on August 1, 2019 and August 12, 2019. As part of our discussion with the experts and knowledgeable stakeholders, we asked for additional proposals that were not included in the six identified in the above table. This discussion led to additional proposals. These additional proposals are presented in table 6. We used several approaches to begin identifying potential stakeholders on the H-2B visa program. First, we reviewed our background interviews with stakeholders for this engagement to craft a preliminary list of potential individuals to contact. Then, we identified additional researchers that have published works on the H-2B visa program. Afterward, we conducted several searches on the Congressional Quarterly website to collect a list of witnesses who testified before Congress on H-2B visa issues. Finally, obtained an additional list of authors who published work on the H-2B visa program and names of individuals that have testified before Congress on issues related to the H-2B visa program. Through this process, we identified 22 stakeholders to be included in our discussion groups and interviews. We selected 12 knowledgeable stakeholders based on several criteria: published work on the H-2B visa program and number of times publications have been cited by other scholars, testified before Congress on H-2B visa issues, advocated for relevant stakeholder groups interested in the H-2B visa program, and identified by peers as being a knowledgeable stakeholder on the H-2B visa program. We also sought to achieve a balance of perspectives by the selected knowledgeable stakeholders (see table 7). <11. Assessment of Federal Agencies Administration of H-2B Visa Program> To assess DHS s and DOL s efforts to meet employers hiring needs and protect U.S. workers, we reviewed relevant federal laws, regulations, and documents such as agency procedures and visa application forms. We interviewed DHS and DOL officials. We reviewed DOL data on the number and outcomes of audits conducted of H-2B employers during fiscal year 2018. We assessed the reliability of these data by interviewing DOL officials, and found them to be sufficiently reliable for our reporting purpose, which was to present a summary of the agency s H-2B audit program in fiscal year 2018. We reviewed 25 letters that DOL sent to H- 2B employers as part of audits completed from September 14, 2017, through April 5, 2019, including eight requests for supplemental information, six warning letters, six assisted recruitment letters, and five debarment letters. The samples of requests for supplemental information, warning letters, and assisted recruitment letters were non-generalizable samples of all letters in these categories. They were judgmentally selected from a randomly generated sample of all letters in the universe to achieve diversity in terms of employer industry and location, among other things. The debarment letters we reviewed represented the full universe of such letters. In our review of the letters, one analyst identified issues discussed in each letter and placed them in broader categories, another analyst verified the issues and categories, and any differences in interpretation were resolved. We analyzed DOL data on how prevailing wage levels were determined for H-2B employers for fiscal years 2014 to 2018. We assessed the reliability of these data through review of related documentation and interviews with DOL officials, and found the data to be sufficiently reliable for our reporting purpose, which was to present the trends in how prevailing wage was set among H-2B employers over a 5- year period. After identifying DHS s and DOL s actions through methods such as reviewing documents and interviewing agency officials, we assessed them according to standards for internal control in the federal government related to identifying and responding to change and risk. Appendix II: Additional Analyses In our analysis of Department of Homeland Security and Department of Labor data, we found that counties with H-2B employers have lower unemployment rates and higher average weekly wages than counties without H-2B employers. We extended this analysis to determine whether the results are robust to changes in labor force, employers usage of H-2B workers, and industries. To see if our results were being driven by larger population counties, we separated counties into quartiles by labor force and compared similar- sized counties. Looking at the top quartile, we found that, similar to our main results, counties with H-2B employers had about 0.3 percentage point lower unemployment rate and about $120 higher average weekly wage than counties without H-2B employers. For the bottom quartile, counties with H-2B employers had about a 0.1 percentage point lower unemployment rate than counties without H-2B employers, but about $34 lower average weekly wages, which we discuss further in the following paragraph. We next split the counties with H-2B employers by their usage of H-2B employees to analyze the connection between intensity of employer usage and strong labor markets. The first way we measure usage of H-2B employees is by the number of approved H-2B petitions within the county. When we compare the top quartile of counties by number of approved H- 2B petitions to all counties without H-2B employers, we found that they have about 0.5 percentage point lower unemployment rates and about $187 higher average weekly wages. We also used the ratio of approved H-2B visas to the county s labor force population to capture the counties reliance on H-2B visas. When we compare the top quartile of counties by proportion of approved H-2B visas to labor force, we find that their unemployment rate is about 0.1 percentage point lower and average weekly wages about $4 higher than counties without H-2B employers. The small difference in wages for counties with a high ratio of H-2B workers to labor force, and the previous finding that counties with H-2B employers in the bottom quartile by labor force have lower average weekly wages, suggests that the difference in wages in our main finding may be partially driven by the counties with larger labor forces. In our final extension of our analysis, we isolated four selected industries to compare whether the counties with H-2B employers within the specified industry have higher average weekly wages in that industry than counties without. In this analysis of fiscal year 2018, we found that for each industry (construction, seafood processing, hospitality, and landscaping) the counties with H-2B employers within the industry have higher average weekly wages than counties without H-2B employers in the industry. These higher average weekly wages for counties with H-2B employers in the industry ranged from about $96 higher for seafood processing to about $238 higher for landscaping. Appendix III: Comments from the Department of Homeland Security Appendix IV: Comments from the Department of Labor Appendix V: GAO Contact and Staff Acknowledgments <12. GAO Contact Staff Acknowledgments> Cindy Brown Barnes (202) 512-7215 or [email protected] In addition to the individual named above, Nagla a El-Hodiri, Assistant Director; Lorin Obler, Analyst in Charge; Genesis Galo, Michael Naretta, Alejandro Oliva, and Sonya Zhu made key contributions to this report. Also contributing to this report were Amy Anderson, Susan Aschoff, James Bennett, Kathryn Bernet, Colleen Candrl, Sherwin Chapman, Pin- En Annie Chou, Pamela Davidson, Rebecca Gambler, Joel Green, Kristy Kennedy, Grant Mallie, Sheila R. McCoy, John Mingus, James Rebbe, Oliver Richard, Margie Shields, Ardith Spence, Almeta Spencer, Kathleen van Gelder, and Jessica Yutzy. Related GAO Products Nonimmigrant Visas: Outcomes of Applications and Changes in Response to 2017 Executive Actions. GAO-18-608. Washington, D.C.: August 7, 2018. H-2A and H-2B Visa Programs: Increased Protections Needed for Foreign Workers. GAO-15-154. Washington, D.C.: March 6, 2015. H-2A Visa Program: Modernization and Improved Guidance Could Reduce Employer Application Burden. GAO-12-706. Washington, D.C.: September 12, 2012. H-1B Visa Program: Reforms Are Needed to Minimize the Risks and Costs of Current Program. GAO-11-26. Washington, D.C.: January 14, 2011. H-2B Visa Program: Closed Civil and Criminal Cases Illustrate Instances of H-2B Workers Being Targets of Fraud and Abuse. GAO-10-1053. Washington, D.C.: September 30, 2010. H-1B Visa Program: Labor Could Improve Its Oversight and Increase Information Sharing with Homeland Security. GAO-06-720. Washington, D.C.: June 22, 2006.

Why GAO Did This Study Since 1990, there has been an annual statutory cap of 66,000 on the number of H-2B visa holders who can work for U.S. employers. DHS administers the program with support from other federal agencies including DOL. In recent years, demand for H-2B visas has exceeded the cap. To meet the needs of U.S. businesses, Congress authorized additional visas in fiscal years 2017-2019. GAO was asked to examine the effects of the annual cap on employers and U.S. workers. This report examines, among other objectives: (1) trends in the demand for H-2B visa workers, (2) selected employers' reports of the visa cap's influence on their performance and employment of U.S. workers, and (3) how federal agencies have sought to meet employers' H-2B hiring needs and protect U.S. workers. GAO analyzed nationwide data on H-2B visas and county labor market indicators. GAO interviewed 35 H-2B employers in four industries that are among the largest users of H-2B visas. The employers were in five counties selected for variation in factors including the share of H-2B workers in the workforce and the unemployment rate. GAO also reviewed relevant federal laws, regulations, and documents and interviewed federal officials and stakeholders. What GAO Found Employer demand for H-2B visa workers has increased as the national unemployment rate has declined. H-2B visas are intended to help employers fill temporary, non-agricultural positions when no U.S. workers are available and are subject to an annual statutory cap of 66,000. From 2010 to 2018, the number of H-2B workers requested on employer applications increased from about 86,600 to 147,600. Regarding local economic conditions, GAO found that counties with H-2B employers generally had lower unemployment rates and higher weekly wages than those without H-2B employers. Most of the 35 H-2B employers GAO interviewed said that business planning was affected by uncertainty about whether they would be able to hire the number of H-2B visa workers they requested given the statutory cap. Employers who did not receive all H-2B visas requested under the statutory cap in 2018 were somewhat more likely than those who did to report declines in revenue (see figure) and purchases of goods and services. However, GAO found no clear pattern in changes to the number of U.S. workers hired by these employers. Employers interviewed by GAO varied in how they adjusted to having fewer H-2B workers. For example, two seafood employers reported shutting down operations in the absence of H-2B workers, and employers said that barriers to finding U.S. workers included remote location and seasonality of the work. Federal agencies have identified program changes that consider employers' hiring needs and protect U.S. workers, but gaps remain in implementation. The Department of Homeland Security (DHS), in consultation with the Department of Labor (DOL), has identified options for changing the H-2B visa allocation process to address employers' uncertainty aboutreceiving visas. However, DHS and DOL have not assessed any of these options or determined which would not require Congressional action, and employers continue to struggle with uncertainty. To help ensure H-2B employers comply with U.S. worker recruitment and other requirements, DOL has audited employers' compliance with these requirements. However, in general, DOL randomly selected employers for these audits, rather than taking a risk-based approach using factors such as violation trends by industry. As a result, the agency may not be using its limited audit resources efficiently or effectively. What GAO Recommends GAO is making five recommendations. These include that DHS and DOL assess options to adjust the H-2B visa program and DOL take a risk-based approach to selecting H-2B employers for audits. The agencies agreed with these recommendations as well as one other. DHS disagreed with one, which GAO continues to believe is warranted.

gao_GAO-20-91

gao_GAO-20-91_0

<1. Background> Air Force pilots are required to complete various phases of training before they are considered to be mission ready. To assess pilot candidates flying aptitude for both traditional (i.e., manned) and remotely-piloted aircraft, the Air Force first requires these candidates to attend initial flight training. Successful candidates for traditional aircraft then attend one of two schools: Euro-NATO Joint Jet Pilot Training, the graduates of which become Specialized Undergraduate Pilot Training, the graduates of which become fighter, bomber, airlift, or tanker aircraft pilots, depending on pilot strengths and Air Force needs. During or following this training, a pilot is assigned to a specific aircraft, and the flight training program proceeds through three stages: Initial Qualification Training. This stage of training qualifies a pilot for basic flying duties associated with the type of aircraft (e.g., an F-16). The pilot accomplishes this stage at a formal training unit before moving to an assigned squadron. Graduates of initial qualification training courses have basic aircraft qualification status. Mission Qualification Training. This stage of training occurs once the basic aircraft qualified pilot is at the assigned unit. The pilot undergoes mission qualification training in the type of aircraft assigned to qualify for the specific missions the unit is required to perform. Continuation Training. This stage of pilot training has two components. Pilots participate in continuation training to (1) in some instances upgrade their qualifications to fill certain positions, such as flight lead, instructor, or forward air controller through specialized continuation training; and (2) in all instances maintain proficiency and improve their capabilities to perform their units assigned missions. The Ready Aircrew Program establishes the minimum number of live training events, or sorties, and virtual simulator training events, or simulator missions, that aircrews of a particular combat aircraft must complete during the annual training cycle to maintain mission readiness. These sorties and simulator missions are aligned with the units primary missions, for which the units must maintain proficiency, and secondary missions, for which they must maintain familiarity. The Air Combat Command, as lead command for the Ready Aircrew Program, with the assistance of other major commands (including the Air Force Global Strike Command, Pacific Air Forces, and U.S. Air Forces in Europe) and associated subordinate organizations (i.e., air wings and squadron commanders), develops tasking memorandums for the Ready Aircrew Program that delineate and specify the annual continuation training requirements for personnel assigned to each of the subordinate combat units. <2. The RAND Report Addressed Statutory Requirements, Followed Generally Accepted Research Standards, and Identified Deficiencies> <2.1. The RAND Report on the Ready Aircrew Program Addressed Section 351 Requirements by Assessing Training Requirements and Making Recommendations> On the basis of our analysis, we found that the RAND report addressed each of the three statutory elements required by Congress in Section 351. First, the RAND report addressed two statutory elements by reviewing and assessing the assumptions underlying annual continuation training requirements for the Ready Aircrew Program and the overall effectiveness of the Ready Aircrew Program in managing aircrew training requirements. These two statutory elements focus on issues raised in our prior report recommendations, which we discuss in more detail later in this report. Table 1 provides detailed information about these statutory elements, our assessment of RAND s findings, and RAND s findings associated with each element. The RAND report addressed the third statutory element by making recommendations for the improved management of training requirements. Specifically, the RAND report made nine recommendations, listed in table 2. <2.2. The RAND Report on the Ready Aircrew Program Was Consistent with Generally Accepted Research Standards> The RAND report and its underlying analysis is consistent with generally accepted research standards for design, execution, and presentation. Table 3 summarizes our assessment of the extent to which the RAND report conformed with these standards. <2.3. The RAND Report on the Ready Aircrew Program Identified Similar Deficiencies as Reported by Us in 2016> The RAND study and our previous audit work identified similar deficiencies in the management and operation of the Ready Aircrew Program. Specifically, in September 2016, we reported that the Air Force had used the same underlying assumptions to establish its annual training requirements in the Ready Aircrew Program from 2012 through 2016, which may not reflect current and emerging training needs. We concluded that without fully reassessing the assumptions underlying its training requirements, the Air Force could not be certain that its annual training plans are aligned with its stated goals to ensure a full-spectrum- capable force that can successfully achieve missions across a broad range of current and emerging threats. We recommended that the Air Force comprehensively reassess the assumptions underlying its annual training requirements and make any appropriate adjustments in future aircrew training plans to ensure that its forces can accomplish a full range of missions. Additionally, in our September 2016 report, we also reported that the Air Force did not systematically evaluate the effectiveness of training performed as part of the Ready Aircrew Program. We recommended that the Air Force establish desired learning objectives and training support elements needed to accomplish the training expectations identified by the Ready Aircrew Program and develop a process to collect data to assess the effectiveness of annual training against these features. We discuss these recommendations and their status in more detail later in this report. <3. The Air Force Reported Some General Actions to Link Readiness to Training but Plans No Further Actions in Response to RAND Recommendations> Section 351 of the NDAA for Fiscal Year 2017 required the Air Force to report on any actions it plans to take in response to RAND s recommendations and to estimate the resources required to implement the recommendations. On August 30, 2018, the Air Force provided its report a one-page transmittal letter from the Secretary of the Air Force with the RAND report incorporated as an enclosure to congressional committees in fulfillment of the Section 351 requirements. In its report, the Air Force agreed with RAND that more investment is needed in data collection because its current system does not lend itself to analysis that could be used to gain efficiencies. The Air Force also stated that it is addressing the RAND recommendations by working to link readiness to Ready Aircrew Program training requirements. Specifically, the Air Force stated that it was taking the following three actions: building training matrices to help commanders assess their units establishing common data architecture through the Air Force s Chief Data Officer led effort, and evaluating aspects of the Ready Aircrew Program to increase lethality and improve readiness as the Air Force shifts to executing the mandates of the 2018 National Defense Strategy. However, in its August 2018 report, the Air Force did not provide any additional details to further describe or link these broad actions to the RAND findings and recommendations. Therefore, the extent to which these three actions are responsive to the RAND recommendations is unclear. In October 2019, upon completion of our audit work, Air Force officials provided us with a briefing they described as a corrective action plan that further elaborated on the Air Force s position with respect to each of RAND s nine recommendations. Air Force officials conceded that the actions described in that briefing and plan were already underway at the time of the study and were not initiated in response to the study s recommendations. They stated that, though they generally agreed with the recommendations, the Air Force lacked the manpower, resources, and means to implement them. As such, the Air Force considers each of the recommendations closed and plans no further actions. Further, the Air Force has no plans for future follow-up on implementation of the RAND recommendations. Accordingly, we did not further assess the actions described by the Air Force in relation to the RAND study. Table 4 summarizes the Air Force s position as provided in its corrective action plan briefing. As described in table 4, the Air Force concurred with three recommendations, partially concurred with five, and did not concur with one. The following summarizes the Air Force position by concurrence category: Concur: In concurring with RAND Recommendations 2 and 8 to invest in data systems for the collection, access, and storage of data to correct deficiencies in current systems and improve analysis and readiness reporting the Air Force stated that, before the recommendations were made, it had made available $5.15 million in fiscal year 2020 funding to develop an Aircrew Readiness Training Management Module as an upgrade to the Air Force s Aviation Resource Management System. The Air Force expects that this module will centralize management of the Air Force Ready Aircrew Program Tasking Memorandum at the command level, transfer aircrew training data whenever a member moves to a new station, and improve capability to track the types of flight simulators used for training. Further, because the Air Force does not plan to take additional actions, it estimated no resources are required, beyond the $5.15 million already funded, prior to RAND making these recommendations. In concurring with RAND Recommendation 5 to document training quality to support requests for training resources the Air Force explained that it is documenting the quality of training prescribed in its annual Air Force Ready Aircrew Program Tasking Memorandum at the squadron level. However, this is not a change based on the RAND recommendation and was being done prior to RAND making this recommendation. The Air Force factors unit training, accomplishments, and readiness inputs into the Air Force Ready Aircrew Program Tasking Memorandum and overall flying hour program. As the flying hour program is the basis for resource training requests and the Air Force factors unit training and accomplishments into its flying hour program, the Air Force explained that it plans to take no additional actions based on this recommendation. Further, because the Air Force does not plan to take additional actions, it estimated no resources were required to implement this recommendation. Partially Concur: In partially concurring with RAND recommendations 1, 3, 4, 6, and 9, Air Force officials explained that the mechanisms reflected in its comments are sufficient to address the intent of the RAND recommendations even though these mechanisms predated RAND s recommendations. Consequently, according to the Air Force officials who briefed us, the Air Force plans no additional actions based on the recommendations, obviating the need to estimate resources in the case of these five recommendations. Nonconcur: In not concurring with RAND Recommendation 7 to consider changing how Air Force Flying Hour Program requirements affect the flying hour program the Air Force explained that the flying hour program determination is standard across the Total Air Force, affecting more than combat aircrews alone, and that the centrality of the flying hour program to readiness and combat capability cannot be overemphasized and must be defendable and auditable. Further, based on its not concurring with this recommendation, the Air Force did not estimate resources for this recommendation. Notwithstanding the RAND study, the actions taken by the Air Force may not fully implement our prior recommendations as described previously. Specifically, we recommended that the Air Force comprehensively reassess the assumptions underlying its annual training requirements including for example the total annual training requirements by aircraft, the criteria for designating aircrews as experienced or inexperienced, and the mix between live and simulator training and make any appropriate adjustments in future aircrew training plans to ensure that its forces can accomplish a full range of missions. While RAND accomplished such an analysis as part of its review (see table 1, items 1(a) through 1(e) above), RAND concluded in its analysis that the Air Force did not have the objective measures of proficiency needed to determine the minimum and optimum number of sorties and that the combat air forces aviation community lacks consensus on how to define and measure an aircrew member s proficiency. While the Air Force has defined proficiency in an Air Force manual issued in September 2019, the Air Force has not reassessed its assumptions underlying training requirements and made appropriate adjustments to future training plans per our recommendation. Further, we recommended that the Air Force establish desired learning objectives and training support elements needed to accomplish the training expectations in its annual Ready Aircrew Program tasking memorandums, and develop a process to collect data to assess the effectiveness of annual training. In commenting on RAND s recommendations 2 and 8, the Air Force stated that, before the recommendations were made, it had made available $5.15 million in fiscal year 2020 funding to develop an Aircrew Readiness Training Management Module as an upgrade to the Air Force s Aviation Resource Management System. The Air Force s effort to upgrade this system, while not a result of the RAND recommendations, may meet the intent of our recommendation. For example, the Air Force s development of the Aviation Resource Management System is expected to centralize management of the Air Force s Ready Aircrew Program training requirements data at the command level, transfer aircrew training data whenever a member moves to a new station, and improve capability to track the types of flight simulators used for training. When fully implemented, these improvements may ultimately allow the Air Force to assess the effectiveness of annual training, as we recommended. However, it is too early to tell as the actions were under development or had just begun at the end of September 2019, and sufficient data to evaluate the results have not been collected. Fully implementing both of our recommendations would better position the Air Force to ensure that its aircrews receive effective training to achieve a range of missions for current and emerging threats. <4. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In its written comments (reprinted in appendix II), DOD stated that it saw great value in our discussion. DOD added that its position on the two recommendations we made in our 2016 report with which DOD did not concur is fundamentally unchanged. However, we continue to believe the recommendations should be implemented by the Air Force, as previously discussed in this report. In its comments, DOD also stated that it is addressing training infrastructure and aircrew proficiency through two initiatives. First, in response to the 2018 National Defense Strategy, the department's Joint Operational Infrastructure Plan is framing the modernization effort of DOD-wide Operational Infrastructure. The Joint Operational Infrastructure Plan specifically addresses areas such as Live Virtual Constructive and aircrew training. Second, the department is pursuing efforts to align training events with the range of current and evolving threats. According to DOD, both efforts will address the underlying assumptions for aircrew training and proficiency with reportable readiness metrics. However, the Joint Operational Infrastructure Plan is a draft and not yet officially issued, according to an official at the Office of the Under Secretary of Defense for Personnel and Readiness. Therefore, details needed to assess this plan are not yet available for us to consider in determining whether the change will help to address the recommendations we made in 2016. Regarding efforts the department is pursuing to better align training events, the DOD comments did not include sufficient details to allow us to state whether the change could be helpful in addressing our recommendations. Nonetheless, to the extent that DOD is successful in completing, issuing, and implementing its new Joint Operational Infrastructure Plan, or takes further actions related to our prior recommendations, we will consider them as we continue to analyze DOD efforts to address our recommendations. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, and the Secretary of the Air Force. 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) 512-5431 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 major contributions to this report are listed in appendix III. Appendix I: GAO s Criteria for Generally Accepted Research Standards To determine whether the RAND report followed generally accepted research standards, we chose the following criteria, which are based on a review of research literature and Department of Defense (DOD) guidance, from which we identified frequently occurring, generally accepted research standards that are relevant for defense studies, including those related to the presentation of results. These standards have been used in a number of our prior reports, modified as appropriate for each situation. For the purposes of this engagement, we assessed the RAND study against three major elements, listed below, that fall under generally acceptable research standards, as based on our prior work. These generally accepted research standards are consistent with Office of Management and Budget (OMB) Guidelines and DOD guidance on ensuring and maximizing the quality of information disseminated by federal agencies to the public. We discussed these standards with RAND officials, who agreed that they were generally consistent with their own quality standards for research and were applicable to this study. We determined that these standards are still current and relevant for the purposes of this report, based on their consistency with OMB and DOD guidance, discussions with RAND officials, and consideration of prior GAO work applying generally accepted research standards with the assistance of GAO s Applied Research and Methods Team. The standards include the following: Design Study is well designed. For the RAND study, we focused on the following elements for design: The study plan, scope, and objectives follow existing guidance. Assumptions and constraints are reasonable and consistent. Execution Study is well executed. For the RAND study, we focused on the following elements for execution: The methodology is successfully executed. Data used to support study and analyses are validated. Presentation Results are well presented. For the RAND study, we focused on the following elements for presentation: Timely, complete, accurate, concise, and relevant to stakeholders. Presentation of results supports findings. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, Beverly Schladt (Assistant Director), John Strong (Analyst in Charge), John Beauchamp, Vincent Buquicchio, Martin De Alteriis, and Lillian Moyano Yob made key contributions to this report.

Why GAO Did This Study In September 2016, GAO reported that annual combat aircrew training requirements delineated in the Air Force's Ready Aircrew Program might not address pilot training needs, and that the Air Force did not systematically evaluate the effectiveness of its training. As a result, Congress included a provision in Section 351 of the NDAA for Fiscal Year 2017 for the Air Force to commission an independent review of its Ready Aircrew Program, report on actions it planned to take in response to any recommendations, and provide an estimate of any resources required. Section 351 also included a provision for GAO to assess the Air Force report. This report examines whether (1) the independent review conducted by the RAND Corporation addressed statutory requirements to review and assess the Ready Aircrew Program, and (2) the Air Force has reported on completed or planned actions to implement the RAND report recommendations. To address these objectives, GAO reviewed the RAND and Air Force reports on the Ready Aircrew Program, assessed the study against generally accepted research standards, and interviewed officials at RAND, Air Force Headquarters, and the Air Combat Command. What GAO Found A July 2018 RAND report—commissioned by the Air Force—addressed the statutory requirements of the National Defense Authorization Act (NDAA) for Fiscal Year 2017 to review and assess the Air Force's Ready Aircrew Program and make recommendations for ways to improve it. The Ready Aircrew Program establishes minimum annual training requirements for combat aircrew. RAND's report, entitled Independent Review and Assessment of the Air Force Ready Aircrew Program , made nine recommendations to improve its management: 1. Leverage internal expertise to implement measures for proficiency. 2. Invest resources to design data collection and storage solutions that facilitate analysis and readiness reporting. 3. Document the Ready Aircrew Program Tasking Memorandum development process in Air Force instruction supplements and ensure that the process incorporates squadron-level input and feedback. 4. Establish a more explicit and formal link between proficiency and Ready Aircrew Program requirements. 5. Document training quality to support requests for training resources. 6. Identify the conditions under which Ready Aircrew Program requirements, including mission types, can be accomplished. 7. Consider changing how Ready Aircrew Program requirements affect the Flying Hour Program. 8. Invest in data systems to correct data collection and assess deficiencies. 9. Leverage the Air Force Research Laboratory's performance data work and invest in added analysis to produce enterprise-wide proficiency metrics. The nine RAND recommendations aligned with two GAO recommendations made in 2016 to comprehensively assess the assumptions underlying the annual aircrew training requirements and develop a process to collect data to assess the effectiveness of the training. The Air Force's August 2018 one-page report to Congress included three broad actions in response to RAND's recommendations. The Air Force planned to build training matrices to help commanders assess their units' effectiveness, establish common data architecture through the Air Force's Chief Data Officer–led effort, and evaluate aspects of the Ready Aircrew Program to increase lethality and improve readiness as the Air Force shifts to executing the mandates of the 2018 National Defense Strategy. The Air Force, however, did not explain how these three efforts would specifically address the nine recommendations. Air Force officials said that, though they generally agreed with RAND's recommendations, the Air Force lacked the resources to fully implement them beyond actions that were underway prior to the RAND report, and considers all recommendations as “closed.” In part due to its not fully implementing RAND's recommendations, the Air Force has not fully addressed GAO's two recommendations. Fully implementing GAO's recommendations would better position the Air Force to ensure its aircrews receive effective training to achieve a range of missions. What GAO Recommends GAO is not making any new recommendations in this report but restates the need to fully implement GAO's two 2016 recommendations. In comments on a draft of this report, DOD did not concur with the two 2016 recommendations. GAO maintains that the Air Force should implement both recommendations. recommendation. GAO will consider these in its annual recommendations follow-up.

gao_GAO-20-378

gao_GAO-20-378_0

<1. Background> <1.1. Hospice Services> Hospice care helps patients who are terminally ill as well as the families of those patients maintain their quality of life. Hospice care focuses on the comfort of patients (palliative care), not curing the illness. Patients are eligible for hospice care under Medicare if they have a life expectancy of six months or less. Most patients get hospice care at home, which typically includes use of controlled substances, including opioids such as oxycodone, to provide pain relief. According to CMS, hospice teams are required to include a physician, nurse, social worker, and pastoral or other counselor; and may also include hospice aides, trained volunteers, and speech, physical, and occupational therapists. The patient selects a primary caregiver when first admitted into home hospice, and this person becomes a member of the home hospice team. The primary caregiver, often a family member, provides most of the care for the patient in home hospice, including most of the physical care for the patient, keeping records of symptoms and other problems, and communicating with the hospice team. <1.2. Disposal of Controlled Substances in Home Hospice> The Controlled Substances Act regulates the manufacture, distribution, use, and disposal of controlled substances. In general, the Controlled Substances Act was enacted to facilitate the use of controlled substances for legitimate medical, scientific, research, and industrial purposes while preventing them from being diverted for illegal uses. DEA is the primary agency with responsibility for administering and enforcing the law, and DEA provides oversight of all persons or entities required to register with DEA. The Controlled Substances Act has been amended twice to clarify federal requirements for patient disposal of controlled substances. 2010. The Secure and Responsible Drug Disposal Act of 2010 amended the Controlled Substances Act to allow a patient who has lawfully obtained a controlled substance to deliver the controlled substance to another person for the purpose of disposal, without being registered with DEA. Any person lawfully entitled to dispose of a deceased patient s property may also deliver the patient s controlled substances to another person for the purpose of disposal. The person receiving the controlled substances must be legally authorized to do so and the disposal has to take place in accordance with DEA regulations, which DEA issued in 2014. Among other things, the DEA rulemaking clarified that home hospice personnel could not dispose of a deceased patient s controlled substances unless authorized to dispose of the patient s property by a state or local law. Instead, the rulemaking encouraged home hospice personnel to assist patients and their families in disposing of controlled substances in accordance with the Controlled Substances Act, and partner with authorized collectors to promote or jointly conduct mail-back programs. 2018. The SUPPORT Act amended the Controlled Substances Act to allow employees of qualified hospices, whether or not registered with DEA, to dispose of a patient s unused controlled substances onsite and in accordance with all applicable laws after the patient s death or the controlled substance expires. The employee must be a physician, physician assistant, nurse, or other person who is: employed by a qualified hospice; licensed to perform medical or nursing services by the jurisdiction in which the patient is receiving hospice care; acting within the scope of their employment in accordance with applicable state law; and trained on the disposal of controlled substances by the qualified hospice. If the hospice patient no longer requires the controlled substances because of a change in his or her care plan, only the patient s DEA- registered physician may dispose of the patient s unused controlled substances. The authority to dispose of unused controlled substances under the SUPPORT Act applies only to qualified hospices. Such hospices must have written policies and procedures for assisting in the disposal of controlled substances after the patient s death, and must document that they provided and discussed these policies and procedures in an understandable manner with the patient and family. In addition, the hospice must document the type of controlled substance, dosage, route of administration, and quantity disposed, as well as the time, date, and manner in which the disposal occurred. The SUPPORT Act also allows the Attorney General to issue guidance to hospices regarding the disposal of controlled substances in patients homes. <1.3. Federal Oversight> According to DEA officials, DEA s oversight of the disposal of controlled substances in home hospices is limited to instances of suspected or actual diversion. This is because the SUPPORT Act allows employees of qualified home hospices to dispose of unused controlled substances in patients homes without registering with DEA. CMS regulates Medicare-certified home hospices through the Hospice Conditions of Participation, which are intended to protect the health and safety of individuals under hospice care. Hospices must be in compliance with the Hospice Conditions of Participation to participate in the Medicare program. CMS oversees compliance with the Hospice Conditions of Participation primarily through inspections, which are conducted by state survey agencies contracted by CMS or CMS-approved national private accrediting organizations. Among other things, the Hospice Conditions of Participation require hospices to have written policies and procedures for the management and disposal of controlled substances in the patient s home, discuss the hospice policies and procedures for managing the safe use and disposal of controlled substances with the patient and family in a manner that they understand, and document that the written policies and procedures for managing controlled substances were provided and discussed. CMS does not oversee the disposal process. <2. Selected Home Hospices Experiences, Best Practices, and Challenges in Disposing of Controlled Substances> <2.1. Selected Home Hospices Experiences Disposing of Controlled Substances> According to a national hospice association official, each hospice had a different approach to disposal prior to the DEA rulemaking in 2014. Some hospices asked their employees to dispose of controlled substances to prevent diversion and others did not. After the DEA rulemaking, some states enacted laws granting authority to hospice employees to dispose of patients unused controlled substances when the medications were no longer needed, upon death of the patient, or both. Requirements under states laws vary (see appendix I). Hospices in some states without laws on the disposal of controlled substances in home hospice began, or resumed, disposing controlled substances in patients homes following the enactment of the SUPPORT Act in 2018. Officials from six selected home hospices expressed support for the authority to dispose of controlled substances granted by the SUPPORT Act, and officials we interviewed from two hospices operating in states without disposal laws told us their hospices had resumed disposing of controlled substances in patients homes under the authority granted by the SUPPORT Act. In contrast, an official from one hospice told us that their hospice had not begun disposing of these medications with the enactment of the SUPPORT Act because the state department of health directed it not to do so until a state law granting disposal authority to hospices had been enacted. For now, the hospice has continued with its practice of educating patients family members on how to dispose of controlled substances themselves. <2.2. Selected Home Hospices Policies and Best Practices for Disposing of Controlled Substances and Reducing the Risk of Diversion> Medicare-certified hospices, including the seven we selected for our review, are required by CMS s Hospice Conditions of Participation to have written policies and procedures for the safe disposal of controlled substances in a patient s home. The policies and procedures may include best practices, such as measures for assessing and mitigating the risk of diversion in a patient s home, and if and how the hospice will conduct controlled substance disposal. According to officials we interviewed from the selected hospices and state hospice associations, hospices utilize various strategies or best practices to attempt to mitigate diversion risks, including, but not limited to, the following: Education on controlled substance use and disposal. Hospice policies may include disposal education for patients and their caregivers. Specifically, officials from five hospices and five state hospice associations said that patient and family member education on controlled substances and their disposal begins or should begin upon the patient s admission into hospice care or as soon as possible thereafter. According to officials from three hospices, their staff may use written agreements or acknowledgements that must be signed by the patient or their caregiver. An official from one hospice association told us the association made an agreement template available to their hospice members that can be used to ensure patients understand how to properly use prescribed controlled substances, agree to use them properly, and will not give them to anyone else. Prescription drug counts. Officials from four hospices and two state hospice associations told us that, in general, nurses conduct prescription drug counts at every visit to check if the proper amounts of medications remain. Officials from two of these hospices said that drug counts should require the family s acknowledgement or be witnessed. Officials from three other state hospice associations mentioned that their members use drug counts as well but did not specify if this occurred at every visit. These counts can be used to recognize possible drug misuse or diversion. If there is an indication that diversion may be the cause of an incorrect count, hospices can put additional drug diversion risk reduction practices in place. Lockboxes. If diversion is suspected to be a risk or if there are children present in the patient s home, a hospice may choose to use a lockbox to store the patient s medications and limit access to only an alert patient or their caregivers. Officials from five hospices and five state hospice associations mentioned that their employees and members use lockboxes for such purposes. One hospice official explained that lockboxes may also be used as an accountability tool so that those with access cannot accuse others of stealing if drugs are unaccounted for. Pharmacy cooperation. A hospice may choose to have the pharmacy mail a prescribed controlled substance in smaller quantities and with greater frequency. For example, an official from one of the selected hospices explained that the pharmacy they use will deliver medications as often as daily if needed to reduce the risk of controlled substances being diverted. Similarly, an official from a state hospice association explained that some pharmacy managers and benefits managers note when a refill for a prescription is requested sooner than it should have been and alert the hospice. Witnessed disposal or assisted disposal. Pursuant to some state disposal laws and according to officials from five hospices and four state hospice associations, controlled substance disposal and assisted disposal must or should be performed with a witness present. The state disposal laws may specify who the witness must be. For example, according to two state laws, a family member or a second hospice employee may witness disposal. In-home disposal products. Hospices may have varying preferences for how they dispose of controlled substances; officials from four of the selected hospices mentioned using in-home disposal products, and two specifically explained they believed these to be the safest disposal method, even though, according to the officials, it can be costly. Officials from another hospice told us they receive their in- home disposal products through a grant program. Documentation. Officials from four selected hospices told us their employees document the completion of certain tasks, such as diversion risk assessments, drug counts, drug disposal, and the refusal of drug disposal. An official from one of these hospices told us their staff perform and document a diversion risk assessment of the patient s home. While officials from four hospices told us their employees perform drug counts, only one official specified that employees from their hospice document the drug counts. Another hospice official explained that disposal documentation includes the name, dosage, form, and administration method of the medication. One hospice official told us that if a patient s family members refuse disposal, they must sign a form stating they declined to allow the nurse to dispose of the patient s remaining drugs. <2.3. Selected Home Hospices Challenges with Disposing of Controlled Substances> Officials from selected hospices and state hospice associations in our review described various challenges associated with disposing of controlled substances in patients homes. The challenges described by the selected hospices and state hospice associations include but are not limited to the following: Certain disposal methods may be too costly. An official from one state hospice association said that most of its members do not use a drug disposal process, which may include a mail-back program or in- home disposal product, because it is an extra expense, and an official from one hospice said that after pricing an in-home disposal product, their hospice decided it was cost prohibitive. One state hospice association official explained that although most of its in-home hospice members use an in-home disposal product, in instances when the hospice employee is disposing of 40 to 50 vials, the expense of this disposal method can be burdensome. The official told us the product costs approximately $6 each and fits four to five vials of pills in each. Disposal can be time consuming. One hospice official said that disposal can sometimes be a time-consuming and resource-intensive activity. According to two state hospice association officials, sometimes a patient s family will ask the disposing hospice employee to dispose of all of the patient s unused prescription drugs that remain in the home, not only controlled substances or drugs prescribed under hospice care. Officials from two of our selected hospices and two state hospice associations told us that it is not atypical for a hospice patient to have bags or boxes full of unused medications, though the officials did not describe this as a disposal challenge for hospices. Lack of a witness. One hospice official told us that it is a challenge when a witness is not available or is unwilling to participate in a drug count or disposal. Another hospice official indicated that the patient s primary caregiver is not always the family member present at the time of a drug count or disposal. This can create a challenge, as the hospice employee must either wait for the patient s primary caregiver to arrive, or for that person to agree to witness a count, disposal, or both. Family members and caregivers sometimes refuse to dispose of controlled substances. Officials from two hospices and three state hospice associations indicated that a family s refusal to dispose of a patient s remaining medications can be a challenge, though one hospice official said it occurs infrequently. An official from another hospice said that if a family initially refuses disposal, hospice staff return after two weeks to complete the disposal process. Inconsistencies between state laws and federal law. Hospices must comply with applicable federal and state laws governing controlled substances, and to the extent state law is inconsistent with the Controlled Substances Act, hospices must follow federal law. Hospice officials told us that inconsistencies between state laws and federal law can cause challenges. For example, the SUPPORT Act limits disposal to only physicians, physician assistants, nurses, or other hospice employees who are licensed to provide medical or nursing services. An official from one hospice stated that the hospice used the help of social workers and volunteers to dispose of controlled substances. Regulations in this state do not specify which types of hospice employees are permitted to assist with disposal. According to the official, social workers and volunteers helped dispose of patients controlled substances when disposal occurred at a later time, rather than immediately following a patient s death. Since the SUPPORT Act limits disposal to home hospice personnel with specific qualifications, it is unclear whether hospices are able to allow social workers and volunteers to help in that capacity. As another example, under the SUPPORT Act, only a hospice patient s DEA-registered physician can dispose of the patient s controlled substances if the plan of care has been modified. However, some state laws allow other types of hospice employees to perform disposal in this circumstance. Officials from two hospices in these states indicated it will be a challenge for disposal to be limited to physicians when a patient s plan of care is modified. Similarly, officials from two other selected hospices in states without disposal laws also stated that this would be a challenge. For example, one hospice official explained that their hospice does not have many physicians, and it would be unlikely for a physician to be able to visit a patient s home solely to handle disposal. <3. Agency Comments> We provided a draft of this report to the Departments of Justice and Health and Human Services for review. The Departments of Justice and Health and Human Services provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Attorney General of Justice, the Secretary of Health and Human Services, 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 staff have any questions about this report, please contact me at (202) 512-7114 or at [email protected]. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix II. Appendix I: Summary of Five States Controlled Substances Disposal Laws for Hospices To describe what is known about selected hospices experiences disposing of and preventing the diversion of controlled substances in home settings, we selected five states with laws on the disposal of controlled substances in home hospices and six states without such laws. The five states with disposal laws were chosen for this review because they had state hospice associations that were involved in disposal discussions with a national hospice association or they had higher opioid-related death rates than most states. The summaries in Table 1 below reflect our reviews of the five states laws. Appendix II: GAO Contact and Staff Acknowledgments <4. GAO Contact> <5. Staff Acknowledgments> In addition to the contact name above, Martin T. Gahart (Assistant Director), Deborah J. Miller (Analyst in Charge), Samuel G. Amrhein, Kaitlin M. Farquharson, and Christina C. Murphy made key contributions to this report.

Why GAO Did This Study Misuse of controlled substances continues to be a serious public health problem in the United States. Most commonly misused controlled substances include opioids (such as oxycodone), which are used to treat pain, and central nervous system depressants (such as diazepam), which are used to treat anxiety and sleep disorders. These types of drugs are commonly prescribed for patients in hospice care. The SUPPORT Act included a provision for GAO to examine disposal of controlled substances in home hospice settings. This report describes selected home hospices' controlled substances disposal practices and the challenges they face in disposing of these substances. GAO reviewed the SUPPORT Act and other related statutory and regulatory provisions. GAO also interviewed officials from the Centers for Medicare & Medicaid Services, the Drug Enforcement Administration, three national hospice trade associations, two national nurse trade associations, 11 state hospice associations, and seven hospices. What GAO Found Hospice care helps patients who are terminally ill maintain their quality of life. Most patients get hospice care at home, which typically includes use of controlled substances, including opioids such as oxycodone, to provide pain relief. When hospice patients die at home, they often leave behind unused controlled substances, which can be diverted and misused by anyone with access to them. The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act), enacted in 2018, allows employees of qualified hospice programs to dispose of unused controlled substances by collecting and destroying the drugs in patients' homes. In addition, some states had laws allowing hospice employees to dispose of patients' unused controlled substances prior to 2018. Three of the seven hospices GAO contacted operate in states without such laws. Officials from two of these hospices told us their hospices began disposing of patients' controlled substances in their homes following the enactment of the SUPPORT Act in 2018. However, one hospice had not begun disposing of these medications because the state department of health directed it not to do so until a state law granting disposal authority to hospices had been enacted. An official from that hospice said that it continued the practice of leaving the controlled substances in the home and educating family members about how to dispose of the drugs themselves. Hospice officials we spoke to identified best practices for preventing diversion and disposing of controlled substances. Best practices include prescription drug counts performed by hospice employees to determine if controlled substances are being used properly, use of lock boxes to limit access to controlled substances in situations where diversion is suspected to be a risk, and having a witness for the disposal of unused controlled substances. The officials also identified challenges their hospice employees have faced when disposing of controlled substances in patients' homes. Challenges include the cost of certain disposal methods, a lack of a witness to the disposal process, and inconsistencies between state laws and federal law concerning which hospice employees may dispose of controlled substances. The Departments of Justice and Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

gao_GAO-19-507T

gao_GAO-19-507T_0

<1. Background> The Veterans Access, Choice, and Accountability Act of 2014 provided up to $10 billion in funding for veterans to obtain health care services from community providers through the Choice Program when veterans faced long wait times, lengthy travel distances, or other challenges accessing care at VA medical facilities. The temporary authority and funding for the Choice Program was separate from other previously existing programs through which VA has the option to purchase care from community providers. Legislation enacted in April, August, and December of 2017 and June 2018 extended the Choice Program and provided an additional $9.4 billion for the Veterans Choice Fund. Authority for the Choice Program will sunset on June 6, 2019. <1.1. Responsibilities of the Choice Program s Third Party Administrators> In October 2014, VA modified its existing contracts with two contractors referred to as third party administrators (TPA) that were administering another VA community care program to add certain administrative responsibilities associated with the Choice Program. For the Choice Program, each of the two TPAs Health Net and TriWest was responsible for managing networks of community providers who deliver care in a specific multi-state region. Specifically, the TPAs were responsible for establishing networks of community providers, scheduling appointments with community providers for eligible veterans, and paying community providers for their services. Health Net s contract for administering the Choice Program ended on September 30, 2018, with TriWest continuing to administer the Choice Program in its region and the region previously administered by HealthNet until the program ends. <1.2. Process for Choice Program Appointment Scheduling> Through policies and standard operating procedures for VA medical facilities and contracts with the TPAs, VA established processes for referring and scheduling appointments through the Choice Program: one process for time-eligible veterans and another for distance-eligible veterans. Table 1 provides an overview of the appointment scheduling process that applies when a veteran is referred to the Choice Program because the veteran is time-eligible that is, the next available medical appointment with a VA clinician is more than 30 days from the veteran s preferred date or, in the absence of such a date, the date the veteran s physician determines he or she should be seen. When veterans reside more than 40 miles from a VA medical facility or meet other travel-related criteria, VA uses the appointment scheduling process it developed for distance-eligible veterans. The process for distance-eligible veterans differs from that for time-eligible veterans in that VA medical facilities do not prepare a referral and send it to the TPA. Instead, distance-eligible veterans contact the TPA directly to request Choice Program care. <1.3. Choice Program Claim Processing and Payment> VA s Choice Program TPA processes claims it receives from community providers for the care they deliver to veterans and pays providers for approved claims. Figure 1 provides an overview of the steps the TPA follows for processing claims and paying community providers. To be reimbursed for its payments to providers, the TPA in turn submits electronic invoices or requests for payment to VA. The TPA generates an invoice for every claim it receives from community providers and pays. VA reviews the TPA s invoices and either approves or rejects them. Invoices may be rejected, for example, if care provided was not authorized. Approved invoices are paid, whereas rejected invoices are returned to the TPA. Under the Prompt Payment Act, VA is required to pay its TPAs within 30 days of receipt of a clean Choice Program invoice. <1.4. VA s Planned Veterans Community Care Program> The VA MISSION Act of 2018, among other things, requires VA to establish a permanent community care program no later than 1 year after passage of the Act (June 6, 2019) and authorizes VA to utilize a TPA for claims processing. VA refers to the consolidated program as the VCCP. In December 2016, prior to enactment of the VA MISSION Act of 2018, VA issued a request for proposals for contractors to help administer the VCCP. The VCCP will be similar to the current Choice Program in certain respects. For example, under the VCCP, TPAs will be responsible for establishing regional networks of community providers and processing and paying those providers claims. However, unlike the Choice Program, under the VCCP, VA is planning to have medical facilities not the TPAs generally be responsible for scheduling veterans appointments with community providers. VA awarded contracts for administering the VCCP in three of six regions on December 28, 2018. As of April 3, 2019, VA had not yet awarded contracts for the remaining three regions. Generally, all veterans enrolled in the VA health care system would be able to qualify for care through the VCCP when (1) VA does not offer the care or service required by the veteran; (2) the veteran resides in a state without a full-service VA medical facility; (3) the veteran would have been eligible under the 40-mile criterion of the Choice Program before June 6, 2018; (4) VA cannot provide the veteran with care and services that comply with its designated access standards; or (5) the veteran and the veteran s referring clinician agree that it is in the best interest of the veteran to receive care in the community. In January 2019, VA proposed new access standards for the VCCP based on average drive times and wait times: For primary care, mental health, and non-institutional extended care services, VA is proposing a 30-minute average drive time standard. For specialty care, VA is proposing a 60-minute average drive time standard. VA is proposing appointment wait-time standards of 20 days for primary care, mental health care, and non-institutional extended care services, and 28 days for specialty care from the date of request with certain exceptions. Eligible veterans who cannot access care within those standards would be able to choose between eligible community providers and care at a VA medical facility. VA expects to issue the final regulation establishing access standards for the VCCP by June 2019. <2. VA Needs to Address Various Factors That Adversely Affected Veterans Access to Care through the Choice Program to Help Ensure Timely Care under the VCCP> In June 2018, we reported that numerous factors adversely affected veterans timely access to care through the Choice Program and could affect implementation of the VCCP. These factors included the following: (1) administrative burden caused by complexities of VA s referral and appointment scheduling processes; (2) poor communication between VA and its medical facilities; and (3) inadequacies in the networks of community providers established by the TPAs, including an insufficient number, mix, or geographic distribution of community providers. VA has taken steps to help address these factors; however, not all access factors have been fully addressed. For example, to help address administrative burden and improve the process of coordinating veterans Choice Program care, VA established a secure e-mail system and a mechanism for TPAs and community providers to remotely access veterans VA electronic health records. However, these mechanisms only facilitate a one-way transfer of necessary information. They do not provide a means by which VA medical facilities or veterans can view the TPAs step-by-step progress in scheduling appointments or electronically receive medical documentation associated with Choice Program appointments. We made five recommendations to VA to address the factors that adversely affected veterans access to Choice Program care. VA agreed or agreed in principle with all five recommendations. Our recommendations and the steps, if any, VA has taken in response to these recommendations are described in table 2. <3. VA Needs Complete and Reliable Data to Effectively Monitor Veterans Access to Care under the VCCP> In June 2018, we reported that VA cannot systematically monitor the timeliness of veterans access to Choice Program care because it lacks complete, reliable data to do so. VA will need to address these data limitations in order to effectively monitor the care delivered to veterans through the VCCP. The data limitations we identified included the following: A lack of data on the timeliness of accepting referrals and opting veterans in to the program. We found that the data VA uses to monitor the timeliness of Choice Program appointments do not capture the time it takes VA medical facilities to prepare veterans referrals and send them to the TPAs, nor do they capture the time spent by the TPAs in accepting VA medical facilities referrals and opting veterans in to the Choice Program. VA had implemented an interim solution to monitor overall wait times that relies on VA medical facility staff consistently and accurately entering unique identification numbers on VA clinicians requests for care and on Choice Program referrals, a process that is prone to error. Inaccuracy of clinically indicated dates. We found that clinically indicated dates (used to measure the timeliness of care) are sometimes changed by VA medical facility staff before they send Choice Program referrals to the TPAs, which could mask veterans true wait times. We found that VA medical facility staff entered later clinically indicated dates on referrals for about 23 percent of the 196 authorizations we reviewed. It is unclear if VA medical facility staff mistakenly entered incorrect dates manually, or if they inappropriately entered later dates when the VA medical facility was delayed in contacting the veteran, compiling relevant clinical information, and sending the referral to the TPA. Unreliable data on the timeliness of urgent care. We found that VA medical facilities and TPAs do not always categorize Choice Program referrals and authorizations in accordance with the contractual definition for urgent care. According to the contracts, a referral is to be marked as urgent, and an appointment is to take place within 2 business days of the TPA accepting it, when a VA clinician has determined that the needed care is (1) essential to evaluate and stabilize the veteran s condition, and (2) if delayed would likely result in unacceptable morbidity or pain. We reviewed a sample of 53 urgent care authorizations and determined that about 28 percent of the authorizations were originally marked as routine care authorizations but were changed to urgent by VA medical facility or TPA staff, in an effort to administratively expedite appointment scheduling. We made five recommendations to VA on improving the completeness and accuracy of data on veterans wait times for care. VA agreed with four of the five recommendations. Our recommendations and the steps VA has taken in response to these recommendations are described in table 3. <4. Further Improvements Are Needed to Help Ensure Timely Payments to Community Providers> In September 2018, we reported that three key factors affected timeliness of payments to community providers under the Choice Program and that if unaddressed could affect provider payment timeliness for the VCCP. These factors included the following: (1) VA s untimely payments to TPAs, which in turn extended the length of time TPAs took to pay community providers claims; (2) Choice Program reimbursement requirements, which led to claim denials; and (3) inadequate provider education on filing claims. We reported that VA has taken some actions to address these factors. For example, VA updated its payment system and related processes to pay TPAs more quickly. According to VA data, as of July 2018, VA was paying at least 90 percent of the TPAs invoices within 7 days, a significant increase from the 50 percent timely payments VA made to TPAs between November 2014 and September 2016. In addition, VA and the TPAs had taken steps to amend certain reimbursement requirements and improve provider education to help providers resolve claims processing issues. However, we found that VA has not fully addressed two of these factors. First, with respect to reimbursement requirements, VA does not have complete data allowing it to effectively monitor adherence with its policy for VA medical facilities to perform timely reviews and approvals of secondary authorization requests. Community providers request secondary authorization requests when veterans need health care services that exceed the period or scope of the original authorization. Incomplete data impacted VA s ability to meet the requirement. When VA medical facilities delay these reviews and approvals, community providers may have to delay care or deliver care that is not authorized, which in turn increases the likelihood that the providers claims will be denied and the providers will not be paid. Second, with respect to provider education on filing claims, VA requires the TPAs to establish a customer call center to respond to calls from veterans and non-VA providers. However, VA does not enforce the contractual requirement for responding to calls from community providers and allows the TPAs to prioritize calls from veterans over calls from community providers. Consequently, VA is not collecting data, monitoring, or enforcing compliance with its contractual requirements for the TPAs to provide timely customer service to providers. As a result, VA does not have information on the extent to which community providers face challenges when contacting the TPAs about claims payment issues, which could contribute to the amount of time it takes to receive reimbursement for services. To address remaining factors that affect provider payment timeliness, we made two recommendations to VA. VA agreed with both recommendations. Our recommendations and the steps VA has taken in response to these recommendations are described in table 4. In summary, consolidating its existing community care programs into the VCCP and launching this new program in June 2019 is a large and complex undertaking, which comes with many risks and challenges for VA. Heeding the lessons learned from its implementation and management of the Choice Program will better position VA to ensure veterans receive timely access to care under the VCCP and avoid past challenges such as delays in scheduling appointments and untimely payments to community providers. Continued oversight of VA s implementation of the VCCP will be critical given the scale of change and the associated risks. We stand ready to assist this Committee with this continued oversight. Chairman Isakson, Ranking Member Tester, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions you may have. <5. GAO Contacts and Staff Acknowledgments> If you or your staff members have any questions concerning this testimony, 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 statement. Other individuals who made key contributions to this testimony include Marcia Mann (Assistant Director), Michael Zose (Analyst-in-Charge), Jacquelyn Hamilton, Christina Ritchie, Kate Tussey, and Emilie Weisser. 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.

Why GAO Did This Study In June 2018, Congress passed the VA MISSION Act of 2018, which requires VA to establish a permanent community care program. VA plans to consolidate the Choice Program and its other VA community care programs into one community care program—the VCCP. This legislation helps address some of the challenges faced by the Choice Program and VA's other community care programs. VA's implementation of the VCCP can benefit from the lessons learned under the Choice Program. Ignoring these lessons learned increases VA's risk for not being able to ensure that all veterans receive timely access to care in the community and that community providers are reimbursed in a timely manner. This testimony focuses on lessons learned from the Choice Program, including recommendations GAO has made to VA to help ensure (1) veterans' timely access to care under the VCCP (2) effective monitoring of veterans' access to care under the VCCP, and (3) timely payments to community providers under the VCCP. This testimony is based on GAO reports on the Choice Program that were issued in June 2018 and September 2018. What GAO Found The Department of Veterans Affairs' (VA) Veterans Choice Program (Choice Program) allows eligible veterans to obtain health care services from providers not directly employed by VA (community providers). The program is largely managed by third party administrators (TPA), who are responsible for establishing provider networks, scheduling veterans' appointments, and paying providers. GAO has identified the following challenges to the Choice Program that VA needs to address as it implements its new Veterans Community Care Program (VCCP). Factors that adversely affected veterans' timely access to care. GAO found that numerous factors adversely affected veterans' timely access to care through the Choice Program. These factors included (1) administrative burden caused by complexities of referral and appointment scheduling processes; (2) poor communication between VA and its medical facilities; and (3) inadequacies in the networks of community providers established by the TPAs, including an insufficient number, mix, or geographic distribution of community providers. VA has taken steps intended to help address these factors, however, some have not been fully addressed. In June 2018, GAO made five recommendations to VA, including that VA establish a system that will facilitate care coordination and exchanges of information among VA medical facilities, VA clinicians, TPAs, community providers, and veterans. VA agreed or agreed in principle with all five recommendations, but has not yet implemented them. Unavailable and unreliable data. GAO found that VA cannot systematically monitor the timeliness of veterans' access to Choice Program care because it lacks complete, reliable data to do so. The data limitations GAO identified included a lack of data on the timeliness of accepting referrals and opting veterans in to the program, inaccurate data on clinically indicated dates (which are used to measure the timeliness of care), and unreliable data on the timeliness of urgent care. In June 2018, GAO made five recommendations to VA, including that VA implement mechanisms to allow VA to systematically monitor the amount of time taken to prepare referrals, schedule appointments, and complete appointments. VA agreed with four of the five recommendations, but has not yet implemented them. Untimely payments to community providers. GAO identified three key factors that affected timeliness of payments to community providers under the Choice Program. These factors included (1) VA's untimely payments to TPAs, which in turn extended the length of time TPAs took to pay providers' claims; (2) Choice Program reimbursement requirements, which led to claim denials; and (3) inadequate provider education on filing claims. GAO found that VA has taken actions to address the factors, such as amending certain reimbursement requirements. However, two of these factors have not been fully addressed. In September 2018, GAO made two recommendations to VA, including that VA collect data on and monitor compliance with its requirements pertaining to customer service for community providers. VA agreed with the recommendations, but has not yet implemented them. What GAO Recommends GAO has made 12 recommendations to VA to improve its management and oversight of the Choice Program and the VCCP. VA generally agreed with all but one of GAO's recommendations. GAO continues to believe that all of the recommendations are warranted. As of April 2019, these recommendations have not been implemented.

gao_GAO-19-393T

gao_GAO-19-393T_0

<1. How We Rate High- Risk Areas> Our experience has shown that the key elements needed to make progress in high-risk areas are top-level attention by the administration and agency leaders grounded in the five criteria for removal from the High-Risk List, as well as any needed congressional action. The five criteria for removal that we issued in November 2000 are as follows: Leadership commitment. Demonstrated strong commitment and top leadership support. Capacity. Agency has the capacity (i.e., people and resources) to resolve the risk(s). Action plan. A corrective action plan exists that defines the root cause, solutions, and provides for substantially completing corrective measures, including steps necessary to implement solutions we recommended. Monitoring. A program has been instituted to monitor and independently validate the effectiveness and sustainability of corrective measures. Demonstrated progress. Ability to demonstrate progress in implementing corrective measures and in resolving the high-risk area. Starting in our 2015 update, we added clarity and specificity to our assessments by rating each high-risk area s progress on the five criteria and used the following definitions: Met. Actions have been taken that meet the criterion. There are no significant actions that need to be taken to further address this criterion. Partially met. Some, but not all, actions necessary to meet the criterion have been taken. Not met. Few, if any, actions towards meeting the criterion have been taken. <2. Changes to the 2019 High-Risk List> We are removing two areas DOD Supply Chain Management and Mitigating Gaps in Weather Satellite Data from the list due to the progress that was made in addressing the high-risk issues. As we have with areas previously removed from the High-Risk List, we will continue to monitor these areas to ensure that the improvements we have noted are sustained. If significant problems again arise, we will consider reapplying the high-risk designation. We added two areas to the High-Risk List since our 2017 update Government-Wide Personnel Security Clearance Process and VA Acquisition Management. <2.1. DOD Supply Chain Management Removed From the High-Risk List> We are removing the area of DOD Supply Chain Management from the High-Risk List because, since 2017, DOD has addressed the remaining two criteria (monitoring and demonstrated progress) for the asset visibility and materiel distribution segments. Congressional attention, DOD leadership commitment, and our collaboration contributed to the successful outcome for this high-risk area, which had been on GAO s High-Risk List since 1990. DOD s actions for the asset visibility segment of this high-risk area included (1) providing guidance for the military components to consider key attributes of successful performance measures during metric development for their improvement initiatives; (2) incorporating into after- action reports, information relating to performance measures; and (3) demonstrating sustained progress by, for example, increasing its visibility of assets through radio-frequency identification (RFID), an automated data-capture technology that can be used to electronically identify, track, and store information contained on a tag. According to DOD, the use of RFID tags to provide visibility of sustainment cargo at the tactical leg (i.e., the last segment of the distribution system) resulted in $1.4 million annual cost savings. DOD s actions for the materiel distribution segment of this high-risk area included (1) making progress in developing its suite of distribution performance metrics; (2) incorporating distribution metrics, as appropriate, on the performance of all legs of the distribution system, including the tactical leg; (3) making progress in refining its Materiel Distribution Improvement Plan and incorporating additional actions based on interim progress and results; and (4) improving its capability to comprehensively measure distribution performance, identifying distribution problems and root cause, and implementing solutions. According to DOD, initiatives focused on distribution process and operational improvements have resulted in at least $1.56 billion in distribution cost avoidances to date. As we have with areas previously removed from the High-Risk List, we will continue to monitor this area to ensure that the improvements we have noted are sustained. Appendix II provides additional information on this high-risk area. <2.2. Mitigating Gaps in Weather Satellite Data Removed From the High- Risk List> We are removing the area of Mitigating Gaps in Weather Satellite Data from the High-Risk List because with strong congressional support and oversight the National Oceanic and Atmospheric Administration (NOAA) and DOD have made significant progress since 2017 in establishing and implementing plans to mitigate potential gaps in weather satellite data. The United States relies on polar-orbiting satellites to provide a global perspective on weather every morning and afternoon. NOAA is responsible for the polar satellite program that crosses the equator in the afternoon while DOD is responsible for the polar satellite program that crosses the equator in the early morning orbit. NOAA s actions for polar- orbiting weather satellites that addressed the remaining criteria of action plan and demonstrated progress included (1) issuing three updates to its gap mitigation plan between January 2016 and February 2017 to address shortfalls we had identified previously; and (2) successfully launching the NOAA-20 satellite in November 2017, which is currently operational and is being used to provide advanced weather data and forecasts. Moreover, NOAA is also working to build and launch the next satellites in the polar satellite program. DOD s actions for polar-orbiting weather satellites, pursuant to statutes and accompanying congressional direction, included DOD leadership (1) developing and implementing plans to acquire satellites as part of a family of systems to replace its aging legacy weather satellites, including awarding a contract for its Weather System Follow-on Microwave program, planned for launch in 2022; (2) establishing plans to meet its highest-priority weather monitoring data collection needs that will not be covered by the Weather System Follow-on Microwave program, including by acquiring and launching the Electro-Optical/Infrared Weather Systems satellite in 2024; and (3) monitoring the Weather System Follow-on- Microwave satellite program s progress toward addressing critical needs and assessing its operations and sustainment costs. As we have with areas previously removed from the High-Risk List, we will continue to monitor this area to ensure that the improvements we have noted are sustained. Appendix II provides additional information on this high-risk area. <2.3. Government-wide Personnel Security Clearance Process Added to the High-Risk List> Executive branch agencies are not meeting investigation timeliness objectives, and these processing delays have contributed to a significant backlog that the National Background Investigations Bureau (NBIB) the agency responsible for personnel security clearance investigations reported to be approximately 565,000 investigations as of February 2019. In addition, the executive branch has not finalized performance measures to ensure the quality of background investigations and some long- standing key reform initiatives remain incomplete. Further, information technology (IT) security concerns may delay planned milestones for the development of a new background investigation IT system. We included the DOD program on our High-Risk List in 2005 and removed it in 2011 because of improvements in the timeliness of investigations and adjudications, and steps toward measuring the quality of the process. We put the government-wide personnel security clearance process on our High-Risk List in January 2018 because of significant challenges related to the timely processing of security clearances and completing the development of quality measures. In addition, thITe government s effort to reform the personnel security clearance process, starting with the enactment of the Intelligence Reform and Terrorism Prevention Act of 2004, has had mixed progress, and key reform efforts have not been implemented government-wide. Since adding this area to the High-Risk List, the Security Clearance, Suitability, and Credentialing Performance Accountability Council (PAC), including its four principal members the Deputy Director for Management of the Office of Management and Budget (OMB), the Director of National Intelligence (DNI); the Under Secretary of Defense for Intelligence; and the Director of the Office of Personnel Management (OPM) have not fully met the five criteria for high-risk removal. Several issues contribute to the risks facing the government-wide personnel security clearance process: Clearance processing delays. Executive branch agencies are not meeting most investigation timeliness objectives. The percentage of executive branch agencies meeting established timeliness objectives for initial secret clearances, initial top secret clearances, and periodic reinvestigations decreased each year from fiscal years 2012 through 2018. For example, 97 percent of the executive branch agencies we reviewed did not meet the timeliness objectives for initial secret clearance investigations in fiscal year 2018. Lack of quality measures. While the executive branch has taken steps to establish government-wide performance measures for the quality of background investigations including establishing quality assessment standards and a quality assessment reporting tool it is unclear when this effort will be completed. Security clearance reform delays. The executive branch has reformed many parts of the personnel security clearance process such as updating adjudicative guidelines to establish common adjudicative criteria for security clearances; however, some long- standing key initiatives remain incomplete such as completing plans to fully implement and monitor continuous evaluation. IT security. DOD is responsible for developing a new system to support background investigation processes, and DOD officials expressed concerns about the security of connecting to OPM s legacy systems since a 2015 data breach compromised OPM s background investigation systems and files for 21.5 million individuals. As of December 2018, OPM has not fully taken action on our priority recommendations to update its security plans, evaluate its security control assessments, and implement additional training opportunities. However, since we added this area to our High-Risk List, the PAC has demonstrated progress in some areas. For example, NBIB reported that the backlog of background investigations decreased from almost 715,000 cases in January 2018 to approximately 565,000 cases in February 2019. NBIB officials credit an Executive Memorandum issued jointly in June 2018 by the DNI and the Director of OPM and containing measures to reduce the investigation backlog as a driver in backlog reduction. Further, in response to a requirement in the Securely Expediting Clearances Through Reporting Transparency (SECRET) Act of 2018, in September 2018, NBIB reported to Congress, for each clearance level, (1) the size of the investigation backlog, (2) the average length of time to conduct an initial investigation and a periodic reinvestigation, and (3) a discussion of the factors contributing to investigation timeliness. The PAC is also reporting publicly on the progress of key reforms through www.performance.gov, and for fiscal year 2018, the website contains quarterly action plans and progress updates, which present figures on the average timeliness of initial investigations and periodic reinvestigations for the executive branch as a whole, investigation workload and backlog, and investigator headcounts. We have made numerous recommendations to PAC members to address risks associated with the personnel security clearance process between 2011 when we removed DOD s personnel security clearance program from the High-Risk List, and 2018 when we placed the government-wide personnel security clearance process on the High-Risk List. We consider 27 of these recommendations key to addressing the high-risk designation. Eight recommendations key to the high-risk designation have been implemented, including three since January 2018. Nineteen of these key recommendations remain open including recommendations that the principal members of the PAC (1) conduct an evidence-based review of investigation and adjudication timeliness objectives, (2) develop and report to Congress on investigation quality measures, (3) prioritize the timely completion of efforts to modernize and secure IT systems that affect clearance holders government-wide, and (4) develop and implement a comprehensive workforce plan that identifies the workforce needed to meet current and future demand for background investigations services and to reduce the investigations backlog. See page 170 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <2.4. VA Acquisition Management Added to the High-Risk List> VA spends tens of billions of dollars to procure a wide range of goods and services including medical supplies, IT, and construction of hospitals, clinics, and other facilities to meet its mission of providing health care and other benefits to millions of veterans. VA has one of the most significant acquisition functions in the federal government, both in obligations and number of contract actions. The Veterans Health Administration (VHA) provides medical care to veterans and is by far the largest administration in the VA. Since we began focusing on VA s acquisition management activities in 2015, we have reported numerous challenges in this area. Since 2015, we have made 31 recommendations, 21 of which remain open, that cover a range of areas to address challenges in VA s acquisition management. In fiscal year 2019, VA received the largest discretionary budget in its history $86.5 billion, about $20 billion higher than in 2015. About a third of VA s discretionary budget in fiscal year 2017, or $26 billion, has been used to contract for goods and services. VA s acquisition management continues to face challenges including (1) outdated acquisition regulations and policies; (2) lack of an effective medical supplies procurement strategy; (3) inadequate acquisition training; (4) contracting officer workload challenges; (5) lack of reliable data systems; (6) limited contract oversight and incomplete contract file documentation; and (7) leadership instability. In light of these challenges and given the significant taxpayer investment, it is imperative that VA show sustained leadership commitment to take steps to improve the performance of its procurement function so that it can use its funding in the most efficient manner possible to meet the needs of those who served our country. This area has been added to the High-Risk List for the following reasons in particular: Outdated acquisition regulations and policies. VA s procurement policies have historically been outdated, disjointed, and difficult for contracting officers to use. In September 2016, we reported that the acquisition regulations contracting officers currently follow have not been fully updated since 2008 and that VA had been working on completing a comprehensive revision of its acquisition regulations since 2011. VA s delay in updating this fundamental source of policy has impeded the ability of contracting officers to effectively carry out their duties. We recommended in September 2016 that VA identify measures to expedite the revision of its acquisition regulations and clarify what policies are currently in effect. VA concurred with this recommendation but has not yet fully implemented it. Lack of an effective medical supplies procurement strategy. VA s Medical Surgical Prime Vendor-Next Generation (MSPV-NG) program for purchasing medical supplies to meet the needs of about 9 million veterans at 172 medical centers has not been effectively executed, nor is it in line with practices at leading hospitals that have launched similar programs. We reported in November 2017 that VA s approach to developing its catalog of supplies was rushed and lacked key stakeholder involvement and buy-in. As a result, VA was not able to accomplish some of the key efficiencies the program was intended to achieve, such as streamlining the purchase of medical supplies and saving money. We recommended in November 2017 that VA develop, document, and communicate to stakeholders an overarching strategy for the program. VA concurred with this recommendation and reported that it would develop a new strategy by March 2019. Contracting officer workload challenges. The majority of our reviews since 2015 have highlighted workload as a contributing factor to the challenges that contracting officers face. Most recently, in September 2018, we reported that about 54 percent of surveyed VA contracting officers said their workload was not reasonable. In addition, in September 2016, we reported that VHA contracting officers processed a large number of emergency procurements of routine medical supplies, which accounted for approximately 20 percent of VHA s overall contract actions in fiscal year 2016, with obligations totaling about $1.9 billion. Contracting officers told us that these frequent and urgent small-dollar transactions reduce contracting officers efficiency and ability to take a strategic view of procurement needs. We recommended in November 2017 that VHA network contracting offices work with medical centers to identify opportunities to more strategically purchase goods and services frequently purchased on an emergency basis. VA concurred with this recommendation and reported in December 2018 that it is utilizing a supply chain dashboard to track items purchased on an emergency basis and determine which of those items to include on the catalog. VA noted that it added 13,300 items to the catalog from June 2018 to December 2018, including items often purchased on an emergency basis. We requested documentation showing which items added to the catalog were previously purchased on an emergency basis, but as of January 2019, VA had not yet provided it. Among other things, VA should implement our 21 open recommendations and specifically needs to take the following steps to demonstrate greater leadership commitment and strategic planning to ensure efficient use of its acquisition funding and staffing resources: Prioritize completing the revision of its acquisition regulations, which has been in process since 2011. Develop, document, and communicate to stakeholders a strategy for the Medical Surgical Prime Vendor program to achieve overall program goals. Identify opportunities to strategically purchase goods and services that are frequently purchased on an emergency basis. See page 210 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <2.5. Emerging Issue Requiring Close Attention: Federal Efforts to Prevent Drug Misuse> In addition to specific areas that we have designated as high-risk, other important challenges facing our nation merit continuing close attention. One of these is the use of illicit drugs and the misuse of prescription drugs and the ways they affect individuals, their families, and the communities in which they live. Over 70,000 people died from drug overdoses in 2017 about 191 people every day according to the Centers for Disease Control and Prevention, with the largest portion of these deaths attributed to opioids. Further, drug overdoses are the leading cause of death due to injuries in the United States. They are currently at their highest ever recorded level and, since 2011, have outnumbered deaths by firearms, motor vehicle crashes, suicide, and homicide, according to the Drug Enforcement Administration. The Council of Economic Advisors estimates that in 2015, the economic cost of the opioid crisis alone was more than $500 billion when considering the value of lives lost due to opioid-related overdose. Federal drug control efforts spanning prevention, treatment, interdiction, international operations, and law enforcement represent a considerable federal investment. According to the President s fiscal year 2019 budget, federal drug control funding for fiscal year 2017 was $28.8 billion. Multiple federal agencies have ongoing efforts to respond to this crisis, including efforts to reduce the supply and demand for illicit drugs, to prevent misuse of prescription drugs, and to treat substance use disorders. However, we previously found that many efforts lacked measures to gauge the success of the federal response. Further, we have long advocated an approach to decision-making based on risk management. Such an approach would (1) link agencies plans and budgets to achieving their strategic goals, (2) assess values and risks of various courses of actions to help set priorities and allocate resources, and (3) provide for the use of performance measures to assess progress. The Office of National Drug Control Policy (ONDCP) is responsible for overseeing and coordinating the implementation of U.S. drug policy, including developing the National Drug Control Strategy (Strategy). ONDCP released the 2019 Strategy on January 31, 2019. The Strategy focuses on approaches related to prevention, treatment and recovery, and steps to reduce the availability of illicit drugs in the United States. We will continue to monitor the extent to which ONDCP and other federal agencies are employing a risk management and coordinated approach to their efforts to limit drug misuse. In particular, we have ongoing and planned work to assess ONDCP s operations, including its (1) leadership and coordination of efforts across the federal government; (2) the effects of the drug crisis on labor force participation and productivity and on people with disabilities and other vulnerable populations; (3) key federal efforts to reduce the availability of illicit drugs; and (4) agency efforts around drug education and prevention. We will determine whether this issue should be added to the High-Risk List once we have completed this ongoing and planned work. <3. High-Risk Areas That Made Progress> Agencies can show progress by addressing our five criteria for removal from the list: leadership commitment, capacity, action plan, monitoring, and demonstrated progress. As shown in table 1, 24 high-risk areas, or about two-thirds of all the areas, have met or partially met all five criteria for removal from our High-Risk List; 20 of these areas fully met at least one criterion. Compared with our last assessment, 7 high-risk areas showed progress in one or more of the five criteria without regressing in any of the criteria. Ten high-risk areas have neither met nor partially met one or more criteria. Two areas showed mixed progress by increasing in at least one criterion and also declining in at least one criterion. Three areas declined since 2017. These changes are indicated by the up and down arrows in table 1. Figure 1 shows that since our 2017 update, the most progress was made on the action plan criterion four high-risk areas received higher ratings. We rated two areas lower on leadership commitment and two areas lower on monitoring. <3.1. Leadership Attention Needed to Meet High-Risk Criteria> Table 2 shows that 17 of the 34 high-risk areas we rated have met the leadership commitment criterion while two high-risk area ratings regressed on leadership commitment from met to partially met since our last report. Leadership commitment is the critical element for initiating and sustaining progress, and leaders provide needed support and accountability for managing risks. Leadership commitment is needed to make progress on the other four high-risk criteria. Table 2 shows that only three high-risk areas met the criterion for capacity, six met the criterion for action plan, and two met the criterion for demonstrated progress. One high-risk area U.S. Government s Environmental Liability has partially met only one criterion since we added the area to our list in 2017 and the rest are not met. <3.2. Progress in High-Risk Areas> As noted, seven areas showed improvement in one or more criterion without regressing in any criteria. Two areas showed sufficient progress to be removed from the High-Risk List. The other five high-risk areas remaining on the 2019 list demonstrated improvement and are described below. Three of these five improving high-risk areas are the responsibility of the Department of Defense (DOD) DOD Support Infrastructure Management, DOD Financial Management, and DOD Business Systems Modernization. The two other improving areas are Department of Energy s (DOE's) Contract Management for the National Nuclear Security Administration and Office of Environmental Management, and Medicare Program & Improper Payments. DOD Support Infrastructure Management: DOD manages a portfolio of real property assets that, as of fiscal year 2017, reportedly included about 586,000 facilities including barracks, maintenance depots, commissaries, and office buildings. The combined replacement value of this portfolio is almost $1.2 trillion and includes about 27 million acres of land at nearly 4,800 sites worldwide. This infrastructure is critical to maintaining military readiness, and the cost to build and maintain it represents a significant financial commitment. Since our 2017 High-Risk Report, DOD s rating for two criteria leadership commitment and action plan improved from partially met to met. DOD has demonstrated leadership commitment by stating its commitment to addressing key recommendations we have made by, for example, (1) better forecasting the initial Base Realignment and Closure (BRAC) costs for military construction, IT, and relocating military personnel and equipment; (2) better aligning infrastructure to DOD force structure needs by, for example, improving the accuracy and sufficiency of its excess capacity estimates; and (3) pursuing an effort to consolidate and standardize leases, which includes analyzing whether it is feasible to relocate functions from commercial leased space to existing space on an installation, thereby reducing leases and better utilizing excess space. DOD has developed action plans to better identify excess infrastructure and thus be positioned to dispose of it. For example, in the 2017 High- Risk Report, we stated that DOD s Real Property Efficiency Plan includes DOD s goals for reducing the footprint of its real property inventory and metrics to gauge progress, to be implemented by the end of 2020. We also found in 2018 that DOD was achieving cost savings and cost avoidances as it had begun using intergovernmental support agreements between military installations and local governments to obtain installation services, such as waste removal, grounds maintenance, and stray animal control. As a result of these and other actions, DOD now meets the action plan criterion for this high-risk area. As of December 2018, 23 recommendations related to this high-risk area remain open. DOD continues to partially meet the criteria for capacity, monitoring, and demonstrated progress. See page 158 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. DOD Financial Management: Since our 2017 High-Risk Report, ratings for the DOD Financial Management high-risk area improved for the criteria of leadership commitment and monitoring. For the leadership commitment criterion, the high-risk area rating improved from partially met to met in 2019 due to several DOD leadership actions. For example, in 2018, DOD leadership met the goal of undergoing an agency-wide financial statement audit and established a process to remediate any audit findings ultimately to improve the quality of financial information that is most valuable in managing the department s day-to-day operations. In addition, according to a DOD official, audit remediation efforts have produced benefits in certain inventory processes that have led to operational improvements. DOD leadership demonstrated its commitment to making needed improvements by developing a database that tracks hundreds of findings and recommendations that came out of the audits. In addition, senior leadership has been meeting bimonthly with military services leadership for updates on the status of corrective action plans to address audit findings and recommendations, and the Under Secretary of Defense (Comptroller) has been meeting frequently with the Secretary of Defense to review the plans. These same DOD actions also led to the high-risk area s rating for the criterion of monitoring to improve from not met to partially met. For example, the database mentioned above is intended to capture, prioritize, and assign responsibility for auditor findings and related corrective action plans, which are meant to be used to measure progress towards achieving a clean audit opinion. Further, DOD leadership has held frequent meetings to discuss the status of corrective action plans. In addition, DOD also established councils in certain areas (e.g., financial reporting) to review the status of audit remediation activities and challenges. All of these actions demonstrate an improvement in DOD s monitoring activities for its financial management function. However, DOD s efforts to improve its financial management continue to be impaired by long-standing issues including its decentralized environment; cultural resistance to change; lack of skilled financial management staff; ineffective processes, systems, and controls; incomplete corrective action plans; and the need for more effective monitoring and reporting. DOD remains one of the few federal entities that cannot accurately account for and report on its spending or assets. As of December 2018, 53 recommendations for this high-risk area are open. The DOD Financial Management high-risk area continues to partially meet the capacity and action plan criteria and not meet the demonstrated progress criterion. See page 147 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. DOD Business Systems Modernization: DOD spends billions of dollars each year to acquire modernized systems, including systems that address key areas such as personnel, financial management, health care, and logistics. This high-risk area includes three critical challenges facing DOD: (1) improving business system acquisition management, (2) improving business system investment management, and (3) leveraging DOD s federated business enterprise architecture. DOD s capacity for modernizing its business systems has improved over time and, since our 2017 High-Risk Report, DOD s overall rating for the criterion of action plan improved from not met to partially met in 2019. DOD established a plan for improving its federated business enterprise architecture (i.e., description of DOD s current and future business environment and a plan for transitioning to the future environment). Specifically, the rating improved for DOD s federated business enterprise architecture segment of the high-risk area because DOD s assistant deputy chief management officer approved a business architecture improvement plan in January 2017. Since 2017, we have made 10 recommendations related to this high-risk issue. As of December 2018, 27 recommendations are open. The leadership, capacity, monitoring, and demonstrated progress criteria remain partially met as in 2017. See page 152 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. . DOE's Contract Management for the National Nuclear Security Administration and Office of Environmental Management: DOE oversees a broad range of programs related to nuclear security, science, energy, and waste cleanup, among other areas. As the largest civilian contracting agency in the federal government, DOE relies primarily on contractors to carry out its programs. For instance, DOE spends about 90 percent of its annual budget on contracts and acquiring capital assets. In fiscal year 2018, DOE s budget was $34.5 billion. The high-risk area focuses on contracts, as well as major projects those with an estimated cost of $750 million or greater managed by DOE s National Nuclear Security Administration (NNSA) and Office of Environmental Management (EM). Since our 2017 High-Risk Report, DOE has made progress by improving from a not met to a partially met rating for the demonstrated progress criterion. Specifically, through its Office of Cost Estimating and Program Evaluation, NNSA has enhanced its capability to estimate costs and schedules, and to assess alternatives for programs and projects, among other things. NNSA also made progress by adopting best practices in several areas, such as those for estimating costs and schedules in nuclear weapons refurbishment activities and capital asset acquisitions. For example, we determined that DOE s revised cost estimate of $17.2 billion to construct a Mixed Oxide Fuel Fabrication Facility to dispose of surplus, weapons-grade plutonium substantially met best practices providing assurance that the estimated costs could be considered reliable. This finding contributed to DOE s reevaluation of the project and ultimate termination, in October 2018, in favor of a potentially less costly disposal approach. Fifty-one of our recommendations were open as of December 2018; 15 recommendations were made since the last high-risk update in February 2017. DOE continues to meet the criterion of leadership commitment, partially meet the criteria for action plan and monitoring, and not meet the criterion for capacity. See page 217 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. . Medicare Program & Improper Payments: In calendar year 2017, Medicare, which is overseen by the Centers for Medicare & Medicaid Services (CMS), financed $702 billion worth of health services for approximately 58 million elderly and disabled beneficiaries. Medicare faces a significant risk with improper payments payments that either were made in an incorrect amount or should not have been made at all which reached an estimated $48 billion in fiscal year 2018. Since our 2017 High-Risk Report, estimated improper payment rates declined more than one percent across the Medicare program. In addition, CMS rating for the capacity criterion of the improper payments segment improved from partially met to met in 2019 due to several actions. First, the Center for Program Integrity s (CPI) budget and resources have increased over time and the agency has established work groups and interagency collaborations to extend its capacity. For example, CMS allocated more staff to CPI after Congress provided additional funding. CPI s full-time equivalent positions increased from 177 in 2011 to 419 in 2017. Additionally, in August 2017, we reported that CMS s Fraud Prevention System, which analyzes claims to identify health care providers with suspect billing patterns, helped speed up certain fraud investigation processes. Further, the Healthcare Fraud Prevention Partnership helped improve information sharing among payers inside and outside of the government. Since 1990, when we added Medicare to our High-Risk List, we have made many recommendations related to the Medicare program, 28 of which were made since the last high-risk update in February 2017. As of December 2018, more than 80 recommendations remain open. CMS continues to meet the criterion of leadership commitment and to partially meet the remaining three criteria of action plan, monitoring, and demonstrated progress. See page 241 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <3.3. Congressional Action Aided Progress on High- Risk Issues> Congress enacted several laws since our last report in February 2017 to help make progress on high-risk issues. Table 3 lists selected examples of congressional actions taken on high-risk areas. Congressional oversight also plays a vital role in addressing high-risk issues. For example, at a May 2018 hearing, we testified that the Census Bureau s (Bureau) cost estimate was not reliable, and that the actual cost could be higher than planned. Further, the Secretary of Commerce created a dedicated team to provide oversight and guidance to the Bureau on cost estimation. In addition to its instrumental role in supporting progress in individual high-risk areas, Congress also enacted the following statutes that, if implemented effectively, will help foster progress on high-risk issues government-wide: Fraud Reduction and Data Analytics Act of 2015 (FRDAA):FRDAA is intended to strengthen federal antifraud controls. FRDAA requires OMB to use our Fraud Risk Framework to create guidelines for federal agencies to identify and assess fraud risks, and then design and implement control activities to prevent, detect, and respond to fraud. Agencies, as part of their annual financial reports beginning in fiscal year 2017, are further required to report on their fraud risks and their implementation of fraud reduction strategies, which should help Congress monitor agencies progress in addressing and reducing fraud risks. To aid federal agencies in better analyzing fraud risks, FRDAA requires OMB to establish a working group tasked with developing a plan for creating an interagency library of data analytics and data sets to facilitate the detection of fraud and the recovery of improper payments. This working group and the library should help agencies coordinate their fraud detection efforts and improve their ability to use data analytics to monitor databases for potential improper payments. The billions of dollars in improper payments, some of which may be a result of fraud, are a central part of the Medicare Program, Medicaid Program, and Enforcement of Tax Laws (Earned Income Tax Credit) high-risk areas. We reported in 2018 that, among other things, OMB did not involve all agencies subject to the act as required by FRDAA or hold the required minimum number of working-group meetings in 2017. As shown in figure 2, a majority of the 72 agencies surveyed indicated a lack of involvement with and information from the working group as challenges in implementing FRDAA. We made three recommendations, including that OMB ensure the working group meets FRDAA s requirements to involve all agencies that are subject to the act and ensure that mechanisms to share controls, best practices, and data-analytics techniques are in place. OMB did not concur with our recommendations. We continue to believe the recommendations are valid, as discussed in the 2018 report. IT Acquisition Reform, statutory provisions known as the Federal Information Technology Acquisition Reform Act (FITARA): FITARA, enacted in December 2014, was intended to improve how agencies acquire IT and better enable Congress to monitor agencies progress in reducing duplication and achieving cost savings. Since the enactment of these provisions, OMB and federal agencies have paid greater attention to IT acquisition and operation, resulting in improvements to the government-wide management of this significant annual investment. These efforts have been motivated in part by sustained congressional support for improving implementation of this law, as highlighted in agencies FITARA implementation scores issued biannually by the House Committee on Oversight and Reform. This continuing oversight has produced positive results. For example, in the committee s December 2018 FITARA implementation scorecard, 18 of the 24 major federal agencies received the highest possible rating for their efforts to improve the management of software licenses, of which we have found there are thousands annually across the government. Seven months earlier, in the prior scorecard, only eight agencies had achieved this rating. Moreover, federal agencies have taken actions to address 106 of the 136 related recommendations that we have made in this area since 2014. FITARA includes specific requirements related to seven areas: the federal data center consolidation initiative, enhanced transparency and improved risk management, agency Chief Information Officer authority enhancements, portfolio review, expansion of training and use of IT acquisition cadres, government-wide software purchasing, and maximizing the benefit of the federal strategic sourcing initiative. In November 2017, Congress extended or removed the sunset dates of several of these statutory requirements that were originally to end in 2018 and 2019. While all of the 24 federal agencies covered by this law have developed FITARA implementation plans, the agencies need to effectively execute these plans. Successfully addressing FITARA requirements is central to making progress in Improving the Management of IT Acquisitions and Operations, which has been on our High-Risk List since 2015. Program Management Improvement Accountability Act (PMIAA): Enacted in December 2016, the act is intended to improve program and project management in certain larger federal agencies. Among other things, the act requires the Deputy Director for Management of OMB to adopt and oversee implementation of government-wide standards, policies, and guidelines for program and project management in executive agencies. The act also requires the Deputy Director to conduct portfolio reviews to address programs we identify as high-risk. It further creates a Program Management Policy Council to act as the principal interagency forum for improving practices related to program and project management. The council is to review programs identified as high-risk and make recommendations to the Deputy Director or designee. OMB has produced a general strategy for implementing the law through 2022 and met some initial milestones required by PMIAA. For example, in June 2018, OMB issued OMB Memorandum M- 18-19, which includes: (1) agency guidance for implementing PMIAA, (2) a five-year strategic outline for improving program and project management, and (3) initial program management standards and principles. Further, agencies have designated Program Management Improvement Officers to guide their implementation of PMIAA. According to OMB, it began implementing PMIAA s requirement to conduct portfolio reviews on high-risk areas by requiring relevant agencies to provide several items for discussion during the 2018 Strategic Review meetings. These annual meetings are to consist primarily of a discussion of agency progress towards each of the strategic objectives outlined in their strategic plans, but also cover other management topics such as enterprise risk management and high-risk area progress. According to OMB documents, in advance of these meetings, OMB required agencies to provide a high-level summary of (1) any disagreements with our recommendations, (2) progress barriers, and (3) actions needed by OMB, other agencies, or Congress to help the agency achieve progress towards removal from our High-Risk List. OMB officials told us their 2018 Strategic Review meetings did not address each high-risk area but did address government-wide high-risk areas, such as cybersecurity, information technology, and strategic human capital as they related to the President s Management Agenda. In the past, senior management officials from OMB, applicable agencies, and our agency have met to address areas where additional management attention could be beneficial to high-risk issues. These trilateral meetings, beginning in 2007 and pre- dating PMIAA s 2016 enactment, have continued across administrations. However, OMB has organized only one of these high-risk meetings since the last high-risk update in 2017, on the Government-wide Personnel Security Clearance Process. In November 2018, OMB told us of plans to hold additional meetings on priority high-risk areas, including the 2020 Decennial Census, Strategic Human Capital Management, Ensuring the Cybersecurity of the Nation, National Aeronautics and Space Administration (NASA) Acquisition Management, and Managing Federal Real Property. Effective implementation of PMIAA provides an important opportunity to enhance progress on high-risk areas by focusing leadership attention through the portfolio reviews and trilateral meetings. Further, a number of high-risk areas have longstanding or significant program and project management concerns, including the acquisition-related high-risk areas for DOD, DOE, NASA, and VA. These and other programs can benefit from improving program and project management. In December 2019, we will report on OMB s progress in implementing PMIAA, including what further steps it has taken to use the portfolio review process required in PMIAA to address issues on our High-Risk List. <3.4. Executive Branch Action on Our Recommendations Aided Progress on High- Risk Issues> Agency leaders took actions to implement our recommendations. These resulted in numerous improvements to programs and operation and improved service. Further, these actions to implement our recommendations resulted in significant financial benefits. Table 4 shows some examples of the financial benefits achieved since our last High-Risk Report. <4. High-Risk Areas Needing Significant Attention> In the 2 years since our last High-Risk Report, three areas NASA Acquisition Management, Transforming EPA's Process for Assessing and Controlling Toxic Chemicals, and Limiting the Federal Government's Fiscal Exposure By Better Managing Climate Change Risks have regressed in their ratings against our criteria for removal from the High- Risk List. In addition, while progress is needed across all high-risk areas, we have identified nine additional areas that require significant attention to address imminent, longstanding, or particularly broad issues affecting the nation. <4.1. Three High-Risk Areas That Regressed> <4.1.1. NASA Acquisition Management> NASA plans to invest billions of dollars in the coming years to explore space, improve its understanding of the Earth s environment, and conduct aeronautics research, among other things. We designated NASA s acquisition management as high risk in 1990 in view of NASA s history of persistent cost growth and schedule delays in the majority of its major projects. Following several years of continuing a generally positive trend of limiting cost growth and schedule delays for its portfolio of major projects, we found that NASA s average launch delay increased from 7 to 12 months between May 2017 and May 2018. Further, the overall development cost growth increased from 15.6 percent to at least 18.8 percent over the same time period. NASA s largest science project, the James Webb Space Telescope, has experienced schedule delays of 81 months and cost growth of 95 percent since the project s cost and schedule baseline was first established in 2009. NASA is at risk for continued cost growth and schedule delays in its portfolio of major projects. Since our 2017 high-risk update, we have lowered NASA acquisition management from meeting the rating to partially meeting the rating in two criteria leadership commitment and monitoring. The other three criteria ratings remained the same as in 2017. Ratings for capacity and demonstrated progress remain partially met and the rating for action plan remains met. Over the next several years, NASA plans to add new, large, and complex projects to the portfolio, including a lunar Gateway currently being discussed as a platform in a lunar orbit to mature deep space exploration capabilities. In addition, many of NASA s current major projects, including some of the most expensive ones, are in the phase of their life cycles when cost growth and schedule delays are most likely. NASA acquisition management requires significant attention for the following reasons: NASA leadership has approved risky programmatic decisions for complex major projects, which compounded technical challenges. For example, leadership has approved some programs to proceed (1) with low cost and schedule reserves, (2) with overly aggressive schedules, and (3) without following best practices for establishing reliable cost and schedule baselines. NASA leadership has also not been transparent about cost and schedule estimates for some of its most expensive projects. Without transparency into these estimates, both NASA and Congress have limited data to inform decision making. NASA has not yet instituted a program for monitoring and independently validating the effectiveness and sustainability of the corrective action measures in its new action plan, which NASA finalized in December 2018. In addition, while NASA has taken some steps to build capacity to help reduce acquisition risk, including updating tools aimed at improving cost and schedule estimates, other areas still require attention. For example, we reported in May 2018 that several major NASA projects experienced workforce challenges, including not having enough staff or staff with the right skills. NASA has also identified capability gaps in areas such as scheduling, earned value management, and cost estimating, and has efforts underway to try to improve capacity in these areas. Since 2017, we have made 9 recommendations on this high-risk area, and as of December 2018, 15 recommendations remain open. These recommendations include that NASA needs to improve transparency of major project cost and schedule estimates, especially for its human spaceflight programs, as well as continue to build capacity to reduce acquisition risk. NASA will also need to implement its new action plan and track progress against it. See page 222 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.1.2. Transforming EPA's Process for Assessing and Controlling Toxic Chemicals> The Environmental Protection Agency s (EPA s) ability to effectively implement its mission of protecting public health and the environment is dependent on it assessing the risks posed by chemicals in a credible and timely manner. Such assessments are the cornerstone of scientifically sound environmental decisions, policies, and regulations under a variety of statutes. Based on our work since our 2017 High-Risk Report, the overall rating for leadership commitment decreased from met to partially met due to limited information for completing chemical assessments and proposed budget cuts in the Integrated Risk Information System (IRIS) Program. The ratings for the remaining four criteria remain unchanged and are partially met. The EPA Acting Administrator indicated his commitment to fulfill the agency s obligations under the Toxic Substances Control Act (TSCA) as amended by the 2016 Frank R. Lautenberg Chemical Safety for the 21 Century Act (Lautenberg Act) and ensure chemicals in the marketplace are safe for human health and the environment. Nonetheless, EPA needs to give more attention to several areas to fully realize the benefits of the new law, and to demonstrate additional progress in the IRIS Program, such as: While EPA released a document in late December 2018 called the IRIS Program Outlook, the Outlook fails to list the projected date for most of the assessments and includes no information regarding assessment prioritization including how these assessments will meet program and regional office needs. The Lautenberg Act increases both EPA s responsibility for regulating chemicals and its workload. EPA recently issued a rule under the act to collect fees from certain companies to defray a portion of the implementation costs, but it is unclear whether the fees collected will be sufficient to support relevant parts of the program. EPA issued a First Year Implementation Plan in June 2016 noting that this document is intended to be a roadmap of major activities EPA will focus on during the initial year of implementation. As of mid- February 2019 the plan has not been updated, according to publically available information, although EPA had indicated that it is a living document that will be further developed over time. EPA needs to ensure that the people and resources dedicated to the IRIS Program and TSCA implementation are sufficient. Our March 2019 report on chemical assessments provides information on what remains to be done to address challenges in the IRIS program and implement the Lautenberg Act. Since we added this area to our High-Risk List in 2009, we have made 12 recommendations to EPA related to IRIS and TSCA. As of February 2019, seven recommendations remain open. See page 204 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.1.3. Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks> Numerous studies have concluded that climate change poses risks to many environmental and economic systems and creates a significant fiscal risk to the federal government. The rising number of natural disasters and increasing reliance on the federal government for assistance is a key source of federal fiscal exposure. As of December 2018, total federal funding for disaster assistance since 2005 is approaching half a trillion dollars (about $430 billion), most recently for catastrophic hurricanes, flooding, wildfires, and other losses in 2017 and 2018. The costliness of disasters is projected to increase as extreme weather events become more frequent and intense due to climate change. There are five areas where government-wide action is needed to reduce federal fiscal exposure, including, but not limited to, the federal government s role as (1) the insurer of property and crops; (2) the provider of disaster aid; (3) the owner or operator of infrastructure; (4) the leader of a strategic plan that coordinates federal efforts and informs state, local, and private-sector action; and (5) the provider of data and technical assistance to decision makers. Neither global efforts to mitigate climate change causes nor regional adaptation efforts currently approach the scales needed to avoid substantial damages to the U.S. economy, environment, and human health over the coming decades, according to the November 2018 Fourth National Climate Assessment. Government-wide action is needed to improve the nation s resilience to natural hazards and reduce federal fiscal exposure to climate change impacts. Congress continues to show its commitment to progress on this high-risk issue by enacting legislation. For example, in October 2018, the Disaster Recovery Reform Act was enacted, which, among other things, allows the President to set aside, with respect to each major disaster, a percentage of certain grants to use for pre-disaster hazard mitigation. In addition, the National Defense Authorization Act of 2018, required, among other things, DOD to report on climate impacts to its installations. However, the federal government has not made measurable progress since 2017 to reduce its fiscal exposure to climate change, and in some cases, has revoked prior policies designed to do so. Specifically, since 2017, the ratings for four criteria remain unchanged three at partially met and one at not met. The rating for one criterion monitoring regressed to not met. Limiting the federal government s fiscal exposure to climate change requires significant attention because the federal government has revoked prior policies that had partially addressed this high-risk area and has not implemented several of our recommendations that could help reduce federal fiscal exposure. For example, since our 2017 high-risk update, the federal government: revoked Executive Order 13690, which had established a government-wide federal flood risk management standard to improve the resilience of communities and federal assets against the impacts of flooding. This action could increase federal fiscal exposure, as taxpayer-funded projects may not last as long as intended because they are not required to account for future changes in climate-related risk. rescinded its guidance directing agencies to consider climate change in their National Environmental Policy Act of 1969 reviews for certain types of federal projects. has not implemented our July 2015 recommendation to establish a comprehensive investment strategy identifying, prioritizing, and implementing federal disaster resilience investments that could reduce federal fiscal exposure to climate change. has not implemented our November 2015 recommendations to create a national climate information system providing authoritative, accessible information useful for state, local, and private-sector decision making. We have made 62 recommendations related to this high-risk area, 12 of which were made since our February 2017 high-risk update. As of December 2018, 25 remain open. The federal government needs a cohesive strategic approach with strong leadership and the authority to manage climate change risks across the entire range of federal activities. See page 110 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2. Additional High-Risk Areas That Need Significant Attention> <4.2.1. Ensuring the Cybersecurity of the Nation> Federal agencies and the nation s critical infrastructures such as energy, transportation systems, communications, and financial services are dependent on information technology systems to carry out operations. The security of these systems and the data they use is vital to public confidence and national security, prosperity, and well-being. The risks to systems underpinning the nation s critical infrastructure are increasing as security threats evolve and become more sophisticated. We first designated information security as a government-wide high-risk area in 1997. This was expanded to include protecting cyber critical infrastructure in 2003 and protecting the privacy of personally identifiable information in 2015. In 2018, we updated this high-risk area to reflect the lack of a comprehensive cybersecurity strategy for the federal government. Since 2010, we have made over 3,000 recommendations to agencies aimed at addressing cybersecurity shortcomings, including protecting cyber critical infrastructure, managing the cybersecurity workforce, and responding to cybersecurity incidents. Of those 3,000 recommendations, 448 were made since our last high-risk update in February 2017. Although many recommendations have been addressed, about 700 have not yet been implemented. Despite the number of unimplemented recommendations, since our 2017 High-Risk Report, the administration has made progress in this high-risk area as it continues to meet the leadership commitment criterion through various actions. These include the President issuing (1) an executive order in May 2017 requiring federal agencies to take a variety of actions, including better managing their cybersecurity risks and coordinating to meet reporting requirements related to cybersecurity of federal networks and critical infrastructure and (2) a National Security Strategy in December 2017 citing cybersecurity as a national priority and identifying needed actions. Further, the administration issued a government-wide reform plan and reorganization recommendations in June 2018 with, among other things, proposals for solving the federal cybersecurity workforce shortage. Additionally, the administration released a National Cyber Strategy in September 2018 outlining activities such as securing critical infrastructure, federal networks, and associated information. However, additional actions are needed. We have identified four major cybersecurity challenges facing the nation: (1) establishing a comprehensive cybersecurity strategy and performing effective oversight, (2) securing federal systems and information, (3) protecting cyber critical infrastructure, and (4) protecting privacy and sensitive data. To address the four major cybersecurity challenges, we identified 10 critical actions the federal government and other entities need to take. These critical actions include, for example, developing and executing a more comprehensive federal strategy for national cybersecurity and global cyberspace; addressing cybersecurity workforce management challenges; and strengthening the federal role in protecting the cybersecurity of critical infrastructure (see figure 3). Until these shortcomings are addressed, federal agencies information and systems will be increasingly susceptible to the multitude of cyber- related threats that exist. See page 178 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.2. Resolving the Federal Role in Housing Finance> The expanded federal role in housing finance that began during the 2007 2009 financial crisis has substantially increased the government s exposure to potential mortgage losses. Federally supported mortgages include those backed by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) collectively, the enterprises which the Federal Housing Finance Agency (FHFA) placed into government conservatorships in 2008. Federal support also occurs through Federal Housing Administration (FHA) mortgage insurance and Government National Mortgage Association (Ginnie Mae) guarantees on mortgage-backed securities. The substantial financial assistance the enterprises required during and after the crisis, coupled with the large fiscal exposure they and other federal mortgage entities represent today, underscore the need to reform the federal role in housing finance. Delay in resolving the federal role in housing finance poses considerable risks. Through the enterprises, FHA, and Ginnie Mae, the federal government is exposed to potential losses on several trillion dollars in mortgage debt. A severe economic downturn could trigger significant taxpayer assistance to one or more of these entities. Congress and federal agencies have taken some steps to facilitate the transition to a revised federal role, such as holding hearings, introducing legislation, issuing regulations, and developing market monitoring tools. For example, in 2013 and 2014, housing and regulatory agencies finalized rules designed to prevent a recurrence of risky practices in originating and securing mortgages that contributed to the financial crisis. Additionally, FHFA and the Consumer Financial Protection Bureau have developed a representative database of mortgage information that could be useful for examining the effect of mortgage market reforms. However, overall progress on resolving the federal role will be difficult to achieve until Congress provides further direction by enacting changes to the housing finance system. Several issues contribute to the risks facing federal housing finance, including the following: More than 10 years after entering federal conservatorships, the enterprises futures remain uncertain and billions of taxpayer dollars remain at risk. Under agreements with the Department of the Treasury (Treasury), the enterprises have received $191.4 billion in capital support as of the end of fiscal year 2018 and have paid dividends to the department exceeding that amount. If they were to incur major additional losses, they would draw required amounts from their remaining $254.1 billion in Treasury commitments. In addition, prolonged conservatorships could hinder development of the broader mortgage securities market by creating uncertainty and crowding out private investment. Nonbanks (lenders and loan servicers that are not depository institutions) have played an increasingly large role in the mortgage market in recent years. While nonbanks have helped provide access to mortgage credit, they also may pose additional risks, in part because they are not federally regulated for safety and soundness. However, FHFA lacks statutory authority to examine nonbank mortgage servicers and other third parties who do business with and pose potential risks to the enterprises. The statutory 2 percent capital requirement for FHA s $1.26 trillion mortgage insurance fund is not based on a specified risk threshold, such as the economic conditions the fund would be expected to withstand. As a result, it may not provide an adequate financial cushion under scenarios in which Congress may anticipate the fund would be self-sufficient. During the last housing downturn, the fund s capital ratio fell below the required level and remained there for 6 consecutive years. At the end of fiscal year 2013, the fund required supplemental funds about $1.7 billion for the first time in its history. Six of our federal housing recommendations remain open, including those we made in June 2015 on assessing the effects of mortgage reforms already in place. Further, as we previously recommended in November 2016 and January 2019, Congress should consider housing finance reform legislation that: establishes objectives for the future federal role in housing finance, including the role and structure of the enterprises within the housing finance system; provides a transition plan to a reformed system that enables the enterprises to exit federal conservatorship; and addresses all relevant federal entities, including FHA and Ginnie Mae. As we recommended in March 2016 and November 2017, respectively, Congress also should consider granting FHFA explicit authority to examine nonbank servicers and other third parties that do business with the enterprises, and specifying the economic conditions FHA s insurance fund would be expected to withstand without a substantial risk of requiring supplemental funds. See page 95 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. Due to the significance and risk associated with Resolving the Federal Role in Housing Finance, we are separating it from the high-risk area of Modernizing the U.S. Financial Regulatory System. These areas were combined in our 2017 High-Risk report. See page 95 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.3. Pension Benefit Guaranty Corporation Insurance Programs> The Pension Benefit Guaranty Corporation (PBGC) is responsible for insuring the defined benefit pension plans for nearly 37 million American workers and retirees, who participate in about 24,800 private sector plans. PBGC faces an uncertain financial future due, in part, to a long- term decline in the number of traditional defined benefit plans and the collective financial risk of the many underfunded pension plans that PBGC insures. PBGC s financial portfolio is one of the largest of all federal government corporations. While PBGC s single employer program had a net surplus of about $2.4 billion at the end of fiscal year 2018, its multiemployer program had a net deficit of about $54 billion or a combined net accumulated financial deficit of over $51 billion. Its deficit has increased by nearly 45 percent since fiscal year 2013. PBGC has estimated that, without additional funding, its multiemployer insurance program will likely be exhausted by 2025 as a result of current and projected pension plan insolvencies. The agency s single-employer insurance program is also at risk due to the continuing decline of traditional defined benefit pension plans, as well as premiums that are not well aligned to the financial risk presented by the plans it insures. While Congress and PBGC have taken significant and positive steps to strengthen the agency in the past 5 years, challenges related to PBGC s funding and governance structure remain. Congress established a temporary Joint Select Committee on multiemployer pension plans in 2018 with the goal of improving the solvency of the multiemployer program. However, the committee did not release draft legislation. Addressing the significant financial risk and governance challenges that PBGC faces will require additional congressional action. Over the years since we added PBGC to the High-Risk List, we have suggested a number of matters for congressional consideration, including: (1) authorizing a redesign of PBGC s single employer program premium structure to better align premium rates with sponsor risk; (2) adopting additional changes to PBGC s governance structure in particular, expanding the composition of its board of directors; (3) strengthening funding requirements for plan sponsors as appropriate given national economic conditions; (4) working with PBGC to develop a strategy for funding PBGC claims over the long term as the defined benefit pension system continues to decline; and (5) enacting additional structural reforms to reinforce and stabilize the multiemployer system, and balance the needs and potential sacrifices of contributing employers, participants, and the federal government. Absent additional steps to improve PBGC s finances, the long-term financial stability of the agency remains uncertain, and the retirement benefits of millions of American workers and retirees could be at risk of dramatic reductions. See page 267 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.4. Managing Risks and Improving VA Health Care> VA operates one of the largest health care delivery systems in the nation through its Veterans Health Administration (VHA), with 172 medical centers and more than 1,000 outpatient facilities organized into regional networks. VA has faced a growing demand by veterans for its health care services due, in part, to the needs of an aging veteran population and that trend is expected to continue. The total number of veterans enrolled in VA s health care system rose from 7.9 million to more than 9 million from fiscal year 2006 through fiscal year 2017. Over that same period, VHA s total budgetary resources have more than doubled, from $37.8 billion in fiscal year 2006 to $92.3 billion in fiscal year 2017. Given the importance of VHA s mission, coupled with its lack of progress in addressing its high-risk designation, we continue to be concerned about VHA s ability to ensure its resources are being used effectively and efficiently to improve veterans timely access to safe and high-quality health care. We have identified five areas of concern: (1) ambiguous policies and inconsistent processes; (2) inadequate oversight and accountability; (3) IT challenges; (4) inadequate training for VA staff; and (5) unclear resource needs and allocation priorities. VHA has begun to address each of these areas but, prior to Secretary Robert Wilkie s July 2018 confirmation, its efforts were impeded by leadership instability. Since taking office, Secretary Wilkie has demonstrated his commitment to addressing the department s high-risk designation by, among other things, creating an office to direct an integrated, focused high-risk approach and communicating to VA leaders the importance of addressing our recommendations. While VHA completed root cause analyses for each area of concern and developed an action plan in response, the plan lacks milestones and metrics needed to effectively monitor its implementation and demonstrate progress made in addressing the high-risk designation. Additionally, many of VHA s capacity-building initiatives are either in the initial stages of development or are lacking necessary funding and resources. As such, VHA has not made sufficient progress since our 2017 update to improve its overall ratings, as two high-risk criteria remain partially met and three criteria remain unmet. We remain concerned about VHA s ability to oversee its programs, hold its workforce accountable, and avoid ambiguous policies and inconsistent processes that jeopardize its ability to provide safe, high-quality care to veterans: In November 2017, we reported that, due in part to misinterpretation or lack of awareness of VHA policy, VA medical center officials did not always document or conduct timely required reviews of providers when allegations were made against them. As a result, we concluded that VA medical center officials may have lacked necessary information to reasonably ensure that their providers were competent to provide safe, high-quality care to veterans and to grant approvals about these providers privileges to perform specific clinical services at VA medical centers. We made four recommendations related to this and other findings, all of which remain open. In June 2018, we reported that VHA could not systematically monitor the timeliness of veterans access to Veterans Choice Program (VCP) care because it lacked complete, reliable data to do so. We also found that veterans, who were referred to the VCP for routine care because health care services were not available in a timely manner, could potentially wait for care up to 70 calendar days if the maximum amount of time allowed by VA processes is used. This wait time exceeds the statutory requirement that veterans receive VCP care within 30 days of the dates their VA health care providers indicated they should receive appointments, or if no such date existed, within 30 days of the veteran s preferred date. We made 10 recommendations related to this and other findings, all of which remain open. Similarly, in July 2018, we reported that VA collected data related to employee misconduct and disciplinary actions, but data fragmentation and reliability issues impeded department-wide analysis of those data. Additionally, we found that VA did not consistently ensure that allegations of misconduct involving senior officials were reviewed according to its investigative standards or ensure these officials were held accountable. We made 16 recommendations related to this and other findings, all of which remain open. In November 2018, we reported that VHA s suicide prevention media outreach activities declined in recent years due to leadership turnover and reorganization. Additionally, we found that VHA did not assign key leadership responsibilities or establish clear lines of reporting for its suicide prevention media outreach campaign, which hindered its ability to oversee the campaign. Consequently, we concluded that VHA may not be maximizing its reach with suicide prevention media content to veterans, especially those who are at-risk. This is inconsistent with VHA s efforts to reduce veteran suicides, which is VA s highest clinical priority. We made two recommendations related to this and other findings, both of which remain open. VA needs to further develop its capacity-building initiatives and establish metrics to monitor and measure its progress addressing the high-risk areas of concern. It is also important that our recommendations continue to be implemented. The department has implemented 209 of the 353 recommendations related to VA health care that we made from January 1, 2010 through December 2018, but more than 125 recommendations remain open as of December 2018. This includes 17 that are older than 3 years. In addition to addressing our recommendations, VA needs to make systemic change to department management and oversight in order to fully address the high-risk issues and improve the health care provided to our nation s veterans. See page 275 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.5. Strategic Human Capital Management> Mission-critical skills gaps both within federal agencies and across the federal workforce impede the government from cost-effectively serving the public and achieving results. For example, the difficulties in recruiting and retaining skilled health care providers and human resource staff at VHA s medical centers make it difficult to meet the health care needs of more than 9 million veterans. As a result, VHA s 168 medical centers have large staffing shortages, including physicians, registered nurses, physician assistants, psychologists, physical therapists, as well as human resource specialists and assistants. OPM continues to demonstrate top leadership commitment through its numerous efforts to assist agencies in addressing mission-critical skills gaps within their workforces. This includes providing guidance, training and on-going support for agencies on the use of comprehensive data analytic methods for identifying skills gaps and the development of strategies to address these gaps. However, since we first added strategic human capital management to our High-Risk List in 2001, we have reported on the need for agencies to address their workforce skills gaps. As of December 2018, OPM had not fully implemented 29 of our recommendations made since 2012 relating to this high-risk area. Staffing shortages and the lack of skills among current staff not only affect individual agencies but also cut across the entire federal workforce in areas such as cybersecurity and acquisition management. Skills gaps caused by insufficient number of staff, inadequate workforce planning, and a lack of training in critical skills are contributing to our designating other areas as high-risk. As table 5 shows, of the 34 other high-risk areas covered in this report, skills gaps played a significant role in 16 of the areas. Over the years since we added this area to our High-Risk List, in addition to recommendations to address critical skills gaps in individual high-risk areas, we have made numerous recommendations to OPM related to this high-risk issue, 29 of which remain open. Agencies also need to take action to address mission-critical skills gaps within their own workforces a root cause of many high-risk areas. See page 75 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.6. 2020 Decennial Census> The 2010 Census was the costliest in history at about $12.3 billion; as of October 2017, the 2020 Census is projected to cost about $15.6 billion, a 27 percent increase. For the 2020 Census, the U.S. Census Bureau (Bureau) plans to implement several innovations, including new IT systems. Implementing these innovations, along with other challenges, puts the Bureau s ability to conduct a cost-effective census at risk. The decennial census is mandated by the U.S. Constitution and provides vital data for the nation. Census data are used, among other purposes, to apportion seats in the Congress and allocate billions of dollars in federal assistance to state and local governments. To ensure its success, this complicated and costly undertaking requires careful planning, risk management, and oversight. Census activities, some of which are new for the 2020 cycle, must be carried out on schedule to deliver the state apportionment counts to the President by December 31, 2020. The Bureau and the Department of Commerce (Commerce) have strengthened leadership commitment with executive-level oversight of the 2020 Census by holding regular meetings on the status of IT systems and other risk areas. In addition, in 2017 Commerce designated a team to assist senior Bureau management with cost estimation challenges. These examples demonstrate both the Bureau s and Commerce s strong leadership commitment to implementing the 2020 Census. One of the Bureau s major challenges is to control any further cost growth and develop cost estimates that are reliable and reflect best practices for the 2020 Census. According to the Bureau, the total cost of the 2020 Census is now estimated to be approximately $15.6 billion, more than $3 billion higher than previously estimated by the Bureau. The higher estimated life-cycle cost is due, in part, to the Bureau s failure to previously include all cost associated with the decennial census. The Bureau s schedule for developing IT systems has experienced delays that have compressed the time available for system testing, integration testing, and security assessments. These schedule delays have contributed to systems experiencing problems after deployment, as well as cybersecurity challenges. For example, as of December 2018, the Bureau had identified nearly 1,100 system security weaknesses that needed to be addressed. Continued schedule management challenges may compress the time available for the remaining system testing and security assessments, and increase the risk that deployed systems will either not function as intended, have security vulnerabilities, or both. As of January 2019, 30 of our recommendations related to this high-risk area had not been implemented. To make continued progress, the Bureau needs to ensure that its approach to strategic planning, IT management, cybersecurity, human capital management, internal collaboration, knowledge sharing, as well as risk and change management are all aligned toward delivering more cost-effective outcomes. Among other things, the Bureau needs to ensure cost growth is controlled and that the development and testing of key systems is completed and fully integrated with all census operations before the 2020 Census. In addition, the Bureau needs to address cybersecurity weaknesses in a timely manner and ensure that security risks are at an acceptable level before systems are deployed. See page 134 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.7. Medicare, Medicaid, and Earned Income Tax Credit Improper Payments> An improper payment is any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. Reducing improper payments such as payments to ineligible recipients or duplicate payments is critical to safeguarding federal funds. However, the federal government has consistently been unable to determine the full extent of improper payments and reasonably assure that appropriate actions are taken to reduce them. Since 2003 when certain agencies were required by statute to begin reporting improper payments cumulative improper payment estimates have totaled about $1.5 trillion. As shown in figure 4, for fiscal year 2018, federal entities estimated about $151 billion in improper payments. Medicare and Medicaid improper payments and the Earned Income Tax Credit (EITC) improper payments a part of the Enforcement of Tax Laws high-risk area accounted for about 68.5 percent of this total. Federal spending for Medicare programs and Medicaid is expected to significantly increase in the coming years, so it is especially critical to take appropriate measures to reduce improper payments in these programs. Internal Revenue Service estimates also show that the EITC has consistently had a high improper payment rate. OMB has designated Medicare programs, Medicaid, and EITC as high-priority programs for improper payments, indicating they are amongst the highest-risk programs where the government can achieve the greatest return on investment for the taxpayer by ensuring that improper payments are eliminated. Our work has identified a number of strategic and specific actions agencies can take to reduce improper payments, which could yield significant savings, and help ensure that taxpayer funds are adequately safeguarded. Continued agency attention is needed to (1) identify susceptible programs, (2) develop reliable methodologies for estimating improper payments, (3) report as required by statute, and (4) implement effective corrective actions based on root cause analysis. Absent such continued efforts, the federal government cannot be assured that taxpayer funds are adequately safeguarded. See pages 241, 250, and 235 of the report (respectively) for additional detail on the Medicare Program & Improper Payments, Strengthening Medicaid Program Integrity, and Enforcement of Tax Laws high-risk areas, including more details on actions that need to be taken. <4.2.8. Enforcement of Tax Laws> The Internal Revenue Service (IRS) continues to face two pressing challenges in enforcing tax laws: addressing the tax gap amounting to hundreds of billions of dollars each year when some taxpayers fail to pay the taxes that they owe and combatting identity theft (IDT) refund fraud. Enforcement of Tax Laws has been on GAO s high risk list since 1990. IRS enforcement of tax laws helps fund the U.S. government by collecting revenue from noncompliant taxpayers and, perhaps more importantly, promoting voluntary compliance by giving taxpayers confidence that others are paying their fair share. In 2016, IRS estimated that the average annual net tax gap, the difference between taxes owed and taxes paid on time, was $406 billion, on average, for tax years 2008-2010. While IRS continues to demonstrate top leadership support to address the tax gap, IRS s capacity to implement new initiatives and improve ongoing enforcement and taxpayer service programs remains a challenge. For example, IRS s strategic plan includes a goal to facilitate voluntary compliance and deter noncompliance that could address the tax gap. However, IRS could do more to identify specific efforts for improving compliance in its strategic plan, measure the effects of compliance programs such as those used for large partnerships and develop specific quantitative goals to reduce the tax gap. Such efforts would help IRS make more effective use of its resources and gauge the success of its strategies. The second challenge facing IRS is IDT refund fraud, which occurs when an identity thief files a fraudulent tax return using a legitimate taxpayer s identifying information and claims a refund. IRS estimates that at least $12.2 billion in individual IDT tax refund fraud was attempted in 2016, of which it prevented at least $10.5 billion (86 percent). Of the amount attempted, IRS estimated that at least $1.6 billion (14 percent) was paid. IRS s ability to combat IDT fraud continues to be challenged as more personally identifiable information has become readily available as a result of large-scale cyberattacks on various entities. This makes it more difficult for IRS to distinguish between fraudsters and legitimate taxpayers. While IRS has demonstrated some progress by developing tools and programs to further detect and prevent IDT refund fraud, it has not completed updating its authentication procedures to be in compliance with new government standards. As a result, IRS may be missing an opportunity to implement the most secure, robust technologies to protect taxpayers. As of December 2018, 189 GAO recommendations related to this high- risk area had not been implemented. To make continued progress on closing the tax gap, IRS needs to re-establish goals for improving voluntary compliance and develop and document a strategy that outlines how it will use its data to help address this issue. Reducing the tax gap will also require targeted legislative actions, including additional third- party information reporting, enhanced electronic filing, expanded math error authority (also referred to as correctible error authority), and paid preparer regulation. To help stay on top of IDT refund fraud, IRS should develop a comprehensive process to evaluate alternative options for improving taxpayer authentication. Given that IDT refund fraud continues to be a challenge, targeted legislative action, such as requiring a scannable code on returns prepared electronically but filed on paper could help IRS address such fraud. See page 235 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. <4.2.9. Improving the Management of IT Acquisitions and Operations> The federal government currently invests more than $90 billion annually in IT, and OMB has implemented several key initiatives intended to help better manage this investment. Additionally, enactment of FITARA, in conjunction with greater attention paid to the acquisition and operation of IT, has helped further improve the government-wide management of this significant annual investment. OMB s current level of top leadership support and commitment to ensure that agencies successfully execute its guidance on implementing FITARA and related IT initiatives has helped this high-risk area meet the leadership commitment high-risk criteria. Additional positive government-wide actions have enabled this high-risk area to partially meet the four remaining high-risk criteria. For example, OMB has established an IT Dashboard a public website that provides detailed information on major IT investments at 26 federal agencies and agencies data center consolidation efforts have resulted in a total savings of slightly more than 80 percent of the agencies planned $5.7 billion in savings since 2011. However, major federal agencies have yet to fully address the requirements of FITARA and realize billions of dollars in planned or possible savings and improved government performance through more efficient budgeting and management of IT. As government-wide spending on IT increases every year, the need for appropriate stewardship of that investment increases as well. However, OMB and federal agencies have not made significant progress since 2017 in taking the steps needed to improve how these financial resources are budgeted and utilized. While OMB has continued to demonstrate its leadership commitment through guidance and sponsorship of key initiatives, agencies still have not fully implemented all requirements of FITARA, such as putting into place authorities the law requires for chief information officers (CIO). Additionally, while the President s Management Agenda has a goal to improve IT spending transparency, agencies are underreporting IT contract obligations by billions of dollars. OMB and the agencies also have not yet implemented hundreds of our recommendations on improving shortcomings in IT acquisitions and operations. In an August 2018 review of the 24 federal agencies covered by FITARA, none had IT management policies that fully addressed the role of their CIOs consistent with federal laws and guidance. Specifically, the majority of the agencies only minimally addressed, or did not address, their CIO s role in assessing agency IT workforce needs and developing strategies and plans for meeting those needs. Correspondingly, the majority of the 24 CIOs acknowledged that they were not fully effective at implementing IT management responsibilities, such as IT strategic planning and investment management. Further, in January 2018, we reported that the majority of 22 agencies did not identify all of their IT acquisition contracts, totaling about $4.5 billion in IT-related contract obligations beyond those reported by agencies. In addition, in November 2018 we reported that four selected agencies lacked quality assurance processes for ensuring that billions of dollars requested in their IT budgets were informed by reliable cost information. Until agencies properly identify IT contracts and establish processes for ensuring the quality of cost data used to inform their budgets, agency CIOs are at risk of not having appropriate oversight of IT acquisitions and may lack adequate transparency into IT spending to make informed budget decisions. As of December 2018, OMB and federal agencies had fully implemented only 59 percent of the recommendations we have made since fiscal year 2010 to address shortcomings in IT acquisitions and operations. OMB and agencies should work toward implementing our remaining 456 open recommendations related to this high-risk area. These remaining recommendations include 12 priority recommendations to agencies to, among other things, report all data center consolidation cost savings to OMB, plan to modernize or replace obsolete systems as needed, and improve their implementation of PortfolioStat an initiative that is to consolidate and eliminate duplicative systems. OMB and agencies need to take additional actions to (1) implement at least 80 percent of our open recommendations related to the management of IT acquisitions and operations, (2) ensure that a minimum of 80 percent of the government s major IT acquisitions deliver functionality every 12 months, and (3) achieve at least 80 percent of the over $6 billion in planned PortfolioStat savings. See page 123 of the report for additional detail on this high-risk area, including more details on actions that need to be taken. Our high-risk program continues to be a top priority at GAO and we will maintain our emphasis on identifying high-risk issues across government and on providing recommendations and sustained attention to help address them, by working collaboratively with Congress, agency leaders, and OMB. As part of this effort, we hope to continue to participate in regular meetings with the OMB Deputy Director for Management and with top agency leaders to discuss progress in addressing high-risk areas. Such efforts have been critical for the progress that has been made. This high-risk update is intended to help inform the oversight agenda for the 116th Congress and to guide efforts of the administration and agencies to improve government performance and reduce waste and risks. Thank you, Chairman Johnson, Ranking Member Peters, and Members of the Committee. This concludes my testimony. I would be pleased to answer any questions. For further information on this testimony, please contact J. Christopher Mihm at (202) 512-6806 or [email protected]. Contact points for the individual high-risk areas are listed in the report and on our high-risk website. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Appendix I: Summaries of Selected High- Risk Areas The following pages provide summaries of selected high-risk areas. These summaries are included in our High-Risk Report and are also available on our High-Risk List website, http://www.gao.gov/highrisk/overview. Strategic Human Capital Management <5. Related GAO Products> Embassy Construction: Pace is Slower Than Projected, and State Could Make Program Improvements. GAO-18-653. Washington, D.C.: September 25, 2018. Tax Administration: Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness. GAO-18-659. Washington, D.C.: September 21, 2018. Information Technology: IRS Needs to Take Actions to Address Significant Risks to Tax Processing. GAO-18-298. Washington, D.C.: June 28, 2018. Cybersecurity Workforce: Agencies Need to Improve Baseline Assessments and Procedures for Coding Positions. GAO-18-466. Washington, D.C.: June 14, 2018. Defense Acquisition Workforce: Opportunities Exist to Improve Practices for Developing Program Managers. GAO-18-217. Washington, D.C.: February 15, 2018. Cybersecurity Workforce: Urgent Need for DHS to Take Actions to Identify Its Position and Critical Skill Requirements. GAO-18-175. Washington, D.C.: February 6, 2018. Bureau of Prisons: Better Planning and Evaluation Could Help Ensure Effective Use of Retention Incentives. GAO-18-147. Washington, D.C.: December 7, 2017. National Weather Service: Actions Have Been Taken to Fill Increasing Vacancies, but Opportunities Exist to Improve and Evaluate Hiring. GAO-17-364. Washington, D.C.: May 24, 2017. Strategic Human Capital Management: NRC Could Better Manage the Size and Composition of Its Workforce by Further Incorporating Leading Practices. GAO-17-233. Washington, D.C.: April 27, 2017. Veterans Health Administration: Actions Needed to Better Recruit and Retain Clinical and Administrative Staff. GAO-17-475T. Washington, D.C.: March 22, 2017. Managing Federal Real Property <6. Costly Leasing> The ratings for capacity and action plan improved since our 2017 High-Risk Report and the remaining three criteria remain unchanged. Leadership commitment: met. OMB and GSA continue to take action to reduce costly leasing. For example, OMB proposed the creation of a capital revolving fund designed to facilitate ownership over operating leases for large-dollar buildings, although no action has been taken to implement it. An OMB staff member said that the legislative proposal to establish a capital fund was similar to an option we identified in a 2014 report. Additionally, GSA has developed a strategy to reduce leasing costs by a projected $4.7 billion by fiscal year 2023, through steps that include focusing resources on high-value lease renewals. Capacity: partially met. GSA made improvements and now partially meets the capacity criterion. Specifically, GSA implemented our September 2013 recommendation to develop a strategy to increase ownership investments for a prioritized list of high-value leases. These leases are for properties where it would be less expensive in the long run to own. GSA plans to purchase at least one leased building in 2019. In addition, as noted in our 2017 high-risk update, GSA could potentially help tenant agencies save millions of dollars from some leases by loaning them funds to improve newly leased spaces instead of agencies financing these costs with private-sector owners at private-sector interest rates. While GSA officials agreed that doing so would save money in interest fees, it has not yet developed a legislative proposal to obtain the needed authority, as we recommended in 2016. Action plan: met. GSA has made improvements and now meets the action plan criterion. GSA created an action plan to purchase buildings when it is more cost-effective than leasing by establishing criteria to rank and prioritize leased spaces that would benefit from federal ownership as discussed above. Additionally, GSA is implementing strategies to better manage leases that include avoiding short-term extensions and identifying opportunities to enter into long-term and lower cost leases. Monitoring: partially met. GSA continues to partially meet this criterion through implementation of the National Strategy, as noted in our 2017 high-risk update. However, GSA should also implement our recommendations to reduce the costs to tenants by exploring strategies to enhance competition for GSA leases and reducing unneeded fees. Additionally, GSA has identified actions to better monitor leases at different points along the process in order to minimize the need to enter into short-term, costly lease extensions. Demonstrated progress: partially met. GSA has made some progress in reducing the long-term costs of leasing by stemming the growth in leasing according to GSA data and committing to further reducing leasing costs. However, GSA must follow through on its plans to purchase leased buildings and reduce costs. GSA could also further reduce costs by loaning tenant agencies the funds needed to improve newly leased spaces but still needs to develop a legislative proposal to obtain authority to do so. <6.1. What Remains to Be Done> GSA should develop a legislative proposal to obtain authority to loan agencies funds needed to improve newly leased spaces, as we recommended in 2016. <7. Data Reliability> Ratings for one criterion improved since our 2017 High-Risk Report and the other four criteria remain unchanged. Leadership commitment: met. In December 2017, GSA continued efforts to improve data reliability by completing a major effort to make the Federal Real Property Profile (FRPP) public. Also, as we reported in our 2017 High-Risk Report, GSA issued its Federal Real Property Data Validation and Verification (V&V) Guidance in May 2016 and required agencies to address 13,257 data anomalies it found in fiscal year 2016 data. Capacity: met. OMB and GSA continue to help agencies increase their capacity to submit accurate data. For example, GSA revised certain data elements definitions in 2016 and incorporated them in the 2018 FRPP Data Dictionary. In addition, OMB and GSA have further increased the capacity of FRPP to act as a government-wide database since additional agencies are required to report. Action plan: met. GSA has made progress by developing an action plan in 2017 for federal agencies to develop processes to assess, address, and track FRPP data quality. Specifically, this plan identifies data elements to appropriately indicate data quality, identifies best practices and other methods that help agencies measure and assess improvements, and enables federal agencies to develop performance metrics. Monitoring: partially met. While GSA required agencies to research the anomalies it found in its V&V process, only some agencies have identified and committed to correct mistakes. Further, of the 13,257 anomalies GSA identified in the fiscal year 2016 data, agencies overall acknowledged that less than 8 percent of the anomalies (1,004 anomalies) represented erroneous data to be corrected, while indicating that the others were correct. Furthermore, some agencies acknowledged less than 1 percent of the anomalies represented erroneous data. In addition, we found in 2018 that DOD did not correct discrepancies identified by its own V&V process. Demonstrated progress: partially met. While GSA and some agencies have taken action to correct data, serious data reliability challenges remain with some individual agencies that undermine the reliability of the FRPP. In 2018, we found that DOD s real property data continue to be inaccurate and incomplete, and that DOD lacks a plan for making the necessary improvements. <7.1. What Remains to be Done> OMB and GSA should continue working with federal agencies to improve the reliability of their real property data through V&V efforts and encouraging agencies to implement action plans to better assess, address, and track data quality, as discussed in the above action plan. In particular, DOD should take steps to ensure that DOD improves the reliability of its real property data, as we recommended in 2018. <8. Physical Security> Ratings for this segment remain unchanged since our 2017 High-Risk Report. Leadership commitment: met. DHS s Federal Protective Service (FPS) continues to take action to address our recommendations. The Interagency Security Committee (ISC), an organization chaired by DHS that sets standards for physical security for federal nonmilitary facilities, also continues to implement the updated Risk Management Process a consolidated set of standards for physical security at federal facilities. In addition, in 2018, GSA, the Administrative Office of the U. S. Courts (AOUSC), the U.S. Marshals Service, and FPS implemented our 2017 recommendation to establish a national-level working forum for courthouse security, known as the Interagency Judicial Security Council. Capacity: partially met. FPS has taken several actions to address identified physical security issues since our 2017 High-Risk Report. For example, in 2018 FPS improved its risk assessment tool to incorporate all necessary elements recommended by the ISC, which has now certified it. In 2018, FPS also addressed our recommendation related to improving training for instructors and identified actions to address our recommendations associated with tracking guard training. Finally, in 2018, FPS also implemented several actions associated with our recommendation to develop human capital-related performance measures to evaluate progress towards agency goals. Some agencies may not have the capacity to conduct adequate risk assessments because their processes do not fully align with the ISC Risk Management Process. To improve their capacity, the U.S. Customs and Border Protection, Federal Aviation Administration, and the Department of Veterans Affairs still need to complete an assessment of their policies against the ISC s standards in response to our 2017 and 2018 recommendations. Action plan: partially met. In September 2018, FPS and GSA signed a memorandum of agreement (MOA) clarifying their respective roles and responsibilities for federal facility security. However, FPS, GSA, and the Department of Justice have not yet addressed our 2011 recommendation to address a number of courthouse security challenges. Specifically, FPS, the U.S. Marshals Service, AOUSC, and GSA are still working to finalize the draft MOA on courthouse security. Monitoring: partially met. FPS continues to develop a system that will allow FPS to verify independently that FPS s contract guards are current on all training and certification requirements, and are taking steps to close this recommendation as implemented. FPS expects that system to be in place in 2019. In 2018, we also found that actions were needed to better address various emerging security threats to federal facilities. Demonstrated progress: not met. The federal government has not demonstrated progress to improve physical security. Although agencies have taken some actions, time is needed for agencies to demonstrate the results of these actions. Additionally, agencies need to complete other actions. For example, once FPS, the U.S. Marshals Service, AOUSC, and GSA sign their MOA on courthouse security, they will be able to better protect federal facilities. Further, once FPS fully implements its guard management system and it interacts with its training system, FPS will be able to obtain information to assess its guards capability to address physical security risks across its portfolio. <8.1. What Remains to be Done> To improve the physical security of federal buildings, the following steps are necessary: Clarify roles and responsibilities for the protection of federal facilities by finalizing the MOA for federal courthouse security between GSA, FPS, the U.S. Marshals, and AOUSC, as we recommended in 2011. FPS must validate training information being entered to ensure that guards are getting critical training, as we recommended in 2012. Implement our recommendations for agencies to improve their monitoring of collaborative efforts to protect federal facilities, as we recommended in 2015. Take actions to better address emerging security threats to federal facilities, as we recommended in 2018. <9. Related GAO Products> Federal Facility Security: Actions Needed to Better Address Various Emerging Threats. GAO-19-32SU. Washington, D.C.: October 17, 2018. Defense Real Property: DOD Needs to Take Additional Actions to Improve Management of Its Inventory Data. GAO-19-73. Washington, D.C.: November 13, 2018. Federal Buildings: More Consideration of Operations and Maintenance Costs Could Better Inform the Design Excellence Program. GAO-18-420. Washington, D.C.: May 22, 2018. Federal Real Property: Agencies Make Some Use of Telework in Space Planning but Need Additional Guidance. GAO-18-319. Washington, D.C.: March 22, 2018. Federal Buildings: Agencies Focus on Space Utilization As They Reduce Office and Warehouse Space. GAO-18-304. Washington, D.C.: March 8, 2018. VA Facility Security: Policy Review and Improved Oversight Strategy Needed. GAO-18-201. Washington, D.C.: January 11, 2018. Federal Facility Security: Selected Agencies Should Improve Methods for Assessing and Monitoring Risk. GAO-18-72. Washington, D.C.: October 26, 2017. Federal Real Property: GSA Should Inform Tenant Agencies When Leasing High-Security Space from Foreign Owners. GAO-17-195. Washington, D.C.: January 3, 2017. USPS Financial Viability <10. Related GAO Products> Postal Retiree Health Benefits: Unsustainable Finances Need to Be Addressed. GAO-18-602. Washington, D.C: August 31, 2018. U.S. Postal Service: Projected Capital Spending and Processes for Addressing Uncertainties and Risks. GAO-18-515. Washington, D.C.: June 28, 2018. International Mail: Information on Changes and Alternatives to the Terminal Dues System. GAO-18-112. Washington, D.C.: October 12, 2017. U.S. Postal Service: Key Considerations for Potential Changes to USPS s Monopolies. GAO-17-543. Washington, D.C.: June 22, 2017. U.S. Postal Service: Key Considerations for Restoring Fiscal Sustainability. GAO-17-404T. Washington, D.C.: February 7, 2017. U.S. Postal Service: Continuing Financial Challenges and the Need for Postal Reform. GAO-16-651T. Washington, D.C.: May 11, 2016. U.S. Postal Service: Financial Challenges Continue. GAO-16-268T. Washington, D.C.: January 21, 2016. Improving the Management of IT Acquisitions and Operations <11. Related GAO Products> Information Technology: Departments Need to Improve Chief Information Officers Review and Approval of IT Budgets. GAO-19-49. Washington, D.C.: November 13, 2018. Federal Chief Information Officers: Critical Actions Needed to Address Shortcomings and Challenges in Implementing Responsibilities. GAO-18-93. Washington, D.C.: August 2, 2018. Data Center Optimization: Continued Agency Actions Needed to Meet Goals and Address Prior Recommendations. GAO-18-264. Washington, D.C.: May 23, 2018. Information Technology: Agencies Need to Involve Chief Information Officers in Reviewing Billions of Dollars in Acquisitions. GAO-18-42. Washington, D.C.: January 10, 2018. Information Technology: OMB Needs to Report On and Improve Its Oversight of the Highest Priority Programs. GAO-18-51. Washington, D.C.: November 21, 2017. Information Technology Reform: Agencies Need to Improve Certification of Incremental Development. GAO-18-148. Washington, D.C.: November 7, 2017. Data Center Optimization: Agencies Need to Address Challenges and Improve Progress to Achieve Cost Savings Goal. GAO-17-448. Washington, D.C.: August 15, 2017. Data Center Optimization: Agencies Need to Complete Plans to Address Inconsistencies in Reported Savings. GAO-17-388. Washington, D.C.: May 18, 2017. Information Technology: Opportunities for Improving Acquisitions and Operations. GAO-17-251SP. Washington, D.C.: April 11, 2017. 2020 Decennial Census <12. Related GAO Products> 2020 Census: Additional Steps Needed to Finalize Readiness for Peak Field Operations, GAO-19-140. Washington, D.C.: December 10, 2018. 2020 Census: Continued Management Attention Needed to Address Challenges and Risks with Developing, Testing, and Securing IT Systems, GAO-18-655. Washington, D.C.: August 30, 2018. 2020 Census: Census Bureau Improved the Quality of Its Cost Estimation but Additional Steps Are Needed to Ensure Reliability, GAO-18-635. Washington, D.C.: August 17, 2018. 2020 Census: Bureau Has Made Progress with Its Scheduling, but Further Improvement Will Help Inform Management Decisions, GAO-18-589. Washington, D.C.: July 26, 2018. 2020 Census: Actions Needed to Address Challenges to Enumerating Hard-to-Count Groups, GAO-18-599. Washington, D.C.: July 26, 2018. 2020 Census: Actions Needed to Improve In-Field Address Canvassing Operation, GAO-18-414. Washington, D.C.: June 14, 2018. 2020 Census: Actions Needed to Mitigate Key Risks Jeopardizing a Cost- Effective and Secure Enumeration, GAO-18-543T. Washington, D.C.: May 8, 2018. 2020 Census: Continued Management Attention Needed to Mitigate Key Risks Jeopardizing a Cost-Effective and Secure Enumeration, GAO-18-416T. Washington, D.C.: April 18, 2018. 2020 Census: Actions Needed to Mitigate Key Risks Jeopardizing a Cost- Effective Enumeration, GAO-18-215T. Washington, D.C.: October 31, 2017. 2020 Census: Continued Management Attention Needed to Oversee Innovations, Develop and Secure IT Systems, and Improve Cost Estimation, GAO-18-141T. Washington, D.C.: October 12, 2017. 2020 Census: Bureau Is Taking Steps to Address Limitations of Administrative Records, GAO-17-664. Washington, D.C.: July 26, 2017. Government-wide Personnel Security Clearance Process <13. Related GAO Products> Personnel Security Clearances: Additional Actions Needed to Implement Key Reforms and Improve Timely Processing of Investigations. GAO-18- 431T. Washington, D.C.: March 7, 2018. Personnel Security Clearances: Additional Actions Needed to Ensure Quality, Address Timeliness, and Reduce Investigation Backlog. GAO-18- 29. Washington, D.C.: December 12, 2017. Personnel Security Clearances: Plans Needed to Fully Implement and Oversee Continuous Evaluation of Clearance Holders. GAO-18-117. Washington, D.C.: November 21, 2017. Information Security: OPM Has Improved Controls, but Further Efforts Are Needed. GAO-17-614. Washington, D.C: August 3, 2017. Information Security: Agencies Need to Improve Controls over Selected High-Impact Systems. GAO-16-501. Washington, D.C.: May 18, 2016. Personnel Security Clearances: Funding Estimates and Government-wide Metrics Are Needed to Implement Long-Standing Reform Efforts. GAO- 15-179SU. Washington, D.C.: April 23, 2015. Ensuring the Cybersecurity of the Nation <14. Related GAO Products> Information Security: OPM Has Implemented Many of GAO s 80 Recommendations, but Over One-Third Remain Open. GAO-19-143R. Washington, D.C.: November 13, 2018. Cybersecurity: Office of Federal Student Aid Should Take Additional Steps to Oversee Non-School Partners Protection of Borrower Information. GAO-18-518. Washington, D.C.: September 17, 2018. High-Risk Series: Urgent Actions Are Needed to Address Cybersecurity Challenges Facing the Nation. GAO-18-622. Washington, D.C.: September 6, 2018. Information Security: IRS Needs to Rectify Control Deficiencies That Limit Its Effectiveness in Protecting Sensitive Financial and Taxpayer Data. GAO-18-391. Washington, D.C.: July 31, 2018. Data Protection: Actions Taken by Equifax and Federal Agencies in Response to the 2017 Breach. GAO-18-559. Washington, D.C.: August 30, 2018. High-Risk Series: Urgent Actions Are Needed to Address Cybersecurity Challenges Facing the Nation. GAO-18-645T. Washington, D.C.: July 25, 2018. Information Security: Supply Chain Risks Affecting Federal Agencies. GAO-18-667T. Washington, D.C.: July 12, 2018. Electronic Health Information: CMS Oversight of Medicare Beneficiary Data Security Needs Improvement. GAO-18-210. Washington, D.C.: March 6, 2018. Critical Infrastructure Protection: Additional Actions Are Essential for Assessing Cybersecurity Framework Adoption. GAO-18-211. Washington, D.C.: February 15, 2018. Cybersecurity Workforce: Urgent Need for DHS to Take Actions to Identify Its Position and Critical Skill Requirements. GAO-18-175. Washington, D.C.: February 6, 2018. Strengthening Department of Homeland Security Management Functions <15. Related GAO Products> DHS Acquisitions: Additional Practices Could Help Components Better Develop Operational Requirements. GAO-18-550 Washington, D.C.: August 8, 2018. Homeland Security Acquisitions: Leveraging Programs Results Could Further DHS s Progress to Improve Portfolio Management. GAO-18-339SP Washington, D.C.: May 17, 2018. Cybersecurity Workforce: Urgent Need for DHS to Take Actions to Identify Its Position and Critical Skill Requirements. GAO-18-175, Washington, D.C.: February 6, 2018. DHS Financial Management: Better Use of Best Practices Could Help Manage System Modernization Project Risks. GAO-17-799 Washington, D.C.: September 26, 2017. Homeland Security: Progress Made to Implement IT Reform, but Additional Chief Information Officer Involvement Needed. GAO-17-284 Washington, D.C.: May 18, 2017. Homeland Security Acquisitions: Identifying All Non-Major Acquisitions Would Advance Ongoing Efforts to Improve Management. GAO-17-396 Washington, D.C.: April 13, 2017. Homeland Security Acquisitions: Earlier Requirements Definition and Clear Documentation of Key Decisions Could Facilitate Ongoing Progress. GAO-17-346SP Washington, D.C.: April 6, 2017. Appendix II: Areas Removed From the High- Risk List Error! No text of specified style in document. The following pages provide overviews of the two areas removed from the High-Risk List. Each overview discusses (1) why the area was high risk, and (2) why the area is being removed from the list. Each of these high- risk areas is also described on our High-Risk List website, http://www.gao.gov/highrisk/overview. DOD Supply Chain Management <16. Asset Visibility> Since our 2017 High-Risk Report, DOD has continued to meet the criteria of leadership commitment, capacity, and action plan for asset visibility. Further, DOD has fully addressed the three remaining actions and outcomes we outlined in 2017 in order to mitigate or resolve long-standing weaknesses in asset visibility. Consequently, DOD has met the monitoring and demonstrated progress criteria for asset visibility to remove this area from our High-Risk List. Leadership commitment: met. Senior leaders have continued to demonstrate commitment through their involvement in groups such as the Supply Chain Executive Steering Committee senior-level officials responsible for overseeing asset visibility improvement efforts and through the Asset Visibility Working Group, which identifies opportunities for improvement and monitors the implementation of initiatives by issuing its Strategy for Improving DOD Asset Visibility (Strategy) in 2014, 2015, and 2017. Capacity: met. DOD continues to demonstrate that it has the capacity personnel and resources to improve asset visibility. For example, DOD s 2015 and 2017 Strategies advise the components to consider items such as staffing, materiel, and sustainment costs when documenting cost estimates for the initiatives in the Strategy, as we recommended in January 2015. Action plan: met. A provision in the National Defense Authorization Act for Fiscal Year 2014 required DOD to submit to Congress a comprehensive strategy and implementation plans for improving asset tracking and in-transit visibility. In January 2014, DOD issued the Strategy and accompanying implementation plans, which outlined initiatives intended to improve asset visibility. DOD updated its 2014 Strategy in October 2015 and in August 2017. Importantly, since 2017 DOD addressed the three remaining actions and outcomes related to the monitoring and demonstrated progress criteria through updates to and implementation of the Strategies (see table 7). Monitoring: met. DOD provided guidance in its 2017 update to the Strategy for the military components to consider key attributes of successful performance measures during metric development for their improvement initiatives. As appropriate, the military components have followed the guidance and provided high-level summary metrics updates to the Asset Visibility Working Group. In addition, DOD has taken steps to monitor asset visibility by incorporating into after-action reports, as appropriate, information relating to performance measures. These after- action reports serve as closure documents and permanent records of each initiative s accomplishments. Demonstrated progress: met. DOD has demonstrated sustained progress by completing 34 of the 39 initiatives to improve asset visibility and continues to monitor the remaining 5 initiatives. These initiatives have supported DOD s goals and objectives, which include: (1) improving visibility efficiencies of physical inventories, receipt processing, cargo tracking, and unit moves; (2) ensuring asset visibility data are discoverable, accessible, and understandable to support informed decision-making across the enterprise; and (3) increasing efficiencies for delivery accuracy and cycle times. Also, the Asset Visibility Working Group meets regularly to identify opportunities to further improve asset visibility within DOD. DOD has taken the following actions to demonstrate sustained progress: (1) created an integrated single portal system providing 7,500 users access to near-real-time, in-transit visibility of eight million lines of items of supply and transportation data; and (2) increased its visibility of assets through radio-frequency identification (RFID), an automated data-capture technology that can be used to electronically identify, track, and store information contained on a tag. There are two main types of RFID tags, passive and active, which show whether assets are in-storage, in-transit, in-process, or in-use. Passive tags, such as mass transit passes, do not contain their own power source and cannot initiate communication with a reader; while active tags, such as an E-Z pass, contain a power source and a transmitter, and send a continuous signal over longer distances. DOD closed nine initiatives from its Strategies by implementing RFID technology. For example, the Marine Corps implemented long-range passive RFID for visibility and accountability of items, resulting in improvements that include an increased range for reading an item from 30 feet to 240 feet and reduced inventory cycle times from 12 days to 10 hours. Also, the Navy reported that the use of passive RFID technology to support the overhaul of its nuclear-powered attack submarines enabled the Navy to better track parts, resulting in 98 percent fewer missing components and an average cost avoidance of $1.3 million per boat. Additionally, according to DOD, the use of RFID tags to provide visibility of sustainment cargo at the tactical leg resulted in $1.4 million annual cost savings. Further, DOD reported that the migration of the active RFID enterprise from a proprietary communication standard to a competitive multivendor environment reduced the cost of active RFID tags by half, resulting in an estimated $5.7 million annual reduction in costs. <17. Materiel Distribution> Since our 2017 High-Risk Report, DOD has continued to meet the criteria of leadership commitment, capacity, and action plan for materiel distribution. Further, DOD has fully addressed the four remaining actions and outcomes we outlined in 2017 in order to mitigate or resolve long-standing weaknesses in materiel distribution. Consequently, DOD has met the monitoring and demonstrated progress criteria for materiel distribution to remove this area from our High-Risk List. Leadership commitment: met. Senior leaders continue to demonstrate commitment through their involvement in groups such as the Supply Chain Executive Steering Committee senior-level officials responsible for overseeing materiel distribution corrective actions and through the Distribution Working Group, which helped develop the Materiel Distribution Improvement Plan (Improvement Plan) in 2016. Capacity: met. DOD has continued to demonstrate that it has the personnel and resources, such as key organizations and the associated governance structure, to improve materiel distribution. The Improvement Plan recognizes that additional resources will be required to accomplish its corrective actions and close any identified performance gaps within the time frame specified. Action plan: met. In 2016, DOD developed its corrective action plan to address the department s materiel distribution challenges. The Improvement Plan details specific goals and actions to better measure the end-to-end distribution process, ensure the accuracy of underlying data, and strengthen and integrate distribution policies and the governance structure. Importantly, since 2017, DOD has fully addressed the four remaining actions and outcomes related to monitoring and demonstrated progress to mitigate or resolve long-standing weaknesses in materiel distribution (see table 8). Monitoring: met. DOD has monitored materiel distribution by making progress in developing its suite of distribution performance metrics, improving the quality of their underlying data, and sharing metrics information with stakeholders. For example, in January 2017, DOD developed a suite of performance metrics that provides a comprehensive picture of the distribution process, including whether supplies are delivered on time and at sufficient quantity and quality. Also, DOD implemented checklists to assess the quality of data underlying each performance metric based on relevance, accuracy, comparability, and interpretability. The checklists and their standards assist in identifying root causes and addressing areas where performance data quality may be lacking. DOD has also incorporated internal control requirements in its supply chain management guidance to increase confidence in the performance data. Additionally, DOD has revised its policy documents to require stakeholders to routinely capture and share distribution performance metrics, including cost data, and the department maintains websites to provide current performance information to distribution stakeholders. DOD has also incorporated distribution metrics, as appropriate, on the performance of all legs of the distribution system, including the tactical leg (i.e., the last segment of the distribution system). We previously reported on DOD s deficiencies to accurately assess its distribution performance at the tactical leg, such as missing delivery dates for shipments in Afghanistan. Since that time, the geographic combatant commands have been tracking metrics at the tactical leg, including required delivery dates, to determine the movement and causes of delays for shipments, and have been sharing distribution performance information with the U.S. Transportation Command (TRANSCOM) through their deployment and distribution operations centers. DOD is implementing a cost framework to incorporate transportation costs for all legs of the distribution system, which will provide an additional metric for distribution stakeholders to assess the efficiency of the system. The first phase of the cost framework began operating in August 2018 and is expected to be fully implemented in 2019. DOD is making progress in refining its Improvement Plan and is incorporating additional actions based on interim progress and results. Since DOD issued the Improvement Plan in September 2016, the agency has (1) documented the results and monitored the status of each corrective action, (2) revised completion dates as needed, and (3) periodically provided decision makers with summary action charts, plans, and milestones. DOD is also updating its instruction on management and oversight of the distribution enterprise to clarify the roles and responsibilities of all distribution stakeholders. DOD officials have not determined a date for when this instruction will be issued. Demonstrated progress: met. DOD has demonstrated sustained progress in improving its capability to comprehensively measure distribution performance, identify distribution problems and root causes, and implement solutions. DOD has implemented 10 of 18 corrective actions in its Improvement Plan and is on track to implement the remaining 8 by September 2019. Because of this progress, DOD s monthly shipment reports have assessed performance against enhanced metrics across the distribution system. For example, in December 2017, TRANSCOM investigated performance standards for truck deliveries from its Defense Logistics Agency warehouses in Bahrain to customers in Kuwait due to frequent delays in shipments. TRANSCOM determined that inadequate time for clearing customs in Kuwait resulted in an unrealistic delivery standard. TRANSCOM, in coordination with distribution stakeholders, adjusted the delivery standard to adequately account for the in-theater customs process. In addition, TRANSCOM, in partnership with the Defense Logistics Agency and the General Services Administration, developed and implemented initiatives focused on distribution process and operational improvements to reduce costs and improve distribution services to the warfighter. According to DOD, these efforts have resulted in at least $1.56 billion in distribution cost avoidances to date. <17.1. Monitoring After Removal> DOD has demonstrated commendable, sustained progress improving its supply chain management. This does not mean DOD has addressed all risk within this area. It remains imperative that senior leaders continue their efforts to implement initiatives and corrective actions to maintain visibility of supplies, track cargo movements, meet delivery standards, and maintain delivery data for shipments. Continued oversight and attention are also warranted given the recent reorganization of the Office of the Under Secretary of Defense for Acquisition and Sustainment and the resulting change in the oversight structure of Supply Chain Management. We will therefore continue to conduct oversight of supply chain management at DOD. <18. Related GAO Products> Defense Logistics: Improved Performance Measures and Information Needed for Assessing Asset Visibility Initiatives. GAO-17-183. Washington, D.C.: Mar. 16, 2017. Defense Logistics: DOD Has Addressed Most Reporting Requirements and Continues to Refine its Asset Visibility Strategy. GAO-16-88. Washington, D.C.: Dec. 22, 2015. Defense Logistics: Improvements Needed to Accurately Assess the Performance of DOD s Materiel Distribution Pipeline. GAO-15-226. Washington, D.C.: Feb. 26, 2015. Mitigating Gaps in Weather Satellite Data <19. NOAA s Polar- Orbiting Weather Satellites> Since our last high-risk update in 2017, NOAA continues to meet the criteria of leadership commitment, capacity, and monitoring and now also meets the criteria of action plan and demonstrated progress. Leadership commitment: met. NOAA program officials met the leadership commitment criteria in 2015 and have continued to sustain their strong leadership commitment to mitigating potential satellite data gaps since that time. For example, NOAA issued and frequently updated its polar satellite gap mitigation plan, which identifies the specific technical, programmatic, and management steps the agency is taking to ensure that satellite mitigation options are viable. In addition, NOAA executives continue to oversee the acquisition of polar-orbiting satellites through monthly briefings on the cost, schedule, and risks affecting the satellites development. Capacity: met. NOAA continues to meet the criterion of improving its capacity to address the risk of a satellite data gap. In December 2014, we recommended that NOAA investigate ways to prioritize the gap mitigation projects with the greatest potential benefit to weather forecasting, such as by improving its high-performance computing capacity. NOAA agreed with this recommendation and implemented it. For example, NOAA upgraded its high-performance computers, which allowed the agency to move forward on multiple other mitigation activities, including experimenting with other data sources and assimilating these data into its weather models. and impacts, and (4) establishing a schedule with meaningful timelines and linkages among mitigation activities. The agency agreed with the recommendation and subsequently addressed it. Specifically, NOAA issued three updates to its gap mitigation plan between January 2016 and February 2017. With the last of the updates, the agency addressed the shortfalls we had identified. Monitoring: met. NOAA met this criterion in 2017, and continues to meet it now, by implementing our recommendations to more consistently and comprehensively monitor its progress on gap mitigation activities. For example, all three NOAA organizations responsible for gap mitigation projects regularly brief senior management on their progress. Demonstrated progress: met. NOAA now meets the criterion for demonstrated progress, which is an increase over its prior rating. In our 2017 High-Risk Report, we noted that NOAA had identified 35 different gap mitigation projects and was making progress in implementing them. These projects fell into three general categories: (1) understanding the likelihood and impact of a gap, (2) reducing the likelihood of a gap, and (3) reducing the impact of a gap. Nevertheless, one of the most important steps in reducing the likelihood of a gap keeping the launch of the next polar satellite on schedule had encountered problems. Specifically, agency officials decided to delay the launch due to challenges in developing the ground system and a critical instrument on the spacecraft. This delay exacerbated the probability of a satellite data gap. More recently, however, NOAA was able to demonstrate progress by successfully launching the satellite in November 2017. That satellite, now called NOAA-20, is currently operational and is being used to provide advanced weather data and forecasts. Moreover, the agency is also working to build and launch the next satellites in the polar satellite program. <20. DOD s Polar-Orbiting Weather Satellites> Since our last high-risk update in 2017, DOD now meets all five high-risk criteria. Fiscal Year 2015 (NDAA for FY 2015), the National Defense Authorization Act for Fiscal Year 2016 (NDAA for FY 2016), and the Consolidated Appropriations Act, 2016, DOD leadership committed to developing and implementing plans to address its weather satellite requirements. For example, in late 2017, the department awarded a contract for its Weather System Follow-on Microwave satellite to fulfill core weather requirements. Capacity: met. With strong congressional oversight, DOD now meets the capacity criterion. Specifically, the NDAA for FY 2015 restricted the availability of 50 percent of the FY 2015 funds authorized for the Weather Satellite Follow-on System (now called the Weather System Follow-on Microwave satellite program) until DOD submitted to the congressional defense committees a plan to meet weather monitoring data collection requirements. In addition, the explanatory statement that accompanied the Consolidated Appropriations Act, 2016, recommended that the Air Force focus on ensuring that the next generation of weather satellites meet the full spectrum of requirements and work with civil stakeholders to leverage appropriate civil or international weather assets. As called for in the law and the explanatory statement, DOD established plans to meet weather monitoring data collection needs, including by acquiring satellites as part of a family of systems to replace its aging legacy weather satellites. Additionally, DOD formally coordinated with NOAA on weather monitoring data collection efforts. In January 2017, the Air Force and NOAA signed a memorandum of agreement, and in November 2017, signed an annex to that agreement, to allow for the exchange of information and collaboration on a plan for collecting weather monitoring data. The Air Force and NOAA are now developing plans to relocate a residual NOAA satellite over the Indian Ocean, an area of concern for cloud characterization and area-specific weather imagery coverage. requirements. Under this program, the department may launch a demonstration satellite in 2021 and plans to launch an operational satellite in 2022. DOD also developed plans for providing its two highest-priority capabilities cloud characterization and area-specific weather imagery data collection that will not be covered by the Weather System Follow- on Microwave satellite program. The department is planning a longer- term solution, called the Electro-Optical/Infrared Weather Systems program, to meet these needs, with a planned satellite launch in 2024. Meanwhile, DOD is in the process of acquiring a small prototype satellite, called the Operationally Responsive Space-8 satellite, to provide interim capabilities. DOD plans to launch Operationally Responsive Space-8 as early as 2022. Monitoring: met. DOD now meets the monitoring criterion as evidenced by its actions to initiate a major acquisition program, the Weather System Follow-on Microwave, and award a contract for the first satellite. In addition, program officials stated that they plan to monitor the program s progress toward addressing critical needs and assess its operations and sustainment costs. Demonstrated progress: met. DOD now meets the demonstrated progress criterion because it has developed plans and taken actions to address gaps in weather data through its plans to launch the Weather System Follow-on Microwave satellite in 2022. The department also plans to launch the Electro-Optical/Infrared Weather Systems satellite in 2024 and provide interim capabilities beginning as early as 2022. By developing these plans, DOD has reduced the risk of a gap in weather satellite data and addressed the concerns about a lack of planning that we identified in our 2017 High-Risk Report. DOD s effective implementation of its plans will be key to further reducing the risks of gaps in weather satellite data in the future. <20.1. Monitoring After Removal> Moving forward, we will continue to monitor both NOAA and DOD efforts to develop and launch the next satellites in their respective weather satellite programs. NOAA plans to launch its next geostationary weather satellite in 2021 and to launch its next polar weather satellite in 2022. DOD plans satellite launches in 2021 (potentially), 2022, and 2024. In addition, we will continue to monitor DOD s efforts to develop long-term plans to meet its weather satellite requirements. <21. Related GAO Products> Weapon Systems Annual Assessment: Knowledge Gaps Pose Risks to Sustaining Recent Positive Trends. GAO-18-360SP. Washington, D.C.: Apr. 25, 2018. Satellite Acquisitions: Agencies May Recover a Limited Portion of Contract Value When Satellites Fail. GAO-17-490. Washington, D.C.: June 9, 2017. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-17-333SP. Washington, D.C.: Mar. 30, 2017. Defense Weather Satellites: DOD Faces Acquisition Challenges for Addressing Capability Needs. GAO-16-769T. Washington, D.C.: July 7, 2016. Polar Satellites: NOAA Faces Challenges and Uncertainties that Could Affect the Availability of Critical Weather Data. GAO-16-773T. Washington, D.C.: July 7, 2016. Polar Weather Satellites: NOAA Is Working to Ensure Continuity but Needs to Quickly Address Information Security Weaknesses and Future Program Uncertainties. GAO-16-359. Washington, D.C.: May 17, 2016. 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.

Why GAO Did This Study The federal government is one of the world's largest and most complex entities; about $4.1 trillion in outlays in fiscal year 2018 funded a broad array of programs and operations. GAO's high-risk program identifies government operations with vulnerabilities to fraud, waste, abuse, and mismanagement, or in need of transformation to address economy, efficiency, or effectiveness challenges. This biennial update describes the status of high-risk areas, outlines actions that are still needed to assure further progress, and identifies two new high-risk areas needing attention by the executive branch and Congress. Solutions to high-risk problems save billions of dollars, improve service to the public, and would strengthen government performance and accountability. GAO uses five criteria to assess progress in addressing high-risk areas: (1) leadership commitment, (2) agency capacity, (3) an action plan, (4) monitoring efforts, and (5) demonstrated progress. What GAO Found The ratings for more than half of the 35 areas on the 2019 High-Risk List remain largely unchanged. Since GAO's last update in 2017, seven areas improved, three regressed, and two showed mixed progress by improving in some criteria but declining in others. Where there has been improvement in high-risk areas, congressional actions have been critical in spurring progress in addition to actions by executive agencies. GAO is removing two of the seven areas with improved ratings from the High-Risk List because they met all of GAO's five criteria for removal. The first area, Department of Defense (DOD) Supply Chain Management, made progress on seven actions and outcomes related to monitoring and demonstrated progress that GAO recommended for improving supply chain management. For example, DOD improved the visibility of physical inventories, receipt processing, cargo tracking, and unit moves. Improvements in asset visibility have saved millions of dollars and allow DOD to better meet mission needs by providing assets where and when needed. The second area, Mitigating Gaps in Weather Satellite Data, made significant progress in establishing and implementing plans to mitigate potential gaps. For example, the National Oceanic and Atmospheric Administration successfully launched a satellite, now called NOAA-20, in November 2017. NOAA-20 is operational and provides advanced weather data and forecasts. DOD developed plans and has taken actions to address gaps in weather data through its plans to launch the Weather System Follow-on–Microwave satellite in 2022. There are two new areas on the High-Risk List since 2017. Added in 2018 outside of GAO's biennial high-risk update cycle, the Government-Wide Personnel Security Clearance Process faces significant challenges related to processing clearances in a timely fashion, measuring investigation quality, and ensuring information technology security. The second area, added in 2019, is Department of Veterans Affairs (VA) Acquisition Management. VA has one of the most significant acquisition functions in the federal government, both in obligations and number of contract actions. GAO identified seven contracting challenges for VA, such as outdated acquisition regulations and policies, lack of an effective medical supplies procurement strategy, and inadequate acquisition training. Overall, 24 high-risk areas have either met or partially met all five criteria for removal from the list; 20 of these areas fully met at least one criterion. Ten high-risk areas have neither met nor partially met one or more criteria. While progress is needed across all high-risk areas, GAO has identified nine that need especially focused executive and congressional attention, including Ensuring the Cybersecurity of the Nation, Resolving the Federal Role in Housing Finance, addressing Pension Benefit Guaranty Corporation Insurance Programs, Managing Risks and Improving VA Health Care, and ensuring an effective 2020 Decennial Census. Beyond these specific areas, focused attention is needed to address mission-critical skills gaps in 16 high-risk areas, confront three high-risk areas concerning health care and tax law enforcement that include billions of dollars in improper payments each year, and focus on a yawning tax gap. What GAO Recommends This statement describes GAO's views on progress made and what remains to be done to bring about lasting solutions for each high-risk area. Substantial efforts are needed by the executive branch to achieve progress on high-risk areas. Addressing GAO's hundreds of open recommendations across the high-risk areas and continued congressional oversight and action are essential to achieving greater progress.

gao_GAO-20-112

gao_GAO-20-112_0

<1. Background> <1.1. The Foreign Narcotics Kingpin Designation Act> The Kingpin Act authorizes Treasury to identify and apply sanctions to significant foreign narcotics traffickers and their organizations worldwide to protect the national security and economy of the United States. According to officials from OFAC and other partner agencies, key goals of the Kingpin Act include disrupting and dismantling drug trafficking organizations and blocking designees access to the U.S. financial system. <1.2. Treasury and Other U.S. Partner Agencies> The Kingpin Act mandates the participation of certain agencies in the Kingpin designation process. The Secretary of the Treasury, after consulting with partner agencies, is authorized to designate a foreign national or entity as a Specially Designated Narcotics Trafficker. The partner agencies participating in Kingpin Act designations are the Department of Justice (DOJ), State, DHS, DOD, CIA, FBI, and DEA. For Treasury to designate a foreign individual or entity under the Kingpin Act, it must identify that individual or entity as either a significant foreign narcotics trafficker or part of a designee s network. The following offices in Treasury are involved in identifying designation targets, and managing and assessing the impact of sanctions: The Office of Terrorism and Financial Intelligence (TFI) has the twin aims of safeguarding the U.S. financial system against illicit use and combatting national security threats, including drug kingpins. TFI includes OFAC, the Office of Intelligence and Analysis (OIA) and the Office of Terrorist Financing and Financial Crimes (TFFC). OFAC is Treasury s primary office for sanctions implementation and enforcement. OIA is responsible for TFI s intelligence functions and performs some assessment of the impact of Treasury s sanctions programs. TFFC works across the national security community and with the private sector and foreign governments to identify and address the threats presented by illicit finance to the international financial system. <1.3. Kingpin Act Identification and Designation> Treasury can designate a foreign individual or entity under the Kingpin Act if it identifies an individual or entity as either a significant foreign narcotics trafficker or part of a designee s network. OFAC and its partner agencies have grouped these Kingpin Act designation categories into two tiers, Tier 1 and Tier 2, based on the procedures required for identification and designation under the act. (See tab. 1.) All identifications and designations under the Kingpin Act are subject to the same asset blockings and penalties. The names of persons and entities designated are published in the Federal Register and incorporated into Treasury s Specially Designated Nationals and Blocked Persons List (SDN List). The majority of Tier 1 Kingpin Act designations are individuals and entities from countries in the Western Hemisphere, as shown in figure 1. <1.4. Kingpin Act Sanctions and Other Consequences> Treasury is authorized to block assets of and prohibit transactions with designated individuals and entities and to impose penalties on individuals and entities that engage with designees. Blocking assets. Treasury blocks (i.e., denies access to) a designated individual or entity s property and interests in property within the United States, or within the possession or control of any United States individuals or entities that are owned or controlled by the blocked individual or entity. Prohibiting transactions. Treasury generally prohibits United States individuals and entities from engaging in transactions in property or interests in property of designees. Denying visas. Treasury provides information to State so it can decide whether to cancel existing visas and deny visa applications of Kingpin Act designees. Penalties for nondesignees. Treasury may enforce criminal and civil penalties for any U.S. person who willfully violates the prohibitions in the Kingpin Act, associated regulations, or license rules. Penalties for violations of the Kingpin Act range from civil penalties of up to $1.5 million per violation to more severe criminal penalties. Criminal penalties for corporate officers in violation may include up to 30 years in prison and fines up to $5 million for individuals and $10 million for corporations. <1.5. Annual Kingpin Act Reporting Requirements> Treasury is required to report to Congress on the status of sanctions imposed under the Kingpin Act, including the personnel and resources directed toward imposing such sanctions during the preceding fiscal year. On July 1st of each year, the OFAC Director, as delegated by the Secretary of the Treasury, is required to submit a report to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate on the status of sanctions imposed under the Kingpin Act, the personnel and resources directed toward imposing sanctions under the Kingpin Act during the preceding fiscal year, and background information with respect to the newly identified significant foreign narcotics traffickers and their activities. Treasury is also required to report on foreign persons who are sanctioned under the Kingpin Act to the Director of the Office of National Drug Control Policy (ONDCP); ONDCP is the Executive Branch office responsible for issuing an annual National Drug Control Strategy and coordinating the efforts of the National Drug Control Program agencies implementing any aspects of the strategy. <2. OFAC Leads a Flexible Interagency Process to Designate Narcotics Kingpins and Their Networks, and Partner Agencies Generally Find OFAC Guidance Sufficient to Understand Their Roles> <2.1. OFAC Leads a Six Step Kingpin Act Designation Process> Treasury s OFAC leads a process generally involving six steps to designate Kingpin Act targets. This process allows OFAC to coordinate its investigations and designations with U.S. partner agencies and foreign governments. (See fig. 2.) We determined the designation process through interviews with OFAC and partner agency officials, and selected nine cases to review the implementation of the designation process. OFAC s Kingpin Act designation process includes the following six steps: 1. Identify potential targets. OFAC first identifies potential targets for investigation and Kingpin Act designation. OFAC s partner agencies can submit recommendations for potential targets. According to OFAC officials, they consider information provided about potential Tier 1 targets from the recommending agency, such as whether the targets are on the U.S. multiagency list of priority drug trafficking targets, what unique identifiers the recommending agency can provide to minimize the chance of investigating the wrong target, and which drug(s) and quantities the targets traffic and to which markets. Additionally, OFAC considers (1) the likelihood that the target would meet the legal criteria for designation and have an impact, (2) the expectation that designation would complement rather than hinder law enforcement and foreign counterpart investigations and operations, (3) any unintended negative consequences on third parties, and (4) the current availability of OFAC resources. According to OFAC officials, Tier 2 targets are generally identified as part of the investigation of a Tier 1 target or designee. Officials said the decision to pursue designation depends on whether there is sufficient evidence to demonstrate that the target satisfies the designation criteria in the act. As early as at this step, but at some point before designation, OFAC coordinates with partner agencies to ensure that they do not have an ongoing investigation or other diplomatic interactions that will be adversely affected by a Kingpin Act designation. 2. Gather evidence. OFAC gathers evidence on the identified target to determine whether it meets the criteria for identification or designation and whether there is a network associated with the target. OFAC requests information on the target from other partner agencies. According to OFAC officials, they do not request information from all of OFAC s partner agencies during the investigation of each target if they deem the information provided by a subset of the partner agencies to be sufficient evidence. OFAC also conducts its own research and uses all sources including public and classified to develop an evidentiary package. OFAC works with partner agency headquarters, and domestic and international field offices (as needed for each case) to collect information on either a person s drug trafficking activities or activities that support drug trafficking organizations. OFAC and partner agency officials said they also collect information about targets from their foreign government partners and counterparts, as appropriate. OFAC also ensures that the derogatory information collected is linked to the target and not, for example, another person with the same name. 3. Assemble evidentiary package. OFAC compiles the collected information into an evidentiary package maintained in its electronic case management system. According to OFAC officials, the case management system documents the date when each step is completed and contains sign off by an approving official. In addition, OFAC officials said the case management system contains a summary of the evidence OFAC gathered to justify designating an individual or entity, and links to the source documents provided by partner agencies. Because the information in the evidentiary package may be sensitive, classified, and compiled from multiple sources, OFAC typically does not share the evidentiary packages with its partner agencies, with the exception of DOJ for legal review purposes. However, under certain circumstances, OFAC may allow partner agencies to review portions of an evidentiary package after ensuring that there is a specific need to know and that there is adherence to rules for disclosure to another agency. 4. Legal review. OFAC provides the evidentiary package first to Treasury s Office of General Counsel and then to DOJ s Civil Division for legal review. Treasury s Office of General Counsel reviews the package for legal sufficiency, while DOJ assesses the risks associated with potential future litigation resulting from the identification or designation. According to OFAC and DOJ officials, attorneys often seek clarification or additional evidence from OFAC at this stage. In those cases where Treasury s Office of General Counsel deems the basis for designation or identification to be legally sufficient and DOJ determines that the identification or designation presents an acceptable level of litigation risk, they give OFAC clearance to finalize the evidentiary package and proceed with the action. 5. Consult with partner agencies. Once the evidentiary package passes legal sufficiency, OFAC consults with all of its partner agencies to obtain concurrence. OFAC presents the names of individuals or entities it has decided to designate and a high-level summary of the reasons for designation to its partner agencies for final consultation and concurrence. According to officials from each of the partner agencies, this allows them the opportunity to identify if OFAC s plan to designate a target will damage any of their operations or ongoing investigations or cause unacceptable damage to diplomatic relations with the host government in the country where the target resides or maintains citizenship. This consultation phase also allows for OFAC and other Treasury offices, such as the Office of Terrorist Financing and Financial Crimes (TFFC), as well as partner agencies to develop an engagement plan for outreach with relevant parties, including foreign governments and the press, as appropriate. While partner agencies at the U.S. embassy in the country of the proposed designation are given the opportunity to concur with OFAC s decision to designate, agency representatives in headquarters give final agency concurrence. OFAC does not designate anyone unless all partner agencies concur. If an agency tells OFAC at any point during the process that designating a target would damage the agency s investigation or operations, OFAC officials said they coordinate with the partner agency to determine how to proceed. For example, OFAC may delay the Kingpin Act designation until the partner agency has completed its investigation and can take simultaneous action against the target. 6. Designate the target(s). If all partner agencies concur with OFAC s designation proposal, OFAC takes action to identify the Kingpins and designate any affiliated targets. The evidentiary package is provided to the OFAC Director who, if concurring with the designation, signs a memorandum that identifies or designates the targets. At this time, OFAC also adds the individuals and entities to the SDN List. OFAC announces the actions publicly and records them in the Federal Register. Figure 3 provides an example of an OFAC announcement of a Kingpin Act designation. According to Treasury officials, OFAC also coordinates with other Treasury offices and partner agencies at headquarters and U.S. embassies to execute an outreach and engagement plan. Once OFAC has taken these steps, it begins to monitor and enforce compliance with the sanctions it imposes against Kingpin Act designees. <2.2. Flexibility in Designation Process Allows OFAC to Coordinate with Partner Agencies and Foreign Governments> OFAC and U.S. partner agency officials said flexibility built into the process can affect the length of time it takes to investigate a target and the sequence of steps taken. For example, OFAC s coordination with multiple U.S. partner agencies and foreign governments throughout the process may influence the sequence of steps taken. In addition, drug traffickers often change their organizations and operations in an attempt to evade investigators, which can contribute to the length of time to complete an investigation. According to OFAC officials, the process is intended to ensure that: designations do not jeopardize other agencies ongoing investigations, OFAC s actions are coordinated with other planned civil or criminal actions against each target to maximize the disruption to the drug trafficking organization, and investigators can collect sufficient evidence to designate targets despite targets constantly changing efforts to evade detection. Coordination with partner agencies. Multiple U.S. agencies may have concurrent investigations of a Kingpin Act target, requiring coordination between OFAC and U.S. partner agencies to include decisions about how sharing information could affect their own investigations. When agencies withhold information about a target to ensure that their own investigation of the target is not compromised, it may take longer for OFAC to develop an evidentiary package that satisfies the Kingpin Act s designation criteria. In addition, the length of the designation process and the sequence of steps also depend on how far along other agencies investigations of a target are. For example, if a law enforcement agency is able to provide enough evidence when the potential target is first identified and OFAC officials think little additional investigation is needed to further develop an evidentiary package, they may complete more than one of the designation steps concurrently in order to designate the target as quickly as possible. According to OFAC and partner agency officials, the coordination allows them to agree to and plan the civil and criminal actions to be taken to maximize the U.S. government s efforts to disrupt the drug trafficking organization. Coordination with foreign government officials. According to OFAC and U.S. partner agency officials at headquarters, in Mexico, and in Colombia, foreign government officials determine whether to share derogatory information about Kingpin Act targets on a case-by-case basis. OFAC and partner agency officials in Colombia credited host government information sharing as a primary factor in OFAC s ability to complete evidentiary packages for Colombian targets and one reason why OFAC has been able to investigate and designate more individuals and entities in Colombia than in other countries. Coordination with foreign partners also allows OFAC to time designations strategically to coincide with civil and criminal actions against the target by foreign governments. For example, on May 17, 2019, the Under Secretary for TFI and a Mexican government official announced coordinated, sanctions-related actions. The Under Secretary announced the Kingpin Act designation of seven individuals and six entities affiliated with the Cartel de Jalisco Nueva Generacion (CJNG) and its close ally, the Los Cuinis drug trafficking organizations. Treasury coordinated closely for months with the Mexican Financial Intelligence Unit, the Mexican Attorney General s Office, and the Mexican Federal Police on this action. The Mexican Financial Intelligence Unit froze the Mexican bank accounts held by all of the designees, according to Treasury officials. Although actions like this sometimes require them to delay a designation, OFAC officials noted that the results of coordination can increase the impact of Kingpin Act designations. Changes to drug trafficking organizations. According to OFAC and partner agency officials, drug traffickers attempt to evade investigators by being unpredictable and making changes to their organizational structure and operations. Changes to the organization may result in the need for longer investigations if information gathered about an individual trafficker or a trafficking organization becomes outdated or irrelevant. Operational changes include such things as using shell companies or virtual assets, which several OFAC and partner agency officials said complicate their attempts to gather evidence of proceeds from drug trafficking, and can also lengthen the designation process. Based on our analysis of nine Kingpin Act designations, we found that the duration and sequence of steps leading to designations varied. According to OFAC officials, each investigation includes a unique set of circumstances that affect the length and sequence of steps. From initiation to designation, the nine cases we reviewed ranged from 6 months to 38 months (See fig. 4.) Time spent preparing the evidentiary packages for the cases ranged from 3 months to 31 months. Although OFAC got partner agency concurrence for seven cases after attorneys had begun the legal review of evidentiary packages, OFAC documented completion of this step before legal review had begun for two cases. The timing for submitting the case to partner agencies for initial designation consideration varied, including one case that OFAC did not submit until the month that attorneys completed legal reviews of the evidentiary package. For one case, OFAC followed most of the steps twice before designating the target. OFAC officials told us that if the decision is made to delay a designation after they have completed all of the steps leading up to designation, it may be necessary to go through the steps again to determine whether there is new derogatory information about the target and whether the information in the evidentiary package is still current and legally sufficient before designating the target. <2.3. OFAC Has Informed Partner Agencies of the Designation Process in Several Ways, Which Partner Agencies Generally Find Sufficient to Understand Their Roles> OFAC officials reported that they disseminate information about the designation process and agencies roles and responsibilities for the process in several ways. Treasury s website includes Frequently Asked Questions that explain how agencies should interact with OFAC and each other and a hotline number that agencies can use if they need additional information. OFAC has provided presentations and memos to its partner agencies that further explain the Kingpin Act designation process. Treasury has also issued Kingpin Act regulations, which, among other things, define key terms related to the act and clarify prohibited activities. Because DEA is involved in the majority of OFAC s Kingpin Act investigations, OFAC and DEA have signed a memorandum of understanding that further clarifies how they work together and share information related to Kingpin Act cases. Among other things, it establishes the terms for OFAC to have a staff person co-located at DEA and to have access to DEA files that support Kingpin Act investigations. According to OFAC officials, it does not have a similar formal collaboration mechanism with its other partner agencies. OFAC s partner agencies reported that they generally understand their responsibilities under the Kingpin Act and how to find answers to their questions about the Kingpin Act designation process. Several officials stated that their responsibilities include recommending potential targets, participating in interagency group meetings, deciding whether to concur with OFAC s decisions to investigate or designate persons, and responding to specific requests for information from OFAC. Officials from the headquarters of each of the Kingpin Act partner agencies said they found the information available from OFAC about the designation process sufficient to help them understand their roles. Most partner agencies in Colombia and Mexico, where the majority of Kingpin Act designations have taken place, reported that the presence of an OFAC Attach in those countries made it easy for them to ask for clarification on the process as needed. <3. OFAC and Partner Agencies Monitor and Enforce Kingpin Act Financial and Nonfinancial Sanctions, but OFAC Does Not Ensure Consistency and Transparency of Mandated Personnel and Resource Reporting> <3.1. OFAC Works with Federal Banking Agencies to Monitor and Enforce Kingpin Act Financial Sanctions> OFAC monitors and enforces financial sanctions against Kingpin Act designees implemented by U.S. financial institutions. OFAC regulations and a memorandum of understanding with Federal Banking Agencies (FBA) such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC) establish sanctions compliance and information sharing responsibilities. For example, OFAC regulations require banks to report all blockings of designee property to OFAC within 10 days of the occurrence and recommend that banks designate a Compliance Officer responsible for monitoring compliance with its programs, and an officer responsible for overseeing blocked funds. According to the memorandum, each FBA will provide OFAC the following types of information to help OFAC monitor bank compliance with sanctions programs, including Kingpin Act sanctions: Notification of any apparent unreported sanctions violations discovered during their examinations of financial institutions. Information on their examinations into a bank s OFAC compliance policies, procedures, and processes. Notification of any deficiencies in a bank s compliance programs, such as cases when a bank failed to respond to supervisory warnings concerning OFAC compliance violations. FBAs have established a schedule for regular examinations of U.S. banks, which generally include their OFAC compliance programs. Federal Reserve and OCC officials stated that their legal and bank examiner staff address sanctions compliance regimes as part of their general examination duties. They are not responsible for determining sanctions violations, but assess the bank s compliance program as a whole for soundness. Both FBAs said they perform bank examinations every 12 to 18 months, and determine the extent to which they should review the bank s OFAC compliance program during the examination. For example, OCC officials said that, in accordance with the guidelines, they review banks internal testing of their OFAC compliance programs. According to OCC and Federal Reserve officials, banks have compliance programs to identify and block OFAC designees, including Kingpin Act designees, from accessing the U.S. financial system. According to OFAC and FBA officials, the U.S. banks with the most international branches and non-U.S. clients are most likely to hold assets or facilitate financial transactions of foreign nationals. FBA examinations confirm that bank programs include procedures for ensuring compliance with OFAC sanctions, including Kingpin Act sanctions. We met with officials from the five U.S. banks that FBA officials said have the largest presence in Latin American countries, and bank officials reported that their compliance programs check daily for evidence they are maintaining any customer relationship or allowing any transactions involving designated individuals. OFAC has imposed a range of penalties on banks that have violated the terms of Kingpin Act sanctions. OFAC and bank officials said that a bank is noncompliant when it either fails to freeze a Kingpin Act designee s assets at that bank or processes a transaction involving a Kingpin Act designee. According to Treasury officials, Treasury makes public any civil monetary penalties it imposes and OFAC has imposed monetary penalties on banks for Kingpin Act compliance violations in 12 cases for a total of $17 million since 2000. Officials from the five banks we spoke with said they self-report cases of noncompliance with OFAC sanctions against Kingpin Act designees as required. For example, one of the banks stated that they identify and report between six and 12 cases of noncompliance to OFAC each year. OFAC officials said when a bank self-reports a violation OFAC often issues them a cautionary letter. According to OFAC officials, they issue this as a warning when they have no reason to believe that the bank committed the violation intentionally or that it is evidence of a systematic problem that the bank has not taken steps to address. The OFAC officials said the letter may or may not include a required response from the bank. <3.2. State and OFAC Enforce Non-financial Kingpin Act Consequences, Including Denying Visas and Blocking Property> State has denied visa applications and revoked visas of Kingpin designees, prohibiting them from traveling to the United States after they were designated. According to both OFAC and State s Consular Affairs officials, State contacts OFAC whenever a visa adjudicator finds information in State s Consular Affairs database regarding a possible OFAC concern about a visa applicant. State s officials use their Consular Lookout and Support System database to identify any information entered by U.S. government agencies, including OFAC, to indicate that an individual does not qualify for a U.S. visa. Although the consular database does not specify that OFAC s concern is specifically related to a Kingpin Act designation, they do not issue a visa without discussing with OFAC whether the applicant s designation disqualifies them from a visa. The consular database does not specify which OFAC flags are related to the Kingpin Act, and State was unable to provide us the number of visas that have been revoked or denied under the program. OFAC has also blocked (or denied access to) designees U.S. property as part of Kingpin Act sanctions. According to OFAC officials, they seek to identify U.S. property that designees own or control as part of their investigation of designees both before and after they are designated. As a result of those investigations, OFAC officials said they have blocked 15 U.S.-incorporated companies, nine real estate properties, and 21 other tangible properties (such as automobiles, aircraft, and boats), which remained blocked as of August 2019. An individual s property is no longer blocked if that individual is removed from the SDN list. U.S. citizens, corporations, and financial institutions are not permitted to do business with blocked companies. <3.3. OFAC Meets Annual Reporting Requirement, but Provides Limited Guidance to Partner Agencies on Expenditure Data and Does Not Disclose Data Limitations> OFAC has met the mandated requirement to report to Congress on agencies personnel and resources expended on the imposition of Kingpin Act sanctions, but provided limited guidance to partner agencies that has resulted in inconsistent data on Kingpin Act related expenditures. Furthermore, OFAC has not disclosed limitations to the consistency or reliability of the expenditure data in its reports. The Kingpin Act requires Treasury, no later than July 1 each year, to provide the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate a report describing the status of sanctions imposed, including the personnel and resources directed towards the imposition of such sanctions during the preceding fiscal year, and providing background information with respect to newly-identified significant foreign narcotics traffickers and their activities. OFAC has submitted annual reports to Congress since 2003. Each report includes information from OFAC on both agencies expenditures and on designations announced during the year. To prepare the report, OFAC requests partner agency expenditures. OFAC sends annual emails requesting the amount agencies spent on personnel and resources for their Kingpin Act activities. For at least the last 3 years, OFAC has sent the partner agencies a memo stating that for personnel expenses, agencies could estimate the percentage of time spent by staff members on activities directly attributable to implementing the Kingpin Act during the year covered in the report and multiply by the staff members salaries during the year. However, the guidance does not clarify or provide examples of types of personnel expenditures that agencies should consider as attributable to implementing the Kingpin Act. As a result, agencies must interpret for themselves what to include in their estimated personnel expenditure submissions to OFAC. The memo listed some examples of what agencies could include as resource expenditures related to the implementation of the Kingpin Act, such as research materials and information access, travel, equipment, supplies, outside services, and security. OFAC officials said they are not more prescriptive with their guidance because the Kingpin Act is not specific about which expenses to report. Agencies reported different methods for determining expenditure amounts and the information on agency personnel expenditures varied substantially from year to year. Officials from some of the partner agencies reported calculating estimates of personnel expenditures based on the paygrades of personnel engaged in Kingpin Act investigations or interagency meetings, while others stated that they did not report expenditures because they determined that their level of engagement was minor and did not warrant reporting. According to DEA officials, they do not report on personnel expenditures for the time they spend investigating Kingpin Act targets because the investigations simultaneously support their own cases against the targets. According to officials from some agencies, such as DHS, they only reported personnel expenditures for cases on which they were the lead investigative agency. As a result, DHS reported $2.4 million in personnel expenditures in fiscal year 2015, $0 between fiscal years 2016 and 2018, and then about $2 million in fiscal year 2019. Other partner agencies, such as DOD and State, report personnel expenditures even though they do not lead specific Kingpin Act investigations. As a result, the reported expenditures of agencies may not be consistent and may not represent a reliable total for Kingpin Act activities across the U.S. government. See figure 5 for the Kingpin Act related personnel expenditures reported by Treasury and its partner agencies. Agencies determinations of what they include as resource expenditures vary as well. For example, several agencies have reported no resource expenditures for the last 3 years, but State has reported a small resource expenditure that, according to State officials, accounts for transportation expenses for Kingpin Act interagency meetings. OFAC officials said they do not know what agencies are including in their annual expenditure reports because OFAC does not seek information from agencies explaining their annual expenditure submissions and OFAC reports them as submitted. Moreover, OFAC officials said they did not verify the amounts reported to confirm, for example, why DHS and DOD reported personnel expenditures in some years many times greater than DOJ personnel expenditures, even though DOJ is the lead investigative agency for the majority of Kingpin Act cases. The Kingpin Act requires OFAC to report on the personnel and resources expended on the imposition of Kingpin Act sanctions each year. Additionally, federal internal control standards require entities to ensure that they are using quality information to achieve their objectives. Although Treasury reported in the most recent annual report from July 2019 that OFAC s significant increase in resource expenditures was due to the addition of overseas costs and database contracts, the annual reports do not account for significant changes in agencies expenditures from year to year. Because OFAC does not provide guidance that clarifies what agencies are required to include in their annual expenditure submissions or disclose the limitations in the consistency and reliability of expenditure data from partner agencies, OFAC cannot provide assurance that its annual reports to Congress on Kingpin Act interagency expenditures contain quality information that is transparent and consistent across all reporting agencies. As a result, Congress may not be able to provide informed oversight of personnel and resources expended on implementing the Kingpin Act. <4. Agencies Noted Challenges That Impede Their Assessment of the Effectiveness of Kingpin Act Sanctions, but OFAC and Its Partners Report a Range of Results> <4.1. Agencies Reported Challenges in Assessing Effectiveness of Kingpin Act Sanctions in Achieving Policy Goals, but Treasury Has Assessed Some Individual Designations> OFAC and partner agency officials identified challenges that make it difficult or impossible to assess the overall effectiveness of the Kingpin Act sanctions in achieving U.S. policy goals to reduce illicit narcotics within the United States. These officials noted that the primary challenge in assessing the effectiveness of Kingpin Act sanctions is that they cannot isolate the impact of Kingpin Act sanctions from those of multiple other efforts and factors. For example, whether the estimates of the amount of drugs entering the United States is increasing or decreasing depends upon the sum total of activities of counternarcotics programs managed by organizations in the United States, other countries, and the international community. In addition, we have previously reported other challenges that agency officials have stated can make it difficult to assess the effectiveness of economic sanctions, including frequent shifts in policy goals and objectives, and a lack of reliable data. Treasury officials noted that sanctions are often used in conjunction with other policy tools, such as diplomatic engagement and export controls. According to Treasury officials, distinguishing the impact of each tool leveraged is exceedingly difficult due to the limited information available via intelligence and law enforcement channels. Moreover, while Treasury s partner agencies said Kingpin Act designations contribute to their counternarcotics goals, these agencies are unable to quantify contributions specifically related to the Kingpin Act in measuring progress toward their own agencies goals. Partner agency officials said they do not consider the Kingpin Act to be a government program for which effectiveness can be assessed; rather, they stated that the Kingpin Act is one tool among many that U.S. government agencies can use where appropriate in their efforts to combat drug trafficking. According to partner agency officials, effectiveness of sanctions in achieving policy goals is often discussed at an interagency level, which allows the U.S. government to consider these issues in the larger policy context, because sanctions are often only one element of broader government-wide strategies to achieve U.S. policy goals. Treasury conducts some assessment of both the potential and observed impacts of specific Kingpin Act designations. The Office of Intelligence and Analysis (OIA), Treasury s intelligence component, conducts both predesignation and postdesignation assessments. OIA officials noted that they consider it part of their mission to inform Treasury policymakers of potential impact before a designation occurs. According to OIA officials, OIA s predesignation assessments are narrowly focused and can be delivered in any number of formats, including emails, spreadsheets, and briefings. OFAC officials said they provide OIA with name and summary evidentiary information on a potential target. According to OIA officials, they use the information to assess the potential level of impact (e.g., negligible or significant) a Kingpin Act designation may have on the target, its network, or other third parties, based on a variety of factors. For example, OIA may determine that a Kingpin Act designation can result in significant impact if evidence indicates that a designation will impose high costs and obstacles for a target to continue drug trafficking activity. According to OIA officials, such assessments have been required by the Under Secretary since 2018 and OIA has completed predesignation assessments on all Kingpin Act designations during that time period for senior Treasury officials consideration. Additionally, since 2018, OIA has completed two postdesignation assessments. OIA officials said they share these assessments with OFAC so it can incorporate the lessons learned into future investigations or to develop new designations. OIA officials said that the decision to conduct postdesignation assessments of Kingpin Act designations is based on resources and the availability of information to assess impact. OFAC officials said they have not undertaken formal, systematic assessments on the impact of Kingpin Act designations because OFAC s staffing resources are primarily assigned to designation investigations and reviewing of petitions for Kingpin Act designation reconsideration. <4.2. OFAC and Its Partner Agencies Have Reported Results, Including That Kingpin Act Sanctions Have Frozen Assets and Aided in Drug Trafficking Investigations> OFAC and its U.S. partner agencies reported on various results related to Kingpin Act sanctions. OFAC reported that it had designated more than 2,000 individuals and entities under the Kingpin Act as of June 2019. (See fig. 6 for the number of individuals and entities designated by year.) These designations are about evenly split between designations of individuals and designations of entities across the four designation classifications. OFAC reported 195 Tier 1 designations (B1 and B4 classification), and 2,033 Tier 2 designations (B2 and B3 classification). OFAC also reported that it has frozen more than half a billion dollars of sanctioned individuals or entities assets under the Kingpin Act between 2000 and 2019. According to OFAC data, almost 80 percent of the total assets frozen were from one individual in 2017. For the remaining years, the amount frozen fluctuated between $1.7 million and $36.4 million without a clear upward or downward trend. Further, law enforcement partner agencies cited the Kingpin Act as an important tool in aiding their investigations that may result in actions such as indictment or arrest of designees. For example, in one of our nine cases, a federal grand jury indicted Raul Flores Hernandez the suspected leader of a Guadalajara-based drug trafficking organization in August 2017 for moving large quantities of cocaine from South America to Mexico for distribution and further transportation into the United States. OFAC designated him (as well as 21 of his alleged criminal associates and 42 businesses and other entities affiliated with his drug trafficking organization) under the Kingpin Act concurrent with the indictment. According to OFAC and DEA officials, sharing information about Flores Hernandez was essential to both the designations and the indictment. According to these officials, disrupting the access of significant narcotics traffickers and their networks to the U.S. financial system and barring them from travel to the United States has been helpful in motivating several designees to cooperate with law enforcement investigations. Moreover, U.S. agencies report that the ability to sanction entire drug trafficking networks increases pressure on traffickers to cease involvement with illicit narcotics. OFAC officials stated that removing designees from the OFAC list is, in some cases, evidence of disruption of drug trafficking organization or other positive behavior change. To be removed, designees must petition OFAC and demonstrate that they no longer meet the criteria to be designated under the Kingpin Act. As of June 2019, OFAC had removed 399 individuals and entities previously designated under the Kingpin Act, of which five were Tier 1 designations (B1 and B4 classification), and 394 were Tier 2 designations (B2 or B3 classification). Foreign government officials also reported that Kingpin Act sanctions have assisted them in imposing penalties on drug traffickers. Foreign government officials we met with in Colombia reported that their Supreme Court issued a ruling that permits their countries banks to terminate accounts of, and deny service to, Kingpin Act designees because of the risk the banks would face if they continued those business relationships. According to Mexican government officials, a bankers association, the Financial Intelligence Unit, and the bank regulator in Mexico issued guidance supporting Mexican banks rights to deny service to Kingpin Act designees. Mexican government officials also stated that once the United States publicly identifies a Mexican national as a drug trafficker by designating him or her under the Kingpin Act, Mexican law enforcement entities face less public opposition when they arrest, imprison, or extradite the individual. According to government officials we met with in Colombia, information that OFAC and other U.S. agencies share as part of their Kingpin Act investigations help them justify seizing designees assets. For example, according to OFAC officials, OFAC, DEA, and Colombian authorities led a joint investigation that led to the October 2018 Colombian asset seizure of 202 assets of two individuals in Colombia valued at over USD $500 million. The Colombian seizure included farms, land, houses, hotels, apartments, businesses, commercial properties, emerald mines, horses and vehicles. Some Kingpin Act designations have had unintended consequences for foreign persons other than those targeted by the sanctions. The Congressional Research Service has reported that some designations have been associated with significant economic losses and unemployment by individuals not involved in illicit narcotics when large companies are liquidated in the process. Treasury officials stated that foreign drug trafficking organizations often attempt to integrate their illicit proceeds into the legitimate economy by owning or controlling businesses that may employ individuals who are not associated with drug trafficking activities. According to Treasury officials, it is imperative that Treasury designate businesses that are owned or controlled by drug trafficking organizations, despite the employment of individuals who may not have knowledge of the illicit activities. They said that prior to designating such foreign businesses, Treasury coordinates closely with other U.S. government agencies, the relevant U.S. embassy, and with the relevant foreign counterparts to minimize the impact on employees who lack knowledge of the illicit activities. According to the Congressional Research Service, some designations have also been associated with upticks in drug trafficking related violence when, in combination with law enforcement action, drug trafficking organizations are dismantled and competing groups vie for abandoned territory. Furthermore, some designations have negatively affected public perceptions of the United States within the designee s country of residence, according to OFAC and partner agency officials. For example, OFAC and State officials stated that there was significant public criticism of U.S. intervention when OFAC designated a Mexican celebrity in conjunction with a significant narcotics trafficker. OFAC officials said it can be difficult to address public opposition to a Kingpin Act designation because the information in the evidentiary package is sensitive and cannot be revealed publicly. <5. Conclusions> The Kingpin Act enables the U.S. government to sanction significant international narcotics traffickers and their networks worldwide by designating foreign individuals and entities, resulting in the freezing of their U.S. assets and an inability to conduct transactions, including financial transactions, with U.S. businesses. OFAC and its partner agencies consider the Kingpin Act a valuable tool as part of U.S. counternarcotics strategy, but have noted that the plethora of counternarcotics efforts make it difficult to isolate the effects of the Kingpin Act. OFAC has reported on personnel and resources directed toward imposing Kingpin Act sanctions annually to Congress. However, OFAC provided limited guidance to agencies about what expenditure data to report. As such, we observed considerable inconsistencies in resource expenditures reported by various partner agencies, and also determined that methods for determining expenditures varied by agency. Moreover, OFAC does not disclose agency data limitations, such as explaining why the data may vary from year to year, before reporting the information to Congress. Without consistent agency data and disclosure of data limitations regarding information on agency resources devoted to Kingpin Act activities, Congress may be limited in its ability to conduct oversight of implementation of the Kingpin Act. <6. Recommendation for Executive Action> We are making the following 2 recommendations to the Department of the Treasury: The Secretary of the Treasury should ensure that the Office of Foreign Assets Control provides its partner agencies more specific guidance regarding Kingpin Act related expenditure data to improve the consistency of data submitted by these agencies. This could include, for example, how agencies account for expenditures that support Kingpin Act investigations when they are not the lead and for what types of activities resource expenditure data are required. (Recommendation 1) The Secretary of the Treasury should ensure that the Office of Foreign Assets Control discloses information about limitations in the consistency and reliability of the agency expenditure data in its annual reports to Congress. (Recommendation 2) <7. Agency Comments> We provided a draft of this report to Treasury, DHS, State, DOD, DOJ, CIA, the Federal Reserve, and ONDCP for comment. We received technical comments from Treasury, DHS, and the Federal Reserve, which we incorporated as appropriate. The remaining agencies informed us that they had no comments. Treasury did not agree or disagree with our recommendations. 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 Acting Secretary of Homeland Security, the Secretary of State, the Secretary of Defense, the Assistant Attorney General for Administration, the Director of the Central Intelligence Agency, the Chair of the Board of Governors of the Federal Reserve System, and the Deputy Director of the Office of National Drug Control Policy. 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) 512-2964 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: Objectives, Scope, and Methodology Our objectives were to examine (1) how U.S. agencies designate individuals and entities under the Foreign Narcotics Kingpin Designation Act (Kingpin Act); (2) the extent to which U.S. agencies monitor, enforce, and report on sanctions under the Kingpin Act; and (3) what agencies have done to assess the effectiveness of the Kingpin Act. To examine the process for designating individuals and entities under the Kingpin Act, we interviewed officials from the mandated partner agencies the Departments of the Treasury (Treasury), State, Homeland Security (DHS), and Defense; the Federal Bureau of Investigation (FBI); and the Drug Enforcement Administration (DEA) and reviewed documents, including the statutes that comprise the Kingpin Act. We also reviewed documentation on collaboration and information-sharing agreements between Treasury s Office of Foreign Assets Control (OFAC) and its partner agencies to determine the ways in which agency participation has been formalized in the designation process. In addition, we received responses from the Central Intelligence Agency to questions we sent. We selected and reviewed a nongeneralizable sample of Kingpin Act designations made since 2015 to understand OFAC s designation process and the extent of the variation in the timing and sequence of the steps leading to the designations. From the countries with the most designations, we considered only B1 and B4 designations. Additionally, we only considered designations that occurred after May 2015, when the authority to designate was delegated from the President to the Secretary of the Treasury, so that the process followed for designation would most closely resemble the current process. We considered cases with a range in number of B2 and B3 designations affiliated with the B1 or B4 designee. Furthermore, we ensured that we selected cases from both Western Hemisphere countries where most of the designations have occurred (including cases in Colombia and Mexico where we performed fieldwork), and non Western Hemisphere countries to learn whether the process differs geographically. To account for those criteria, we selected nine cases to review. OFAC provided data on the milestone dates and results associated with the cases from its electronic case management system. We were unable to independently assess the data provided against the system, but we were able to corroborate some dates, such as designation dates, with public documents such as press releases. In addition, OFAC officials answered our questions about the variance in case data they provided by explaining factors that contributed to the length or sequence of investigative steps of each case. As a result, we deem the case study data provided by OFAC to be sufficiently reliable for the purposes of this report. To examine the extent to which U.S. agencies monitor, enforce, and report on Kingpin Act sanctions, we interviewed officials from OFAC and its partner agencies regarding their roles in sanctions implementation. We also interviewed officials from some of the Federal Banking Agencies (FBA) that OFAC officials said had responsibilities to help monitor bank programs for compliance with OFAC sanctions, including the Kingpin Act financial sanctions the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System and five U.S. banks recommended by the FBAs as having the largest presence in Latin American countries to assess implementation of economic sanctions, including any penalties incurred for sanctions violations. In addition, we met with officials from financial regulator agencies and the national banking associations in Colombia and Mexico to understand how U.S. enforcement of Kingpin Act sanctions affected their operations. To assess the extent to which OFAC included information required by the Kingpin Act for Treasury s reports to Congress, we also reviewed the annual reports OFAC submitted to Congress from 2003 to 2019 and OFAC guidance sent to partner agencies from 2017 through 2019 seeking their input into the reports. We interviewed officials from each partner agency about the methodology they used to calculate their annual resource and personnel expenditures. Because we found that the agencies calculate their personnel expenditures differently and OFAC does not verify the amounts reported, we did not find the data reliable and are presenting the data to illustrate the problems with their reliability. To examine what agencies have done to assess the effectiveness of the Kingpin Act, we interviewed OFAC and U.S. partner agency officials in Washington, D.C., Colombia, and Mexico, regarding their efforts to assess effectiveness and results of Kingpin Act designations and any challenges in measuring effectiveness. We also held telephone interviews with U.S. partner agency officials in Panama. We interviewed OFAC and Office of Intelligence and Analysis (OIA) officials regarding the type of assessments being done on the Kingpin Act. We reviewed strategic planning documents from the partner agencies to identify their counternarcotics objectives and, if available, related performance measures they track. We also used information from the nine designation cases we selected and interviewed U.S. partner agency officials as well as host government, financial industry, international organization, and nonprofit officials in Colombia and Mexico, to get perspectives on the results of Kingpin Act designations. To report on designations and removals of the Kingpin Act, we used OFAC s official brochure detailing the complete listing of Kingpin designations as of June 11, 2019. The data in the brochure are taken from OFAC s Specially Designated Nationals and Blocked Persons (SDN) List. The data include designations from years 2000-2019 categorized by type of designation. We compared the data in the brochure against the SDN List for accuracy and asked OFAC officials about their efforts to ensure the reliability of the SDN List data. We determined the data were sufficiently reliable for the purposes of our report. To report the amount of foreign designees assets frozen, we collected available data from OFAC for calendar years 2008-2018. To obtain the types and number of U.S. assets that have been blocked under the Kingpin Act, we interviewed OFAC officials and reviewed their published data. It was beyond the scope of this engagement to independently verify the number of U.S. assets blocked. We conducted this performance audit from May 2018 to December 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: GAO Contact and Staff Acknowledgements <8. GAO Contact> <9. Staff Acknowledgements> In addition to the contact named above, Jennifer Grover, Mona Sehgal (Assistant Director), Jeffrey Baldwin-Bott (Analyst in Charge), Travis Cady, Marisela Perez, and Barbara Shields made key contributions to this report. Ashley Alley, Martin De Alteriis, Neil J. Doherty, Toni Gillich, Jeff Harner, John Hussey, and Triana McNeil also contributed to this report.

Why GAO Did This Study Drug deaths in the United States have been rising for years. According to the Centers for Disease Control and Prevention, in 2017 there were over 70,000 U.S. drug overdose deaths. This national emergency results in part from the activities of international narcotics traffickers and their organizations. The Kingpin Act, enacted in 1999, allows Treasury to designate and sanction individuals and entities that contribute to illicit narcotics trafficking. Sanctions and other consequences include blocking a designee's property and assets, denying U.S. travel visas to designees, and penalizing U.S. persons who violate the prohibitions in the Kingpin Act. Treasury is required to submit an annual report to Congress on agencies' Kingpin Act–related personnel and resource expenditures and sanctions activities. This report examines (1) how U.S. agencies designate individuals and entities under the Kingpin Act; (2) the extent to which U.S. agencies monitor, enforce, and report on sanctions under the Kingpin Act; and (3) what agencies have done to assess the effectiveness of the Kingpin Act. GAO reviewed documents from and interviewed officials at Treasury, the Department of State, and other partner agencies. GAO also performed fieldwork in Colombia and Mexico. What GAO Found Under the Foreign Narcotics Kingpin Designation Act (Kingpin Act), the Department of the Treasury's (Treasury) Office of Foreign Assets Control (OFAC) leads a flexible interagency process to designate and sanction foreign individuals and entities that contribute to illicit narcotics trafficking. OFAC identifies potential Kingpin Act designees, compiles evidence, submits it for legal review, and seeks concurrence from partner agencies on designation decisions. OFAC and U.S. partner agencies monitor and enforce Kingpin Act sanctions, but OFAC has not ensured consistency and transparency of the expenditure data it has reported to Congress. Federal Banking Agencies monitor the OFAC compliance programs of U.S. banks through regular bank examinations. Additionally, OFAC handles enforcement through warnings, monetary penalties, and other methods. As required, OFAC reports annually to Congress on Kingpin Act designations and corresponding agency expenditures, but it has provided limited guidance to partner agencies on expenditure data they report. As a result, agencies use different methods to calculate the personnel and resource costs associated with their Kingpin activities. For example, the Department of Homeland Security said it only reports personnel expenditures when it is the lead investigative agency, but the Department of Defense reports personnel expenditures when it is not the lead. Furthermore, OFAC has not reported the limitations in agency data in its congressional reports. This lack of clear expenditure information could hinder oversight of the Kingpin Act. OFAC officials noted challenges to assessing the overall effectiveness of the Kingpin Act, but they and their U.S. and international partners track and report a range of results. The primary challenge cited is the difficulty of isolating the effect of the Kingpin Act from multiple other programs combating drug trafficking organizations. Results reported by OFAC and its partners include, for example, from 2000-2019, OFAC reported that it had designated more than 2,000 Kingpins and their supporters, and frozen more than half a billion dollars in assets under the act. In addition, host government officials reported that Kingpin Act sanctions assist them in imposing penalties on drug traffickers. What GAO Recommends GAO is recommending that Treasury ensure that OFAC (1) improve guidance to partner agencies on their Kingpin Act–related expenditures and (2) disclose expenditure data limitations in its annual Kingpin Act reports to Congress. Treasury did not agree or disagree with the recommendations.

gao_GAO-20-362

gao_GAO-20-362_0

<1. Background> <1.1. NRC s Role and Organizational Structure> NRC was established by the Energy Reorganization Act of 1974 and is headed by five commissioners, collectively referred to as the Commission, with members appointed by the President and confirmed by the Senate. One commissioner is designated by the President to serve as the Chair, who, among other things, serves as the official spokesperson of the Commission. The Commission is responsible for, among other things, revising budget estimates and determining the distribution of appropriated funds according to major programs and purposes. NRC staff from program offices in headquarters and four regional offices implement the agency s programs for developing regulations, licensing, inspection, enforcement, and emergency response, among other responsibilities. In addition, NRC s Office of the Chief Financial Officer establishes, maintains, and oversees the implementation and interpretation of the agency s regulatory user fee policies and regulations and is responsible for assessing annual and service fees to licensees for each license they hold and sending invoices to licensees. The Office of the Chief Financial Officer also leads the agency s budget formulation and execution processes. <1.2. NRC s Fee-Setting Process> NRC s authority to charge service and annual fees is derived from two laws: the Independent Offices Appropriations Act of 1952 and the Omnibus Budget Reconciliation Act of 1990, as amended. The Independent Offices Appropriations Act of 1952 provides broad authority to federal agencies, including NRC, to assess user fees or charges to identifiable beneficiaries through regulation. The Omnibus Budget Reconciliation Act of 1990 requires that NRC recover approximately 90 percent of its annual budget authority through fees assessed to licensees, excluding amounts appropriated for any one of a number of specified purposes. The law requires that NRC first use its authority from the Independent Offices Appropriation Act of 1952 to collect service fees for specific services provided. However, because those fees do not equal 90 percent of NRC s budget authority, NRC also assesses annual fees. To the maximum extent practicable, the annual fees assessed must have a reasonable relationship to the cost of the regulatory services provided and may be based on how NRC allocates resources for regulating licensees or fee classes. The licensees regulated by NRC encompass a broad range of commercial uses of nuclear material such as use in commercial nuclear power reactors; the use of radioactive materials in medical, academic, and industrial settings; and the transport, storage, and disposal of radioactive materials and waste. For the purpose of setting service and annual fees, NRC established nine fee classes. Figure 1 shows NRC s total budget authority and the amounts NRC collected through service and annual fees from licensees for fiscal years 2014 through 2019. NRC sets its service fees and annual fees through the federal rulemaking process every year. Under this process, NRC first drafts and then publishes a proposed fee rule in the Federal Register, after which interested parties have 30 days to comment. NRC develops the proposed fee rule by allocating its resources for regulating the fee classes and calculating its proposed hourly fee rate, which is the same rate for all fee classes, and annual fees, which vary by fee class. NRC bases its calculations for the proposed fee rule on its appropriation for the current fiscal year, if enacted. If the agency has not received its appropriation by the time it begins calculating fees, it bases these calculations on the President s Budget. As part of this process, NRC generally posts fee work papers providing additional details to support the proposed fee rule. After the 30-day comment period, NRC adjusts its hourly fee rate for service fees and annual fees, as needed, and drafts a final fee rule. Finally, NRC publishes a final fee rule that includes its responses to comments received on the proposed fee rule. The final fee rule becomes effective 60 days after publication. In recent years, GAO and NRC internal initiatives identified several key findings and made recommendations to improve NRC s fee-setting process, including the following: In 2016, NRC s Fees Transformation Initiative recommended process improvements related to updating NRC s fee rules and associated work papers. In 2017, we recommended that NRC clearly present information in NRC s proposed fee rule, final fee rule, and fee work papers such as by defining and consistently using key terms so that stakeholders could understand fee calculations. In 2017, we also recommended that NRC develop objective, measurable, and quantifiable performance goals and metrics that would enable NRC to assess its efforts to improve the transparency and timeliness of its fee-setting process. <1.3. NRC s Billing Process> NRC s billing process for annual fees is based solely on the annual fee rate that is set through the rulemaking process. NRC s billing process for service fees begins by identifying work that can be billed to a specific licensee and ends when the licensee pays its invoice for service fees. Once NRC determines that billable work needs to be done, NRC program office staff and contractors perform the work. NRC follows the steps in the billing process shown in figure 2. NRC assigns an activity code under which billable work is accomplished. Both NRC staff and contractors can perform work under the same billing codes. Once the hours charged have been reviewed, NRC aggregates the charges in its financial accounting system. Then, NRC staff and supervisors verify the hours billed to that activity code on a monthly basis through a formal, agency-wide billing validation process. On a quarterly basis, NRC will send invoices through the U.S. Postal Service or electronically to licensees, who have 30 days from issuance of the invoice to review and pay the invoice before being assessed late fees. Licensees may also dispute charges at this point. According to NRC staff, most disputes are handled informally and generally entail explanations of the agency s billing or licensing policies. NRC provides licensees information on billing through other methods as well. For example, as part of the Fees Transformation Initiative, NRC posted public cost estimates for common regulatory actions to help licensees better plan for the cost of those actions. In addition, during the course of regulatory actions, NRC staff are to communicate with licensees about the status of the work being performed, and NRC can provide licensees biweekly estimates of charges from NRC staff and contractors to supplement its billing invoices. Over the years, GAO, NRC s OIG, and NRC internal initiatives identified several key findings and made recommendations to improve NRC s billing process, including the following: NRC began an initiative aimed at improving its billing codes in 2013, and in 2017, NRC s Cost Accountability and Management Project plan stated that NRC s methods for requesting and managing billing codes place the agency at risk of collecting inaccurate data. In 2018, we found that NRC was working to improve internal controls over the billing codes NRC staff use to record their work hours, which did not describe the work being performed and did not have a consistent naming convention. Relatedly, in 2015, NRC s OIG recommended that NRC establish policies and procedures to centralize control of its billing code structure, link billing codes to specific tasks, and design and implement controls regarding the billing codes to which staff can charge time. In 2014, NRC s Fee Billing Process Improvement Project report recommended that NRC standardize and document its fee-billing validation process, along with developing and issuing guidance for the process. In 2018, we found that NRC s billing validation procedures for verifying the accuracy of time charged to licensees was not standardized across the regional and program offices, but NRC was planning to pilot a standardized process. Relatedly, in 2015, NRC s OIG recommended that NRC design and implement a plan to improve its billing validation process. Similarly, in 2017, NRC s OIG recommended that NRC implement a streamlined and consistent billing validation process and define the roles and responsibilities for billing validation staff. In 2016, NRC s Fees Transformation Initiative recommended process improvements related to the information NRC provides to licensees through cost estimates and on invoices. In 2017, NRC s OIG recommended that NRC create consistent, well-defined processes and reporting to calculate and explain its cost estimates. In 2018, we found that NRC had posted cost estimates for common regulatory activities to its public website. In 2018, we recommended that NRC formally communicate to licensees the availability of supplemental billing information, including biweekly reports and monthly status reports on contractor charges. Relatedly, in 2015, NRC s OIG recommended that NRC design and implement a process to provide information regarding contractor charges on invoices that identifies the specific tasks performed and related reimbursable contractor costs. In 2018, we found that NRC intended to transition to electronic billing to address challenges some licensees were experiencing with the format and timeliness of invoices, but did not have planning documents for this transition. We recommended that NRC develop a project plan for the transition to electronic billing incorporating plans for schedule and cost, steps that involve soliciting and considering licensee feedback, and steps to assess the results of implementing electronic billing. <1.4. NRC s Budgeting Process> NRC submits an annual budget justification to Congress with estimates and other information that support the policies and proposed spending decisions represented in the President s Budget. This includes information on what NRC plans to achieve with the resources the agency requested. After Congress enacts appropriations providing NRC s budget authority for the fiscal year, NRC allocates these appropriated funds to its offices, which obligate them to carry out the agency s mission. Though NRC receives its funding from these congressional appropriations, the agency then collects approximately 90 percent of its budget from service and annual fees, and the fees collected are then deposited to the U.S. Treasury. NRC s budget structure is currently grouped by programs and business lines, among other subsets. For fiscal year 2020, NRC s two major programs are (1) Nuclear Reactor Safety and (2) Nuclear Materials and Waste Safety. Under these two programs, seven business lines relate to key regulatory groups of licensees as follows: The Nuclear Reactor Safety Program New Reactors (including Advanced Reactors) The Nuclear Materials and Waste Safety Program Spent Fuel Storage and Transportation Decommissioning and Low-Level Waste In addition to these seven programmatic business lines, there is a Corporate Support business line which encompasses agency-wide support activities, including acquisitions, administrative services, financial management, human resource management, information management, information technology, outreach, policy support, and associated training and travel. The Corporate Support business line supports all of the programmatic business lines, and Corporate Support costs are allocated across the other business lines in NRC s budget. Over the years, GAO, NRC s OIG, and NRC internal initiatives identified several key findings and made recommendations to improve NRC s budgeting process, including the following: NRC s OIG reported in 2013 and we similarly reported in 2017 that NRC s budget justification and related systems did not align with its budget execution. NRC s OIG recommended NRC enforce the consistent use of financial management system codes to help address this issue. Relatedly, in 2016, an NRC internal initiative identified the need to present actual obligation data in its budget justifications. In 2017, we found that NRC did not present actual obligation data in its budget justifications for fiscal years 2010 through 2017, which made it difficult for users of the budget justification including Congress and licensees to understand how NRC spent its appropriations. <2. NRC Has Improved Its Fee-Setting Process by Using Clear and Consistent Terms and Developing and Meeting Performance Measures> Since 2017, NRC has implemented changes to its fee-setting process in response to GAO and internal NRC findings and recommendations. Those changes have improved the fee-setting process in two main areas: (1) the clarity and consistency of terms used in fee rules, and (2) performance goals and measures for transparency and timeliness of NRC s fee-setting process. <2.1. NRC Used Clear and Consistent Terms in Its Fee Rules> NRC began using clear and consistent terms in its fee rules in response to GAO and internal NRC recommendations. Specifically, in 2017 we recommended that NRC clearly present information in NRC s proposed fee rule, final fee rule, and fee work papers by defining and consistently using key terms, providing complete calculations for how fees are determined, and ensuring the accuracy of the fee rules and work papers. In addition, NRC s Fees Transformation Initiative identified process improvements related to updating NRC s fee rules and associated work papers. Beginning with NRC s fiscal year 2017 proposed fee rule, NRC made the following changes: NRC provided definitions of key terms used in the calculation of its hourly-fee rate for service fees. After providing these definitions in its fee rules and workpapers for fiscal years 2017 and 2018, NRC codified these definitions in its regulations in June 2018. NRC posted fee-related spreadsheets in electronic format on its public website to supplement the proposed and final fee rules. Specifically, NRC included an additional supplemental spreadsheet with downloadable data comparing budgeted resources from the proposed fee rule to the prior year s amounts to enhance transparency on changes from year to year. Seven of the 11 licensees we interviewed said that NRC uses clear and consistent information in its fee rule and associated work papers. One licensee said that that the language in the fee rule and work papers is difficult to follow given the finance terminology but noted that its organization has not done a thorough review of the fee rule. Another licensee said that the fee rule has a large amount of data that is easy to follow given NRC s detailed work papers, but the licensee would like to see additional narrative information in the fee rule justifying increases or decreases to fee categories. The remaining two licensees had no comment. Additionally, one of the seven licensees who said NRC uses clear and consistent information in its fee rule also told us that determining what licensees pay for through NRC s fees at a more detailed level is difficult because NRC does not stipulate which NRC actions are specifically recovered through service fees and which are recovered through annual fees. In 2017, we reported that NRC s budgeting system is not designed to provide information on which budget items are recovered specifically through service fees and which are recovered through annual fees. At that time, NRC staff told us that the agency was trying to determine if its budget formulation system could be modified to address this concern. According to NRC officials, since we last reported, NRC has modified the system so that, beginning with its fiscal year 2021 budget justification, the agency can provide more detailed information for the operating reactor fee class in accordance with legislative requirements in the Nuclear Energy Innovation and Modernization Act. NRC officials said that this information will include which budgeted activities are proposed to be recovered through service fees versus through annual fees for the operating fee class. The agency has not made similar modifications to its budgeting system to provide more detailed information for the other fee classes, according to NRC officials, because NRC has prioritized making system upgrades to address legislative requirements and is only required to provide more detailed information for the operating reactor fee class, as well as because the formulation of NRC s budget is done two years in advance of the fee rule and the information is subject to change. <2.2. NRC Developed Performance Goals and Measures for Transparency and Timeliness of Its Fee- Setting Process> NRC developed performance goals and measures for the transparency and timeliness of its fee-setting process in response to a GAO recommendation and internal NRC findings and recommendations. Specifically, in 2017 we recommended that NRC develop objective, measureable, and quantifiable performance goals and measures to enhance the transparency and timeliness of NRC s fee-setting process. NRC established three performance goals for its fee-setting process: (1) increased transparency, (2) increased equitability, and (3) increased timeliness. To meet the first two performance goals of increased transparency and equitability, NRC developed several performance measures, including implementing 80 percent of identified improvements in NRC s Fees Transformation Initiative, holding two public outreach meetings with stakeholders on fee-setting or billing topics, and soliciting public comments on improvement activities. For NRC s performance goal of increasing timeliness, its performance measure is to meet NRC s planned date for issuance of the proposed and final fee rules. NRC s goal is to issue its proposed fee rules in January and final fee rules in May of a given fiscal year. However, NRC finalizes its fee rule after it receives its annual appropriations, and according to NRC officials, NRC s publication of the final fee rule may be delayed depending on when NRC receives its annual appropriations. Based on our review of NRC documents and interviews with agency officials, we have determined that NRC has met these performance measures. Specifically, NRC closed as implemented about 93 percent of improvements 37 of 40 NRC identified as a part of its Fees Transformation Initiative. Further, NRC has held numerous public outreach meetings on these topics since 2017 and solicited public comments, with the most recent public meeting occurring on February 13, 2019, to discuss key features of NRC s fiscal year 2019 fee rule. For fiscal years 2017 through 2019, NRC issued its proposed fee rule in January. NRC published its final fee rules for fiscal years 2017 and 2018 in June, and published its fiscal year 2019 final fee rule in May. <3. NRC Has Taken Action to Improve the Transparency, Accuracy, and Timeliness of Its Billing Process, but Some Information Is Still Not Transparent> Since 2017, NRC has implemented changes to its billing process in response to GAO, NRC OIG, and internal NRC findings and recommendations to improve the transparency, accuracy, and timeliness of the process, but some billing information NRC provides licensees is still not transparent. NRC improved transparency by standardizing its billing codes, updating its invoices, formally communicating some supplemental billing information, and creating public cost estimates, but it has not ensured the estimates clearly define what costs are included or provided work progress information throughout the course of ongoing regulatory activities. NRC also implemented a standardized process to validate charges to licensees to improve accuracy. In addition, NRC enhanced the timeliness of its billing process by implementing an electronic billing system. <3.1. NRC Improved Billing Transparency but Has Not Provided Work Progress Information on Its Invoices or Clearly Defined Costs Across Its Estimates> NRC implemented changes to increase the transparency of its billing process in response to GAO, NRC OIG, and internal NRC findings and recommendations, in four main areas: (1) standardized billing codes, (2) updated invoices, (3) supplemental billing information, and (4) public cost estimates. <3.1.1. Standardized Billing Codes> NRC improved its standardized billing codes codes that NRC staff use to record their work hours on time cards in response to GAO findings and NRC OIG recommendations as well as NRC internal initiatives. Specifically, in 2018 we reported that NRC s billing codes did not adequately describe work performed and did not have a consistent naming convention, which increased the risk of staff charging their time to the wrong billing codes. We reported that this, in turn, could lead to billing errors. In addition, in 2015 NRC s OIG recommended, among other things, that NRC establish policies and procedures to centralize control of billing codes. Moreover, NRC began an initiative aimed at improving its billing process in 2013, and in 2017, NRC s Cost Accountability and Management Project plan stated that NRC s methods for requesting and managing billing codes place the agency at risk of collecting inaccurate data. Based on our review of NRC s updated billing codes, the agency s Enterprise Project Identifiers, (EPID) umbrella codes for regulatory actions such as inspections, licensing actions, and licensing renewals now have a consistent naming structure, and NRC has centralized control of billing codes. In particular, the EPID alpha-numerical naming structure denotes the type of regulatory work, the calendar year the work began, and includes a 4-digit number to make the code unique, among other elements. NRC also created and implemented Cost Activity Codes (CAC), which are numerical codes that capture the ways in which NRC staff spend billable time working on an EPID, including the time spent preparing and documenting an action as well as performing the direct work. In addition, NRC added controls to ensure staff charge the correct billing codes. For example, NRC management must now grant staff permission before they are able to charge these codes. Eight of the 11 licensees we interviewed said that NRC has consistently used both EPIDs and CACs after NRC revised the accounting structure. The remaining three licensees we interviewed had no comment on the revised EPIDs and CACs. NRC officials stated that while they have completed standardizing the billing codes, they are continuously working on refining them to respond to stakeholder feedback, and NRC started a working group in November 2019 to further review the codes. <3.1.2. Updated Invoices> NRC updated the service fee invoices it sends to licensees in response to internal NRC initiatives, but it has not implemented an internal NRC recommendation to provide licensees with information on the progress of work performed on ongoing regulatory actions. As part of our prior review of NRC s billing process, we found that NRC expected to issue updated invoices to licensees. We were unable to assess licensees satisfaction with the updated invoices because NRC issued them after we had completed our review. In January 2018, NRC updated the service fee invoices it sends to licensees, in response to NRC internal initiatives, to include the names of NRC staff and of contractors billing time, along with the updated EPIDs and CACs. According to our analysis of a sample of invoices from before and after January 2018, NRC has consistently made these changes to invoices. As shown in figure 3, NRC s updated invoices provide the quarterly total of all charges for a given regulatory action as an EPID total. CACs are no longer specific to a project or site and can now be reused to represent the same type of work for different EPIDs. NRC staff and contractors can charge multiple CACs to the same EPID during a given quarter. All 11 licensees we interviewed stated that the changes NRC made to the invoices were positive. Seven licensees stated that the inclusion of staff names made it easier to understand what they were being billed for, and five licensees stated that the inclusion of CACs improved NRC s billing process. In 2016, NRC s Fees Transformation Initiative recommended a process improvement to include information on the progress of work performed on inspection reports, but NRC ended this initiative in 2018 without making updates to the inspection reports. NRC determined that the updated information on invoices, described previously, resulted in sufficient improvements to transparency. However, two licensees we interviewed told us that including information on the progress of work performed would assist licensees with their planning and budgeting. According to our analysis of NRC documents and a licensee we interviewed, some NRC regulatory oversight actions can take several years to complete, with charges to licensees from a single action spanning multiple quarterly invoices. One licensee explained that, as a result, not having information on the progress of work performed on ongoing regulatory actions can make it more difficult to budget. This is because the licensee does not know how far NRC is in completing an activity, and NRC may invoice for a large amount of additional costs that the licensee did not anticipate. One of NRC s program offices has a policy regarding when to communicate information on the progress of work performed on ongoing regulatory actions, but the remaining NRC program offices we spoke with do not. Specifically, the Office of Nuclear Reactor Regulation has a policy to communicate with operating reactor licensees if it anticipates significant changes to the forecasted completion date or hours billed to complete the action. Furthermore, officials in this office said that it has a practice to notify the licensee when it estimates that NRC will expend over 125 percent of the initial estimate of hours for a given regulatory action. These officials said that the office created this policy and practice to improve its communication with licensees, in support of NRC s Principles of Good Regulation, which includes guidance on transparency. They further stated that this policy and practice benefit licensees by allowing them to better budget and plan for NRC s work. Additionally, they benefit NRC by helping the agency to better manage its resources and workload, according to these officials. In contrast, officials from the Office of New Reactors and the Office of Nuclear Material Safety and Safeguards stated that they do not have a policy regarding communicating with licensees about the progress of work performed on ongoing regulatory actions. Furthermore, there is no agencywide policy or guidance regarding this communication. Officials from the Office of New Reactors stated that the office tracks percent completion as an internal metric, but does not communicate this information to licensees. The Office of Nuclear Material Safety and Safeguards does not track regulatory actions by percent completion. NRC officials told us that it is difficult to provide accurate estimates of work progress to licensees because NRC s ability to meet anticipated cost and schedule estimates depends on the complexity of the NRC action. NRC s Principles of Good Regulation and NRC s Organizational Values list openness as a key principle and value, respectively. According to those documents, being open that is, transparent and forthright should guide every action NRC takes, how it performs administrative tasks, and how it interacts with stakeholders, such as licensees. Additionally, Standards for Internal Control in the Federal Government state that management should externally communicate the necessary quality information to achieve the entity s objectives. According to NRC officials, NRC generally provides licensees with an estimate of the number of hours and length of time NRC anticipates it will take to complete certain regulatory actions upon beginning the action. NRC officials said that NRC project managers are in regular contact with licensees about the status of ongoing NRC activities; however, three licensees we interviewed stated that NRC s project managers do not always communicate about the status of the regulatory action, which can make planning and budgeting more difficult. This is in part because the program offices do not each have a policy regarding when NRC should provide updates on cost and schedule. Formalizing when NRC staff are to communicate information to licensees on the progress of work performed could enhance transparency and make planning and budgeting easier for licensees, as they would have more information about when an action is expected to be completed or when it will cost more than NRC s initial estimate. <3.1.3. Supplemental Billing Information> NRC formally communicated to licensees that supplemental billing information about contractor charges is available and developed guidance on how that information should be provided in response to two GAO recommendations. Specifically, we reported in 2018 that, upon request, NRC can provide information on contractor charges to licensees through a summary of work performed or a biweekly summary of charges that lists all billable activities charged during a 2-week period. NRC officials stated that the purpose of the biweekly summaries is to provide licensees with information on costs that accrued in that particular period to help licensees estimate their quarterly bill amount. We recommended that NRC formally communicate to all licensees that these two supplemental billing reports were available and how to request them, as we found that not all licensees were aware this information was available. We also recommended that NRC develop policy and guidance on what billing information related to contractor charges NRC staff could provide to licensees and how it should be provided. In January 2019, NRC formally communicated to licensees that supplemental billing information about contractor charges is available, but it has yet to formally communicate to licensees that biweekly summaries of charges are also available. Specifically, NRC created a process for licensees to request narrative information on contractor charges through a standard form, and formally communicates that process to licensees through a reference to the form on agency invoices. NRC also developed guidance on what billing information related to contractor charges NRC staff can provide to licensees, along with a process map for how to respond to licensee requests for contractor information. In contrast, while NRC has continued to provide biweekly summaries to licensees upon licensee request, the agency has not formally communicated the existence of these reports to licensees. Seven of the 11 licensees we interviewed receive the biweekly reports, and five of these licensees said the reports allow them to better track billable activity through the quarter. The remaining four licensees we interviewed were unaware that NRC can provide these reports. Agency officials stated that they do not have the capacity to provide these biweekly reports to all licensees, as the current process is manual and labor-intensive. However, NRC officials stated that they plan to create an automated process to provide these biweekly summaries as an enhancement to the agency s electronic billing initiative. NRC plans to implement this enhancement by March 2020, according to NRC officials. <3.1.4. Public Cost Estimates> NRC created and posted public cost estimates for common oversight activities to its website in response to an internal NRC recommendation, but it has not consistently updated those estimates or ensured the estimates clearly defined what costs were included. Specifically, in 2017, NRC s Fees Transformation Steering Committee, chaired by a representative in the Office of the Chief Financial Officer, tasked NRC program officials with creating public cost estimates for common regulatory actions to increase transparency and enhance stakeholder awareness of the costs associated with activities such as site permitting, design certifications, inspections, license amendments, and license renewals. We have previously reported that licensees had identified challenges with planning for future work and budgeting to pay future costs because NRC had not provided certain information about the agency s billable work, such as cost estimates. Beginning in September 2017, staff from several NRC program offices posted public cost estimates relating to six types of regulated entities: operating reactors, new reactors, fuel facilities, spent fuel storage and transportation, decommissioning, and uranium recovery. The cost estimates, which are based on historical expenses and are calculated using a sample of licensing and oversight actions, include the low, high, and average number of NRC staff hours billed for each action, as well as some estimates for contractor charges for certain tasks. According to agency officials, NRC does not use these estimates as part of its budgeting and fee-setting processes since these public cost estimates are a resource for identifying possible costs, but are not tailored to a site- specific NRC action. Instead, the estimates assist stakeholders with planning for the costs of future NRC work. The Fees Transformation Steering Committee created guidance that the program offices should update the estimates periodically, and NRC also posted on its public website that these estimates would be updated biennially. However, we found that, as of December 2019, NRC s program offices had updated only two of the six estimates. When we discussed this with NRC officials at that time, the Office of the Chief Financial Officer sent out a reminder to the program offices to update their estimates by January 31, 2020. Additionally, we found that NRC program offices did not clearly define what costs such as project management are included across the six public cost estimates, which may limit stakeholders ability to understand them. For example, the cost estimate for operating reactors included inspection support activities and defined what types of costs are included in this category. In contrast, the cost estimate for fuel facilities included a category for project management activities, but did not define what types of costs are included in this category. The remaining four cost estimates did not mention project management costs, so it is unclear whether the estimates include these types of costs. According to our analysis of NRC documents and licensees we spoke with, project management costs for some NRC actions can account for about two thirds of total hours billed. Thus, increased transparency of these costs could help stakeholders such as NRC licensees or potential applicants better understand the full cost of NRC s regulatory actions. The Fees Transformation Steering Committee provided high-level guidance to the program offices for developing cost estimates, but the guidance did not specify what costs to include when creating these estimates. According to NRC officials, the Committee did not provide specific guidance regarding cost estimates because activities in the cost estimates may vary based on the specific activities conducted by the program offices and it wanted the program offices to have flexibility when creating the estimates. We recognize that some activities in the cost estimates will vary based on the different activities conducted by the program office. However, certain costs, such as project management, are relevant across all cost estimates, and it is not always clear whether these costs are included. As previously discussed, NRC s Principles of Good Regulation and NRC s Organizational Values list openness that is, being transparent and forthright as a key principle and value, and it is applicable to the agency s cost estimates. Additionally, Standards for Internal Control in the Federal Government state that management is to externally communicate the necessary quality information to achieve the entity s objectives. By clearly defining what costs are included in its public cost estimates, NRC could enhance transparency and increase the value of these estimates as a budgeting and planning tool for stakeholders. <3.2. NRC Implemented a Standardized Process to Validate Charges to Licensees to Improve Accuracy> In response to internal NRC and NRC OIG recommendations, NRC implemented a standardized process to validate charges to licensees to improve accuracy. Specifically, in 2014 NRC s License Fee Billing Business Process Improvement report recommended that NRC standardize and document its fee-billing validation process, along with developing and issuing guidance for the process. Furthermore, in 2017 NRC s OIG recommended that NRC implement a streamlined and consistent billing validation process and define the roles and responsibilities for billing validation staff. Reinforcing these recommendations, we reported in 2018 that NRC did not have formal guidance on validating charges and that the process varied among NRC s program offices. At the time of our review, NRC was planning to standardize the process and establish clear roles and responsibilities for staff participating in the process. In August 2019, NRC implemented a revised process for validating time charged to licensees in order to improve the accuracy of invoices, identify billing errors in a timelier manner, and standardize billing validation throughout the agency. This revised process came out of the work of NRC s Fee-Billing Validation Working Group, which began work in December 2017. NRC implemented several changes to standardize the process agency-wide, including creating formalized roles throughout the process, a handbook outlining the steps of the process, and an internal controls checklist for management to complete in order to certify fee- billing validation. In addition, NRC changed the frequency of the billing validation process from a quarterly to a monthly basis. NRC officials we interviewed stated that the biggest changes in the new process are the increased role of management-level personnel throughout the process and the increased frequency of the reviews. <3.3. NRC Enhanced the Timeliness of Its Billing Process by Implementing an Electronic Billing System> NRC enhanced the timeliness of its billing process by implementing an electronic billing system in line with a project plan the agency developed in response to a GAO recommendation. Specifically, in 2018 we reported that NRC was undertaking an initiative to transition to an electronic billing system known as eBilling, but it had not developed planning documents for the initiative. We recommended that NRC develop a project plan for eBilling that would (1) establish plans for schedule and cost, 2) involve licensees in developing system capabilities, and (3) include steps to assess the results of implementing eBilling. Based on our review of NRC s eBilling documents, NRC implemented these recommendations as part of its planning process. For example, NRC solicited feedback about eBilling usability, organization, content, and functionality from nine licensees it selected for an eBilling pilot. NRC also established plans for schedule and cost and included metrics assessing eBilling on the timeliness of invoices, licensee participation rates, and the accuracy of invoices in its eBilling project plan. As a result, in September 2019, NRC was able to begin distributing electronic invoices through eBilling and sent all licensees receiving service fee invoices an informational brochure giving instructions for how to enroll in the program in October 2019. Six of the 11 licensees we interviewed stated that they anticipated eBilling would improve the timeliness of NRC s billing process. Figure 4 summarizes some of the key features now available to licensees through eBilling. <4. NRC Began Presenting Additional Information in Its Annual Budget Justification> Since 2017, NRC has implemented changes to its budgeting process that address some but not all of its internal initiatives, prior GAO, and NRC OIG findings and recommendations in two main areas: (1) NRC s annual budget justification, and (2) NRC s budget formulation and budget execution systems. Annual budget justification. In 2017, we reported that NRC did not present actual obligation data in its annual budget justifications for fiscal years 2010 through 2017, and without this information, it was difficult for users of the budget justification including Congress and licensees to understand how NRC used its appropriations. We also reported that, in spite of an agency initiative to decrease overhead costs, NRC s obligations for overhead currently named Corporate Support increased each year from fiscal year 2011 to 2015 due to increases in rent, utilities, and information technology investments, among other things. As a part of its Fees Transformation Initiative, NRC planned to include additional information on actual obligation data to better enable stakeholders to determine how NRC spent its appropriation. Starting with fiscal year 2018, NRC began presenting actual obligation data in its annual budget justification. NRC data show that the agency had about a 4 percent decrease in actual obligations for Corporate Support from fiscal year 2016 to fiscal year 2019, from $302.9 million to $291.2 million, as shown in table 1. These reductions were a result of NRC s corporate workload reductions to reflect efficiencies as well as current and projected declines in agency workload, among other things. However, actual obligations for Corporate Support as a percentage of NRC s total agency-wide obligations increased by about 2.3 percent during this same time period. Specifically, in fiscal year 2016, Corporate Support was about 30.4 percent of total NRC obligations ($302.9 million of $996.6 million), whereas in fiscal year 2019, Corporate Support was about 32.7 percent of total NRC obligations ($291.2 million of $891.5 million). In some years, reductions in Corporate Support were offset by pay increases consistent with federal government-wide guidance and investments in information technology, among other items. In addition, NRC officials said that Corporate Support as a percentage of NRC s total obligations increased because program resources decreased as NRC s projected workload declined. In addition to presenting actual obligation data in its annual budget justification, NRC began presenting more detailed information on the status of funds it carried over from previous fiscal years starting in its fiscal year 2018 budget justification. Specifically, NRC began reporting the amounts of carryover funds that were allocated in a given fiscal year and the amounts of these funds available for obligation at the beginning of a fiscal year, as shown in table 2. According to NRC officials, the agency generally allocates carryover funds based on (1) congressional direction to use carryover funds to supplement annual appropriations, and (2) the agency s discretion in order to address urgent mission needs. In its fiscal year 2018 and 2019 budget justifications, NRC presented this carryover data by appropriation funding category, while it presented the rest of the information in its budget justification by the agency s business lines. According to NRC officials, the difference in presentation limited the ability of users of the budget justification to understand where these carryover funds were being allocated. In response, in its fiscal year 2020 budget justification, NRC began presenting data on its congressionally- directed carryover funds using the same business lines it used to present the rest of the information in its budget justification. However, NRC did not present its discretionary use of carryover using those business lines. NRC officials told us that they started an initiative to enhance NRC s carryover tracking process, and that NRC will continue to refine how the agency presents carryover data in future budget justifications. In addition to presenting data in its annual budget justification, NRC included additional information in its budget justifications to increase transparency, in response to NRC s Fees Transformation Initiative. For example, in its fiscal year 2018 budget justification, NRC included a crosswalk of business lines allocation to NRC s nine fee classes with the goal of helping licensees understand how NRC s planned workload in its budget formulation impacts licensees fees. Budget formulation and execution system. NRC s OIG reported in 2013 that NRC s budget formulation process did not align with its budget execution process, and we similarly reported in 2017 that these processes were not aligned from fiscal years 2010 through 2015. NRC used two different systems one to formulate its budget and another to execute its budget through obligation of funds. The two systems differed in that they used different account structures for NRC s personnel and other costs. Specifically in 2013, NRC s OIG found that NRC s budget formulation and execution processes were not aligned, recommending NRC enforce the use of financial management system codes. In 2017, we reported that there were no specific requirements for an agency s budget formulation process to align with its execution process, but without this information, it was difficult to track how NRC used its funds in relation to its budget authority. According to NRC officials, the agency has prioritized making system upgrades to address new legislative requirements in the Nuclear Energy Innovation and Modernization Act before fully addressing other challenges with the systems. However, as of December 2019, officials told us that NRC recently began the planning phase of work to address these system challenges, and that NRC plans to implement system upgrades in fiscal year 2020, with a tentative completion date in fiscal year 2021. Furthermore, in a 2017 letter to NRC s OIG, NRC noted that it had begun updating its systems to address NRC OIG s 2013 recommendation on financial management system codes. However, the system modifications did not accomplish the entire task, and NRC has established a monthly process to manually reconcile the codes between the two systems while NRC further updates its systems to meet NRC OIG s recommendation. <5. Conclusions> Since 2017, NRC has made a number of changes to its fee-setting, billing, and budgeting processes in response to GAO, NRC OIG, and internal NRC findings and recommendations, and those changes have improved those processes and addressed some challenges previously raised by licensees. However, additional steps could further enhance NRC s efforts to improve its billing process. First, NRC program offices do not consistently provide information on the progress of work performed on ongoing regulatory actions. By developing guidance about when NRC staff are to communicate information to licensees on the progress of work performed, NRC could enhance transparency and facilitate planning and budgeting, as licensees would have more information about when an action is expected to be completed or will cost more than NRC s initial estimate. Second, NRC program offices do not clearly define what costs are included across their public cost estimates for common oversight activities. By doing so, NRC could enhance transparency and increase the value of these estimates as a budgeting and planning tool for stakeholders, consistent with NRC s Principles of Good Regulation. <6. Recommendations for Executive Action> We are making the following two recommendations to NRC: The Executive Director for Operations of NRC should ensure relevant NRC program offices develop policy and guidance for when to communicate information on work progress to licensees, such as through communications to licensees at specified timeframes or thresholds. (Recommendation 1) The Chief Financial Officer of NRC should, in consultation with NRC program offices, develop guidance to ensure NRC staff clearly define what costs such as project management are included in its public cost estimates. (Recommendation 2) <7. Agency Comments and Our Evaluation> We provided a draft of this report to NRC for review and comment. In its comments, reproduced in appendix I, NRC neither agreed nor disagreed with our recommendations but did describe actions that it intends to take in response to our recommendations. NRC stated that it will review its current practice of providing information on work progress to licensees and develop or revise any policy and guidance where necessary. NRC also stated that it will review its current web-based cost estimates to determine if changes are necessary and implement those changes as appropriate. Although further review of NRC s practices on providing work progress information to licensees and cost estimates could be worthwhile, we believe our review sufficiently demonstrated that by taking additional steps, NRC could further enhance transparency and facilitate planning and budgeting for licensees. As a result, we continue to believe that implementing our recommendations on work progress and cost estimates could further improve NRC s processes. NRC also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Chairman of NRC, 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 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 II. Appendix I: Comments from the Nuclear Regulatory Commission Appendix II: GAO Contacts and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, David Marroni (Assistant Director), Margaret Childs (Analyst-in-Charge), and Jon Muchin made key contributions to this report. Kevin Bray, Cindy Gilbert, Jessica Lemke, Susan Murphy, Dan Royer, Sheryl Stein, and Doris Yanger made additional contributions.

Why GAO Did This Study NRC regulates the commercial nuclear industry. In that role, the agency provides services for regulated entities that hold licenses—that is, licensees. NRC recovers the majority of costs for these services by setting fee rates and using those rates to bill licensees. In 2017 and 2018, GAO recommended actions to improve NRC's fee-setting, billing, and budgeting processes, and NRC OIG and internal agency initiatives recommended additional actions. However, industry stakeholders continue to identify challenges with these processes. GAO was asked to review NRC's (1) fee-setting, (2) billing, and (3) budgeting processes. This report examines NRC's progress since 2017 implementing changes to those processes in response to GAO, NRC OIG, and internal agency findings and recommendations. GAO identified relevant GAO, NRC OIG, and internal agency recommendations and evaluated NRC's progress implementing those using evidence such as NRC's fee rules and budget documentation. GAO also spoke with NRC officials and interviewed a non-generalizable sample of NRC licensees, who were selected based on the amount of fees NRC charged them from fiscal years 2014 through 2018. What GAO Found Since 2017, the Nuclear Regulatory Commission (NRC) has implemented changes to its fee-setting, billing, and budgeting processes in response to GAO, the NRC Office of Inspector General (OIG), and internal agency findings and recommendations: Fee-Setting . NRC has improved the clarity, consistency, and transparency of its fee-setting process by, among other things, defining key terms used in the calculation of its hourly-fee rate and by developing and meeting performance measures for the transparency and timeliness of the fee-setting process. Second, NRC did not clearly define what costs are included across all its public cost estimates for common regulatory actions. NRC created the estimates as a transparency measure to assist stakeholders—including licensees and potential applicants—with planning for the costs of future NRC oversight activities. However, NRC did not specify what costs are included across these cost estimates, such as those related to project management. According to GAO's analysis of NRC documents, such costs for some NRC actions can account for about two thirds of total hours billed. By clearly defining the costs in its public cost estimates, NRC could enhance transparency and increase the value of the estimates as a budgeting and planning tool for stakeholders, in accordance with NRC's Principles of Good Regulation . Budgeting . NRC has made some changes to its budgeting process to better enable stakeholders to determine how it spent its appropriation. For example, starting in fiscal year 2018, NRC began presenting actual obligation data and more detailed information on the status of funds it carried over from prior fiscal years in its annual budget justification. What GAO Recommends GAO recommends that NRC (1) develop guidance on when to communicate work progress information to licensees, and (2) ensure costs are clearly defined in its public cost estimates. NRC neither agreed nor disagreed but plans to review these processes. GAO believes its report supports implementation of these recommendations.

gao_GAO-19-282

gao_GAO-19-282_0

<1. Background> 1993. For the version of this requirement that applied to DOL, HHS, and Education, the Stevens Amendment has appeared in all but one of the full appropriations acts passed in Congress since 1993. In proposing the amendment in 1988, Senator Ted Stevens described the role of states, local governments, and the federal government in forging a partnership to share in the costs of many projects and said that the federal contribution should be identified as a matter of taxpayer concern. Further, Senator Stevens said that taxpayers ought to be informed how much money comes from Federal sources in any program, project, or grant activity. More recently, the Consolidated Appropriations Act of 2018 and the appropriations for these agencies in 2019 renewed this requirement for DOL, HHS, and Education (see sidebar). total costs of the project or program that will be financed by non-governmental sources. Consolidated Appropriations Act of 2018, Pub. L. No. 115- 141, 132 Stat. 348, div. H, Title V, Sec. 505 (Mar. 23, 2018). The combined amount of grant funding that went to state and local governments from these three departments in federal fiscal year 2017 amounted to approximately $504 billion, or almost 75 percent of the $675 billion total distributed by all federal grant-making agencies to state and local governments that year. HHS had the largest amount of grant outlays to state and local governments with about $455 billion (67.4 percent of the total), Education distributed about $42 billion (6.2 percent), while Labor distributed about $7 billion (1.1 percent). <2. DOL, HHS, and Education Generally Provide Grantees with the Exact Text of the Stevens Amendment or a Paraphrased Equivalent> Generally, agencies or their subdivisions provided grantees with the exact text of the Stevens Amendment, paraphrased its language, or in some cases referred grantees to other guidance containing the Stevens Amendment. Figure 1 summarizes what we found at each of the three agencies we reviewed with regard to the Stevens Amendment guidance they provide to grantees. <2.1. DOL Instructed Grantees to Follow Stevens Amendment Requirements by Providing a Template for Language in Subagencies Grant Terms and Conditions> According to ETA officials, grants from DOL s ETA comprised more than 95 percent of DOL s $22.1 billion in active grant awards as of October 1, 2018. ETA s Office of Grants Management (OGM) developed standard terms and conditions that serve as a template for written agreements for grant awards. The terms and conditions template includes language largely similar to the Stevens Amendment, with one instance of paraphrasing, which is permissible under the relevant regulations. ETA s paraphrased language states that the Stevens Amendment requirements apply to all non-federal entities receiving federal funds, whereas the actual Stevens Amendment wording is that the requirements apply to all grantees receiving federal funds in this Act, including but not limited to state and local governments and recipients of federal research grants. The Stevens Amendment has been in the agency s terms and conditions library for grant awards since fiscal year 2014. ETA officials said they added the Stevens Amendment requirements to the terms and conditions because they wanted to ensure that grantees knew about the Stevens Amendment s existence. ETA also disseminates its standard terms and conditions template to grantees on behalf of five other DOL grant-making subagencies, including the Veterans Employment and Training Service, the Chief Evaluation Office, the Bureau of International Labor Affairs, the Women s Bureau, and the Office of Disability Employment Policy. According to ETA officials, OGM administers the front-end application processing for grants awarded by these subagencies, while the subagencies are responsible for any post-award grantee oversight. OGM also administers the final grant closeout for these subagencies. According to DOL officials, together with ETA, these subagencies awarded more than 99.8 percent of DOL s active grant funds as of October 2018. According to DOL officials, three other DOL grant-making subagencies, the Mine Safety and Health Administration (MSHA), the Occupational Safety and Health Administration (OSHA), and the Bureau of Labor Statistics (BLS), administer their sub-agencies grant award processes themselves. Officials said that two of these agencies, MSHA and OSHA, disseminate their own separate grant award terms and conditions, and have their own separate guidance for grantees regarding compliance with the Stevens Amendment. For example, OSHA paraphrased the Stevens Amendment language in its terms and conditions. OSHA officials told us that instead of stating the amendment s requirements in three parts, OSHA broke them out into four requirements that reflect the full content of the Stevens Amendment s original language. MSHA also had its own terms and conditions that contain the exact language of the Stevens Amendment s requirements, according to officials. The third agency, BLS, told us that its grantees only produce narrowly focused press releases and that these documents do not fall within the Stevens Amendment description of documents describing projects or programs funded in whole or in part with Federal money. BLS officials said that since none of the other qualifying public statements mentioned in the Stevens Amendment are part of BLS grantee operations, BLS cooperative agreements do not produce public statements that qualify for Stevens Amendment compliance. <2.2. Most HHS Grant Guidance Restated, Paraphrased, or Referenced the Stevens Amendment> At the department level, HHS publishes a Grants Policy Statement that contains language equivalent to the Stevens Amendment, but it does not quote the amendment verbatim. Consistent with the Stevens Amendment, the Grants Policy Statement provision directs grantees to disclose information on the percentage and dollar amount of federal contributions to grantees programs or projects in addition to the same information for nongovernmental sources, but collapses the three Stevens Amendment requirements into two requirements with slight wording changes. Officials told us that HHS expects its operating divisions to follow the Grants Policy Statement together with the relevant HHS regulations, but does not instruct operating divisions on what to include in their grant award terms and conditions. A number of HHS operating divisions provide grantees with grant award terms and conditions that contain the exact language of the Stevens Amendment. Examples include: Centers for Disease Control and Prevention (CDC) - Provides grantees with general terms and conditions for both research and non-research grants and cooperative agreements that include a requirement for an Acknowledgement of Federal Support that is an exact re-statement of the Stevens Amendment. Health Resources and Services Administration (HRSA) - Provides grantees with the Standard Form 424 Application Guide (grants application guide), which includes a section that quotes the exact language of the Stevens Amendment. Office of the National Coordinator for Health Information Technology (ONC) - Added a section in 2018 to the terms and conditions section for every Funding Opportunity Announcement that specifically references the Stevens Amendment verbatim. One operating division, the Centers for Medicare and Medicaid Services (CMS) provides grantees with a section of its terms and conditions titled Public Reporting that shows the language of the Stevens Amendment, but with the addition of tribal governments to the list of applicable grant recipients. Another operating division, the National Institutes of Health (NIH), publishes its own grants policy statement separate from the one published by HHS. The NIH grants policy statement contains the standard terms and conditions for all NIH grant awards. It uses the same Stevens Amendment guidance language HHS uses, with the same paraphrasing of the language that collapses the three Stevens Amendment requirements into two requirements. Four relevant HHS operating divisions told us that they relied solely on a reference to the HHS Grants Policy Statement to instruct grantees with regard to the Stevens Amendment requirements. This reference made no specific mention of the Stevens Amendment and did not include either the exact or paraphrased Stevens Amendment language in the agencies grant agreement terms and conditions or funding opportunity announcement. <2.3. HHS s HRSA Provided Additional Guidance to Help Grantees Comply with the Stevens Amendment> HRSA s Acknowledgement of Federal Funding provision in its grants application guide contains the exact language of the Stevens Amendment and its requirements. Further, HRSA s application guide provides grantees with what HRSA officials stated was a sample acknowledgement and disclaimer paragraph written in plain language that the operating division developed to assist HRSA grantees in complying with the Stevens Amendment. HRSA officials said that they consulted with HHS s Office of General Counsel to simplify the language, while ensuring that it met the requirements of the Stevens Amendment. HRSA s sample acknowledgement and disclaimer paragraph reads, This supported by the Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) as part of an award totaling $XX with xx percentage financed with nongovernmental sources. The contents are those of the author(s) and do not necessarily represent the official views of, nor an endorsement, by HRSA, HHS or the U.S. Government. Later in the section, HRSA further defines the Stevens Amendment s other documents describing projects or programs as including, among other things, HRSA-supported documents such as manuals, toolkits, resource guides, case studies, and issues briefs. In addition to HRSA s efforts to interpret the Stevens Amendment, HRSA posted a web page in October 2018 that provided grantees with additional written guidance and a list of frequently asked questions about communicating and acknowledging federal funding. The HRSA web page provided examples of HRSA disclosure statements to show grantees how disclosure language should be drafted to comply with the Stevens Amendment. The web page also featured frequently asked questions, one of which clarified that the disclosure should reflect the overall amount of the grant rather than the cost of developing the publication where the acknowledgement appears. The other frequently asked question directed grantees to consult with HRSA officials if they intend to use language that differs from the examples provided to ensure that their alternative wording complies with the Stevens Amendment requirements. HRSA officials also instructed their grantees on compliance with grant award terms and conditions, including the Stevens Amendment, through informal discussions during workshops and conference calls. HRSA officials provided examples of Stevens Amendment discussions such as a May 2018 Healthy Grants Workshop presentation to grantees, as well as a July 2018 question and answer period during an HRSA conference call with grantees. The grantee conference call featured several HRSA presenters, including one representing the Division of Grants Policy. Officials said that during these technical assistance calls, HRSA wanted to ensure that grantees were made aware of legislative mandates, but the calls were not tailored to focus on a specific mandate. <2.4. Education s Grant Awards Terms and Conditions Contain Paraphrased Stevens Amendment Language> Education grantees that receive discretionary and formula grants are provided with information on the Stevens Amendment through a Grant Award Notification attachment. The attachment is included with the terms and conditions of the grant award and has the exact language of the Stevens Amendment s requirements, but paraphrases with regard to the types of entities to which the Stevens Amendment applies. Instead of applying the requirements to all grantees receiving federal funds included in this act including but not limited to state and local governments and recipients of federal research grants as noted in the Stevens Amendment, Education s phrasing applies the requirements specifically to U.S. Department of Education grantees. According to Education officials, the grant notification process involves providing guidance to grantees and ensuring that they are made aware of various statutory requirements, including the Stevens Amendment. Education officials told us that another way that their agency communicates information about the Stevens Amendment to grantees is through Education s required post-award conference call, during which the program offices reinforce grant recipients need to be aware of the requirements. <3. DOL s ETA Managed Compliance with the Stevens Amendment through Its Grantee Monitoring Processes, Though Most HHS Operating Divisions and Education Did Not> The regulations that govern DOL, HHS, and Education s management of grant awards state that the Federal awarding agency must manage and administer the federal award in a manner so as to ensure that Federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements. The Stevens Amendment is a statutory requirement that these federal agencies must ensure is implemented by their grantees. Agencies management of the grant award so as to ensure implementation of the Stevens Amendment can be accomplished by various means, including the monitoring of grantees, through processes such as reviews of grantee reports and correspondence, desk audits, and grantee site visits. In our review of Stevens Amendment grants management practices at DOL, HHS, and Education, we found that DOL s ETA had processes in place that were able to identify instances of grantee noncompliance with the Stevens Amendment and demonstrate that noncompliance was being remedied. ETA s grants management processes took the form of grantee monitoring. Figure 2 below summarizes the Stevens Amendment monitoring practices of DOL, HHS, and Education. <3.1. ETA Had Processes for Managing Grantee Compliance with the Stevens Amendment> ETA officials told us that their subagency s active grants represented more than 95 percent of DOL s total active grant dollars, or approximately $21.1 billion. According to ETA officials, their operating plan for grant oversight targets 26 percent of the active ETA grants universe for monitoring each fiscal year, representing approximately 2,100 grants in fiscal year 2019. The regional office staff in each of ETA s six regional offices conduct a risk analysis of the grants within their regions and assign a risk rating to each grant indicating its risk level. The grant s risk level, which includes factors such as the dollar amount of the grant award and whether the grantee is on track to meet the grant s performance goals, determines which grants ETA selects for monitoring and inclusion in its regional monitoring plans for that fiscal year. Each annual regional monitoring plan consists of a list of grants and schedule of ETA staff monitoring reviews. According to ETA, monitoring reviews are used to measure grantee progress toward achieving project goals, identify areas of grantee compliance, offer opportunities for technical assistance to help resolve compliance issues, and ensure that federal funds are used responsibly. ETA conducts these reviews either through an on-site monitoring visit or an Enhanced Desk Monitoring Review that is conducted remotely. ETA officials stated the regional monitoring plans are designed to be flexible management tools, and are updated throughout each fiscal year to ensure that ETA meets its operating plan s goal to monitor 26 percent of its grants annually. According to ETA s Grantee Handbook, upon completion of the monitoring review, ETA drafts a monitoring report to each of the grantees reviewed. The monitoring report includes, among other things, compliance findings and the required grantee corrective action for any noncompliance with the findings, along with the due date for the corrective action. In response to our request for examples of grantee noncompliance with the Stevens Amendment requirements, ETA officials from each of the agency s six regional offices conducted a manual search of monitoring reports from fiscal years 2016 and 2017. ETA officials in four of the six ETA regional offices located monitoring reports with a finding stating that grantees public materials did not include the Stevens Amendment s required language or information to properly identify the project s federal funding dollar amount and the project s percentage of federal and nongovernmental funding. Three of the four monitoring reports provided the grantee with the exact language of the Stevens Amendment and instructed the grantee to ensure that statements, such as brochures, promotional materials, and other public announcements, contain a statement that identifies the project s funding sources in accordance with the three requirements of the Stevens Amendment. In the fourth monitoring report, while finding that the grantee did not include the required funding source statement in its documents, ETA s comments in the monitoring report did not provide the grantee with the full language of the Stevens Amendment and had omitted the requirement to provide the percentage and dollar amount of costs financed by nongovernmental sources. For each of these examples, ETA officials showed that the grantees subsequently corrected their documents to bring them into compliance with the Stevens Amendment requirements. In the fourth example, the grantee s subsequent inclusion of the required funding source statement in its documents showed that the program was 100 percent funded by federal dollars. In August 2018, ETA also created a Core Monitoring Guide that references the Stevens Amendment requirements as an element to be monitored by ETA officials when speaking with grantees. ETA intended this guide to be used as a tool in the on-site review of a grantee s activities, and it provides officials with a series of checklists as well as the steps to take when conducting monitoring. For Stevens Amendment compliance, the guide includes a Question for Review and Discussion that uses the exact language of the Stevens Amendment. However, the Stevens Amendment is only one issue among many addressed in the guide, and ETA officials said they do not have the resources to audit all of the elements included in the guide. ETA officials said that their grant reviewers select from one to four sections of the guide to use when conducting monitoring, depending on the nature of the grant, and that the choice of which items to monitor is based on a risk analysis of the grantee and the grant projects quarterly financial reports. ETA officials acknowledged that the scope of their monitoring overall is limited to 26 percent of their grant universe for a given fiscal year, therefore the extent of noncompliance among ETA grantees cannot be determined. Of the eight DOL subagencies we spoke to other than ETA, two, OSHA and BLS, stated that they did not monitor grantees for compliance with Stevens Amendment requirements. These subagencies officials said they did not monitor for Stevens Amendment compliance because monitoring is not explicitly required under the statute and, in the case of BLS, because it believes that the type of press releases generated by their grantees do not fall within the scope of the Stevens Amendment. Six of the eight DOL subagencies told us that they conducted grantee compliance monitoring. However, based on the information and documents provided by officials from these six subagencies, they have not demonstrated that they have processes to manage grantees compliance with the Stevens Amendment. For example, the Chief Evaluation Office, the Bureau of International Labor Affairs (ILAB), and the Veterans Employment and Training Service stated that they do not track the extent of grantee compliance; and the Mine Safety and Health Administration said that it does not maintain records of grantee compliance with the Stevens Amendment. In addition, both ILAB and the Women s Bureau, while stating that they conducted monitoring of grantee compliance with the Stevens Amendment, provided examples of grantee disclosures that did not meet all of its requirements. Further, the Office of Disability and Employment Policy (ODEP) said that all of its grantees were fully compliant with the Stevens Amendment, but produced no examples of grantee disclosures. The Uniform Administrative Requirements that govern certain federal agencies, including DOL, state with regard to the management of grants that the Federal awarding agency must manage and administer the Federal award in a manner so as to ensure that Federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements. Other than ETA, DOL s subagencies have not developed the processes needed to manage and administer grantees compliance with the Stevens Amendment. Without these processes, these DOL subagencies are not able to ensure that grant programs are being implemented by grantees in full accordance with the statutory requirements of the Stevens Amendment. <3.2. Most HHS Operating Divisions Said They Did Not Review Grantees for Compliance with Stevens Amendment Requirements> At the department level, HHS officials said that they have no knowledge about whether their operating divisions conduct monitoring and enforcement of the Stevens Amendment, and they did not collect information from their operating divisions on grantee compliance with the Stevens Amendment s requirements. According to HHS officials, any efforts to manage grant awards for adherence to Stevens Amendment requirements would be carried out by staff at the agency s 10 relevant operating divisions. HHS officials said that operating divisions have an obligation to monitor their grantees for compliance with all of the agency s standard grant award terms and conditions, which includes the Stevens Amendment. Of the 10 relevant HHS operating divisions we spoke with in our review, officials from eight of them the Administration for Children and Families (ACF), the Agency for Healthcare Research and Quality (AHRQ), the Centers for Disease Control and Prevention (CDC), the Food and Drug Administration, the Health Resources and Services Administration (HRSA), the National Institutes of Health (NIH), the Office of the Assistant Secretary for Health (OASH), and the Substance Abuse and Mental Health Services Administration told us that they did not monitor grantees compliance with Stevens Amendment requirements. Two of these operating divisions, ACF and AHRQ, further stated that the Stevens Amendment did not require them to monitor for grantee compliance. These operating divisions maintained the position that they are not required to monitor for grantee compliance despite HHS policy regarding operating division monitoring of grants that states to fulfill their role in regard to the stewardship of Federal funds, OPDIVs monitor their grants to identify potential problems and areas where technical assistance might be necessary. This active monitoring is accomplished through review of reports and correspondence from the recipient, audit reports, site visits, and other information available to the OPDIV. As mentioned earlier in this report, agencies are required to manage grant awards and have a number of possible means available to do so including grant monitoring. However, grant monitoring is not explicitly required by the Stevens Amendment. NIH officials stated that they do not specifically monitor for Stevens Amendment compliance and that NIH officials have not received any reports of noncompliance with the Stevens Amendment. They said they would address any non-compliance issues if they were raised. Similar to NIH, HRSA officials told us that they conduct grantee monitoring, but do not specifically review grantee documents for compliance with Stevens Amendment requirements unless there is a cause for concern regarding noncompliance. Similarly, CDC officials said that their grantee monitoring practices do not specifically target Stevens Amendment compliance. CDC officials further explained that while grant program officers may find instances of noncompliance during a grant review, it would be tangential to other issues more central to the focus of the grant review, such as grantee financial performance and goal accomplishment. Officials from OASH stated that while they do not specifically review grantees written statements for Stevens Amendment compliance, they provide grantees with guidance regarding how to comply with its requirements. For example, a grantee asked whether a Stevens Amendment acknowledgement statement had to be included on billboards the recipient rented to promote their program s services. OASH determined that the grantee did not need to include the statement on the billboards. ONC officials told us that all of their grantees were in compliance with the Stevens Amendment. ONC officials stated that while they do not specifically look for Stevens Amendment compliance, it was their belief that ONC monitoring practices would identify instances of noncompliance for their small number of grantees. ONC officials told us their belief is based on interactions with a wide range of grantees employees during monitoring visits that seek to ensure that all compliance issues among their grantees are addressed. The remaining HHS operating division in our review, CMS, told us that its monitoring processes include reviews for Stevens Amendment requirements and that CMS had a process for reviewing grantee documents. According to HHS policy, the results and accomplishments of the activities CMS funds should be made public and CMS requires grantees to make the results and accomplishments of their activities available to the research community and to the public at large. The grantee must submit any materials to CMS in advance of publication, including brochures, recruitment materials, informational materials, advertisements, website copy, website pages, videos, and op-ed articles that report results from or describe information obtained through the grant award. CMS officials told us they reviewed for Stevens Amendment compliance, and provided us with examples of materials they said were from grantees that were in compliance. However, in our analysis of the sample grantee materials from CMS, we found that the grantees were not in compliance with the cost requirements of the Stevens Amendment. Despite the claims and efforts of some HHS operating divisions with regard to monitoring for Stevens Amendment compliance, none of HHS s operating divisions could demonstrate that they had a process to manage and administer grantees compliance with the Stevens Amendment requirements. In addition to the previously-mentioned Uniform Administrative Requirements applicable to all grant awards, HHS regulations that govern the agency s grant making state that, The Federal awarding agency must manage and administer the Federal award in a manner so as to ensure that Federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements. Further, these regulations also state, The Federal awarding agency must communicate to the non- Federal entity all relevant public policy requirements, including those in general appropriations provisions, and incorporate them either directly or by reference in the terms and conditions of the Federal award. Neither HHS, nor its operating divisions, had developed processes to manage and administer grantees Stevens Amendment compliance. Without having processes to manage and administer their grantees compliance with the Stevens Amendment, which is included in HHS s appropriations provisions, there is no way for HHS or its operating divisions to ensure that grantees are in full accordance with the statutory requirements of the Stevens Amendment appropriations provision and the agency-communicated conditions of the federal award. Further, without monitoring grants in accordance with their Grants Policy Statement, HHS and its operating divisions are not able to identify potential problems related to grantees Stevens Amendment compliance. <3.3. Education Does Not Monitor for Grantee Compliance with the Stevens Amendment> Education officials stated that its program offices do not explicitly track individual grantees for Stevens Amendment compliance. Education officials told us that their grant review process does not collect Stevens Amendment documentation nor do they gather information regarding the extent of grantee compliance with the appropriations provision. As a consequence, Education cannot determine the extent of their grantees compliance with the requirements of the Stevens Amendment. Representatives from Education s Office of General Counsel stated that Education has an obligation to correct instances of Stevens Amendment noncompliance, but does not have an obligation to monitor its grantees to determine whether they are in compliance. Education officials told us that due to limited resources, they use risk assessment results to identify and prioritize which items among their standard terms and conditions they will monitor during the course of a grant review. Officials told us they had not received any complaints related to the Stevens Amendment. The uniform regulations that govern federal agencies, including Education s management of grants, state that the Federal awarding agency must manage and administer the federal award in a manner so as to ensure that Federal funding is expended and associated programs are implemented in full accordance with U.S. statutory and public policy requirements. Education has not developed the processes it needs to manage and administer grantees compliance with the Stevens Amendment which is included in Education s appropriations provisions. Without these processes, Education is not able to ensure that grant programs are being implemented by grantees in full accordance with the statutory requirements of the Stevens Amendment appropriations provision and the agency-communicated conditions of the federal award. <4. Most Subagencies and Operating Divisions Monitoring Stevens Amendment Compliance Did Not Gather Information about Grantees Cost Calculations> With two exceptions, the subagencies and operating divisions we reviewed that stated they conducted monitoring had no information on the methods used by grantees to calculate the federal funding dollar amounts or funding percentage figures required by the Stevens Amendment. As an example, DOL s ETA officials told us that they do not know how the dollar amounts reported by grantees were calculated, and they have not inquired about the level of detail factored into indirect costs involving the grantee organization s structure and the percentage of funds spent on salaries. In addition, officials at DOL s ILAB said that it is not always clear how grantees calculate these costs, and the Stevens Amendment does not provide specific guidance on how costs should be determined. Officials also noted that some grantees expressed confusion regarding the requirements and how to calculate the total federal funds, including in cases where there may be collaboration across federally-funded programs. Similarly, officials from HHS s NIH operating division noted that calculations can be difficult given that research programs can have multiple funding streams that feed into a grant project and grantees research portfolios are now more complex than they have been in the past. Officials at one DOL subagency, ODEP, said that grantees calculate the total funds received in the grant awarding document and that these funds include negotiated indirect cost rates. The remainder of the DOL subagencies and HHS operating divisions that produced examples of either compliance or noncompliance with the amendment did not have information on how grantees made their disclosure calculations. In addition, officials at one HHS operating division, HRSA, said the HRSA Notice of Award lists the total federal and non-federal amounts for the grant project or program. Grantees can use this information to calculate the percentage of federal funding and nongovernmental funding. However, in the Stevens Amendment compliance examples that HRSA provided to us, this calculation was not necessary because these projects were 100 percent funded by the HRSA grant award. In addition, HRSA officials told us that they are not aware of any other methods that grantees would need to use to arrive at the percentage. With regard to indirect costs, HRSA officials said that these costs are already included in the federal award amount and, therefore, any calculation of funding percentage should already account for the inclusion of both direct and indirect costs. <5. Conclusions> Congress has repeatedly taken action to include the Stevens Amendment requirements with agencies appropriations. Ensuring grantee compliance with accountability requirements is achieved through investment of federal agency resources that reflect decisions regarding how best to ensure efficient and effective use of grant funds while reinforcing statutory requirements. DOL s largest grant making subagency, ETA, showed that its grantee review processes were, to some extent, actively monitoring for Stevens Amendment compliance and that when ETA found compliance issues, it was able to provide grantees with the technical assistance needed to correct them. While a couple of HHS operating divisions showed some evidence that they were enhancing their guidance to grantees with regard to the Stevens Amendment, none of the operating divisions could demonstrate that they had a process to manage and administer grantees compliance with the Stevens Amendment requirements. Education officials stated that while their agency does not have an obligation to monitor its grantees to determine whether they are in compliance with the Stevens Amendment, they do have an obligation to correct instances of noncompliance if brought to their attention. While none of the agencies in this review can determine the extent of their grantees compliance with the Stevens Amendment, DOL s ETA has monitored grantee compliance with the provision, and when noncompliance is found, has taken steps to bring their grantees into compliance. However, with no such processes in place, the remaining DOL subagencies, HHS s operating divisions, and Education are not able to manage or administer grantee compliance with the Stevens Amendment appropriation provision so as to ensure that grant funds are being expended in full accordance with these statutory and regulatory requirements. <6. Recommendations for Executive Action> We are making a total of three recommendations, one to each of the three agencies in our review, to take steps to manage grantees compliance with the Stevens Amendment. Specifically: The Secretary of Labor should direct its subagencies, other than ETA, to design and implement a process to manage and administer grantees compliance with the Stevens Amendment, including determining to what extent to provide guidance to grantees on calculations. (Recommendation 1) The Secretary of Health and Human Services should direct its operating divisions to design and implement processes to manage and administer grantees compliance with the Stevens Amendment, including determining to what extent to provide guidance to grantees on calculations. (Recommendation 2) The Secretary of Education should design and implement a process to manage and administer grantees compliance with the Stevens Amendment, including determining to what extent to provide guidance to grantees on calculations. (Recommendation 3) <7. Agency Comments and Our Evaluation> We provided a draft of this report to DOL, HHS, and Education for review and comment. We received written concurrence from DOL, and written comment letters from DOL s OSHA, HHS, and Education. The comment letters are reprinted in appendixes I, II, and III, respectively and are summarized below. DOL stated that it concurs with our recommendation. OSHA provided written comments and stated that it generally agreed with GAO s recommendation. OSHA said it will take steps to establish processes to monitor grantee compliance with Stevens Amendment requirements, to include reviewing what assistance the agency can provide to grantees on how to calculate funding percentages. OSHA further stated that it has begun updating its grant and cooperative agreement instructions to include the Stevens Amendment language verbatim, rather than paraphrasing the language, and is adding guidance to grant monitoring guidelines to assist OSHA s Regional Offices in reviewing compliance with the Stevens Amendment. DOL subagencies ILAB, BLS, ETA, and ODEP also provided technical comments, which we incorporated into the report where appropriate. In its written comments, HHS stated that it concurs with our recommendation and would implement the recommendation to the fullest extent feasible. HHS officials said they would direct all operating divisions to design a process for implementing and monitoring the Stevens Amendment and would update HHS grants policy to reflect this new process. HHS also provided technical comments, which we incorporated into the report where appropriate. <7.1. Education> Education provided written comments stating that it did not concur with our recommendation, but would consider enhancing its existing approach to compliance with the Stevens Amendment. We reiterate our recommendation that Education should design and implement a process to manage and administer grantees compliance with the Stevens Amendment, including determining to what extent to provide guidance to grantees on calculations. Education had three concerns regarding the recommendation. First, Education said that our recommendation is not based on any evidence of noncompliance with the Stevens Amendment by Education grantees. As noted in our report, we found that Education lacks information regarding whether its grantees are, or are not, complying with the requirements of the Stevens Amendment. As indicated in this report, Education officials told us that they do not collect documentation from grantees to monitor their compliance with the Stevens Amendment, nor do they analyze information regarding the extent of grantee compliance with the Stevens Amendment. As a consequence, Education does not know the extent to which its grantees are or are not complying with the statutory requirements of the Stevens Amendment. Without this knowledge, Education does not have assurance that its grant awards are managed and administered in accordance with federal regulations. Second, Education referred to its tiered risk-based approach to grantee monitoring that balances compliance requirements with limited monitoring resources in alignment with the President s Management Agenda. According to Education, implementation of the recommendation would require them to devote limited resources to managing and administering grantee compliance with the Stevens Amendment when there is no evidence of grantee noncompliance. We acknowledge that the cross- agency priority goal in the President s Management Agenda refers to maximizing the value of grant funding by applying a risk-based, data- driven framework that balances compliance requirements with demonstrating successful results. However, because Education does not collect information or documentation on this aspect of grantee compliance, it lacks the data needed to make an informed risk-based assessment with regard to monitoring for Stevens Amendment compliance. The recommendation could be implemented within the context of Education s risk-based approach to grantee monitoring as long as Education gathers the grantee compliance information needed to apply their risk-based, data-driven framework. Third, Education said that it has already taken numerous steps to make its process for awarding and overseeing grant funds transparent to the public. However, these steps do not eliminate the legal requirements that grantees must comply with the Stevens Amendment, and that federal agencies, including Education, must manage and administer the federal award in a manner that is fully in accordance with statutory requirements. Education did state that it would consider enhancing its existing approach to Stevens Amendment compliance with actions that further explain the requirements to grant recipients. While such efforts could enhance grantees understanding of the Stevens Amendment, they would not give Education the grantee compliance information it needs to apply to a risk- based, data-driven framework or to manage and administer its grant awards in accordance with federal regulations. For all of these reasons we continue to believe that our recommendation to Education is valid and that Education should fully implement it. We are sending copies of this report to the Secretaries of Labor, Health and Human Services, and Education, as well as interested congressional committees 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) 512-6806 or [email protected]. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Comments from the Department of Labor s Occupational Safety and Health Administration Appendix II: Comments from the Department of Health & Human Services Appendix III: Comments from the Department of Education Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Tom James (Assistant Director), Anthony Bova (Analyst-in-Charge), Jacqueline Chapin, Jehan Chase, Robert Robinson, Wesley Sholtes, and Walter Vance made key contributions to this report.

Why GAO Did This Study Since 1989, an appropriations provision, colloquially known as the “Stevens Amendment,” has reflected Congress's longstanding effort to ensure transparency and accountability in federal grant spending. GAO was asked to review agency guidance and grantee compliance related to the Stevens Amendment. This report (1) describes the guidance DOL, HHS, and Education provide to grantees regarding the Stevens Amendment; (2) examines the extent to which DOL, HHS, and Education are managing grantees' compliance with the Stevens Amendment; and (3) describes what is known about how grantees calculate the dollar amounts and percentages of their federal and nongovernmental funding disclosures. GAO asked for agency guidance documents, reviewed monitoring reports, interviewed officials on agencies' Stevens Amendment oversight efforts, and asked agencies how grantees calculate funding amounts. What GAO Found The Stevens Amendment is an appropriations provision that requires grantees of the Departments of Labor (DOL), Health and Human Services (HHS), and Education (Education) to disclose for a grant program the percent of the costs financed with federal funds, the federal dollar amount, and the percentage and dollar amount financed by nongovernmental funds. The provision requires that recipients of grants funded by DOL, HHS, and Education make certain funding disclosures when issuing statements, press releases, bid solicitations, and other documents describing their grant project or program. DOL, HHS, and Education generally provide written guidance to grantees with the exact text of the Stevens Amendment or a paraphrased equivalent. In addition, a number of operating divisions within HHS referenced the HHS Grants Policy Statement, which includes language equivalent to the Stevens Amendment, as a way to instruct grantees. One HHS operating division, the Health Resources and Services Administration, provided grantees with additional guidance in the form of a web page that contained examples of funding disclosure statements and frequently asked questions intended to clarify the Stevens Amendment's requirements. One DOL subagency, the Employment and Training Administration (ETA), whose active grants represented more than 95 percent of DOL's total grant dollars, had processes for managing grantees' compliance that were able to identify instances of grantee noncompliance with Stevens Amendment requirements. ETA's operating plan for grant oversight targets 26 percent of its active grants for risk-based monitoring each fiscal year, representing approximately 2,100 grants in fiscal year 2019. The other DOL subagencies either stated that they did not monitor grantees for compliance with Stevens Amendment requirements or did not have processes in place for managing grantee compliance with the requirements of the Stevens Amendment. Most HHS operating divisions said they did not review grantees for Stevens Amendment compliance. Education also did not monitor for grantee compliance with the Stevens Amendment's requirements. Regulations governing federal agencies' management of grants require federal agencies to manage and administer the federal award in a manner that ensures that programs are implemented in full accordance with U.S. statutory and public policy requirements. Without processes for managing compliance, some DOL subagencies, HHS operating divisions, and Education are unable to ensure that grant programs are being implemented by grantees in full accordance with the statutory requirements of the Stevens Amendment. Most of the subagencies and operating divisions monitoring compliance did not gather information from grantees about how the grantees calculate the dollar amounts and percentages in their Stevens Amendment funding disclosures. For example, DOL's ETA officials said that they do not know how the dollar amounts reported by grantees were calculated, and have not inquired about the level of detail factored into indirect costs involving the grantee organization's structure and the percentage of funds spent on salaries. Similarly, officials from HHS's National Institutes of Health operating division noted that calculations can be difficult given that a research program can have multiple funding streams that feed into a grant project and grantees' research portfolios are now more complex than they have been in the past. What GAO Recommends GAO recommends that DOL subagencies (other than ETA), HHS operating divisions, and Education design and implement processes to manage grantees' compliance with the Stevens Amendment. In responding to the report, DOL, one DOL subagency, and HHS agreed with GAO's recommendation. Education disagreed with GAO's recommendation, citing limited monitoring resources and other reasons. GAO believes the recommendation should be fully implemented, as discussed in the report.

gao_GAO-20-251

gao_GAO-20-251_0

<1. Background> Priority and Standard Review For a priority review, the Food and Drug Administration (FDA) directs its resources to applications for new drugs that prevent, diagnose, or treat a serious condition and, if approved, would provide significant improvements in safety or effectiveness compared to available drugs. A drug may also receive priority review if the drug sponsor redeems a priority review voucher, among other things. FDA s goal is to complete the review of a priority application within 6 months. Drugs that do not receive priority review receive standard review. FDA s goal is to complete the review of a standard application within 10 months. FDA, an agency within the Department of Health and Human Services (HHS), is responsible for overseeing the safety and efficacy of drugs and biological products, such as vaccines, sold in the United States. Before a drug sponsor can market a new drug, it generally must submit evidence of the drug s safety and effectiveness to FDA in a new drug application or biologics license application. While FDA reviews most drug applications using its standard review process, FDA s priority review designation is intended to reduce the review time needed to bring a drug to market for certain drugs that treat serious conditions. A drug application typically receives a priority review designation if the drug would provide a significant improvement in the safety or effectiveness of the prevention, diagnosis, or treatment of a serious condition when compared to available drugs, among other things (see sidebar). FDA reviews all applications to determine if they qualify for priority review. FDA is also responsible for the implementation of the three PRV programs, which are intended to encourage development of drugs for tropical diseases, rare pediatric diseases, and medical countermeasures. Qualifying diseases and conditions for the tropical disease PRV program and criteria for the rare pediatric disease PRV program are set forth in statute though the list of eligible tropical diseases can be updated by order of the Secretary of HHS. For the medical countermeasure PRV program, HHS publishes a list of high- priority threats that qualify for a PRV, including those that the Department of Homeland Security determines to pose a material threat sufficient to affect national security. (See table 1 for the types of drugs eligible for a PRV.) In order to be awarded a PRV, drug applications must meet additional criteria. For example, for all three PRV programs, the drug application must be eligible for priority review and a drug may be disqualified if its active ingredient has been previously approved by FDA in another drug application. If a drug application meets the eligibility criteria for one of the PRV programs, the drug sponsor can include a request for a PRV in its application, including supporting documentation demonstrating how the application meets the PRV eligibility criteria. Once FDA receives a sponsor s drug application and PRV request, it reviews the information and considers whether the drug should be approved. If FDA approves the drug application, it includes its decision regarding whether to award a PRV in its approval letter. Once FDA awards a PRV to a drug sponsor, the sponsor can redeem the PRV with the submission of a future drug application for a drug intended to treat any disease or condition, shortening FDA s targeted review time from the 10-month standard review to 6 months, even if the drug in that future application would not qualify for priority review on its own merits. The drug sponsor also has the option of selling or transferring the PRV to another drug sponsor, which may then choose to use it or similarly sell or transfer it. PRVs may be transferred any number of times before they are used. When the drug sponsor possessing the PRV ultimately decides to redeem it, the sponsor must notify FDA at least 90 days in advance of submitting its drug application that is using the PRV. Figure 1 provides a general overview of the PRV programs. The drug sponsor redeeming a PRV must also pay a PRV user fee (about $2.5 million in fiscal year 2019), in addition to other user fees required for all drug applications. Because drug applications submitted to FDA with a PRV would not otherwise qualify for priority review, PRV user fees are intended to cover FDA s additional costs incurred when reviewing new drug applications with a PRV. When a drug sponsor notifies FDA of its intent to redeem a PRV, its notification serves as a legally binding commitment to pay the PRV user fee. Of the three PRV programs, two the rare pediatric disease and the medical countermeasure PRV programs are set to expire in the coming years, unless they are reauthorized by Congress. The rare pediatric disease PRV program will begin to expire on September 30, 2020, and the program will end in September 2022. The medical countermeasure PRV program will expire on October 1, 2023. After these end dates, FDA could no longer award a PRV for a rare pediatric disease or a medical countermeasure; however, the expiration dates do not affect PRV redemptions, as drug sponsors may redeem PRVs earned at any point in the future. <2. Most of the 31 PRVs Awarded by FDA Were for Drugs to Treat Rare Pediatric Diseases> As of September 30, 2019, FDA awarded 31 PRVs across the three PRV programs, with the majority being awarded through the rare pediatric disease PRV program (see fig. 2). According to FDA, all PRVs were awarded for drugs that met unmet medical needs. The 31 PRVs were awarded to 26 different drug sponsors; three sponsors were awarded two PRVs each and one sponsor was awarded three PRVs. FDA awarded the 31 PRVs for drugs that treat 27 different diseases. For five diseases malaria, tuberculosis, smallpox, spinal muscular atrophy, and Duchenne muscular dystrophy FDA awarded PRVs to two different drugs for their treatment, and FDA awarded one PRV for a drug that prevents two different diseases. (See appendix I for more information about the drugs for which FDA awarded PRVs.) The first PRV was awarded in fiscal year 2009, 2 years after the start of the tropical disease PRV program, and none were awarded in fiscal years 2010 through 2012. The first rare pediatric disease PRV was awarded in fiscal year 2014 about 2 years after that PRV program was authorized and, beginning in fiscal year 2015, the majority of PRVs awarded were for rare pediatric diseases. In fiscal year 2018, FDA awarded eight PRVs, including the first medical countermeasure PRV, the most awarded in a single fiscal year (see fig. 3). Of the 31 PRVs that FDA awarded to drug sponsors, available data indicate 17 PRVs were subsequently sold to another drug sponsor, providing revenue to the sponsor selling the PRV. For 14 of these 17 PRVs, we were able to determine a sales price, which ranged from $67.5 million for a PRV sold in fiscal year 2014 to $350 million for a PRV sold in fiscal year 2015. However, the available sales prices of the PRVs sold since February 2017 have varied less than those sold previously, ranging from $80 to $130 million (see fig. 4). Because drug sponsors are only required to notify FDA of sales of rare pediatric disease PRVs at the time the sale occurs, additional transfers or sales of PRVs may have occurred. The drug sponsors, stakeholders, and researchers we interviewed noted that several factors could influence whether a drug sponsor keeps a PRV for future use, sells the PRV to another drug sponsor, or purchases a PRV to use on a drug that would not otherwise qualify for priority review. The PRV programs allow PRVs to be transferred multiple times, and according to stakeholders and drug sponsors we spoke with, the revenue gained from such sales may be a motivating factor for drug sponsors to sell them. For example, three stakeholders we interviewed said they believe drug sponsors consider the drugs in their development pipeline when deciding to keep, sell, or purchase a PRV, and one stated that drug sponsors need to determine if they would benefit more from using the PRV or the money they could make from selling it. One researcher commented that price variation for PRVs can affect how a drug sponsor perceives the incentive and that low prices for PRVs may signify the need for additional incentives for drug development. However, two drug sponsors told us that they would continue to pursue PRVs as long as they were available and useful for a particular drug in their pipeline. <3. More than Half of the PRVs Awarded Have Been Redeemed for Drugs Treating a Variety of Conditions> As of September 30, 2019, drug sponsors redeemed 16 of the 31 PRVs that is, they submitted the PRV to obtain priority review for a drug application for a drug that would not otherwise qualify for a priority review. The drugs for which the PRVs were redeemed treat or prevent a variety of conditions and diseases, including human immunodeficiency virus (HIV), type 2 diabetes, and different forms of arthritis. (See appendix II for a complete list of PRV redemptions.) The first PRV was redeemed in fiscal year 2011, about 2 years after the first PRV was awarded, and the second PRV was redeemed in fiscal year 2015. Since 2017, drug sponsors have redeemed between three and six PRVs each year (see fig. 5). The 16 PRVs were redeemed by 10 different drug sponsors. Twelve of the 16 redeemed PRVs were purchased and redeemed by a drug sponsor different from the original PRV awardee. All 16 redeemed PRVs were redeemed within 4 years of FDA awarding them (see fig. 6). Of the 15 PRVs that were not redeemed as of September 30, 2019, 12 were awarded in fiscal years 2018 or 2019, and one was awarded in early fiscal year 2016. (See fig. 7.) Drug sponsors we contacted told us that decisions on when to redeem PRVs are largely strategic and take into consideration their drug development pipeline and market competition. For example, three of the drug sponsors told us they might choose to redeem a PRV to help a drug reach the market faster than a competitor s drug, and two drug sponsors told us they may hold a PRV to use to obtain priority review for a particular drug that is in development. Another drug sponsor told us it considers the likelihood of a drug receiving approval from FDA when deciding when to use a PRV (since the PRV only affects the time frames for FDA s review and does not guarantee approval), and if a drug in its pipeline could receive priority review from FDA on its own merit. Almost half of the awarded PRVs had not been redeemed as of the end of fiscal year 2019, which may affect FDA s ability to forecast resources needed in the future. In 2016, we reported that FDA told us that the rare pediatric disease PRV program placed a substantial strain on its workload, explaining that performing a priority review on a drug that would otherwise merit a standard review requires the agency to conduct significant work in a compressed time frame. Between fiscal years 2011 and 2018, PRV redemptions have accounted for less than 1 percent of FDA s reviews in any given year, according to FDA. While FDA receives 90 days notice of a PRV redemption, the notice period may not be enough time to ensure the appropriate staff are available to review a drug application that the agency does not consider to be a public health priority, according to FDA. However, one researcher noted that this uncertainty exists for all drug applications, as FDA cannot know in a given year how many drug applications will be submitted in any particular therapeutic area or how many of these applications will qualify for priority review. Furthermore, two drug sponsors, one researcher, and one stakeholder we spoke with noted that FDA collects additional user fees for PRV redemptions specifically to support the priority review for a drug that would not normally qualify for one. Since fiscal year 2011, FDA has collected almost $44 million in PRV user fees for the 16 redeemed PRVs. FDA does not track the resources it uses specifically for the PRV programs, so the agency cannot determine if the PRV user fees paid when PRVs are redeemed cover the associated costs. According to FDA, the agency cannot anticipate the therapeutic area for which a PRV will be redeemed, so PRV user fees may not ameliorate the effect of PRV redemptions on the review divisions or provide for rapid hiring of additional review staff with relevant experience and technical expertise. FDA officials told us that each new PRV program and changes made to existing PRV programs requires additional resources to implement. The agency reports that the services of over 11 offices within FDA are required to work on some aspect of the PRV programs, which may at times require FDA to shift resources from its public health priorities. According to FDA, the PRV programs also expend and divert agency resources to draft and revise PRV-related guidance; update webpages; research, draft, and publish notices and orders to add or decline to add diseases to the list of eligible tropical diseases; respond to inquiries from sponsors, potential sponsors, investors, attorneys, and other interested individuals; and respond to requests for a rare pediatric disease designation. <4. The Few Studies That Examined PRV Programs Found Little or No Effect on Drug Development; Improvements and Alternatives Were Suggested> <4.1. The Few Studies Examining PRV Programs Found Little or No Effect on Drug Development and Views of the Programs Are Mixed> Our literature review found three studies one for each of the PRV programs that examined and drew conclusions about how PRV programs affect drug development; of these, one study found evidence of an effect of a PRV program on drug development. Specifically, it found that drugs to treat rare pediatric diseases, which could be eligible for a rare pediatric disease PRV, were more likely to advance from phase I to phase II clinical trials when compared to rare adult disease drugs. The studies examining the other two PRV programs did not find an effect on drug development. Rare pediatric disease PRV program. A 2019 study found that the rare pediatric disease PRV program was not associated with an increase in the number or rate of new pediatric disease drugs that started or completed clinical trials. However, the study found that, after the creation of the rare pediatric disease PRV program, drugs the study authors determined could be eligible for a rare pediatric disease PRV were more likely to advance from phase I to phase II clinical trials compared to rare adult disease drugs, which are not eligible for a PRV under this program. Additionally, the study found the time it took for drugs to progress to the next stage of development was shorter among drugs eligible for a rare pediatric disease PRV compared to drugs for rare adult diseases, across all three phases of clinical development. Tropical diseases PRV program. A 2017 study found that this PRV program was not associated with an increase in tropical disease drugs starting clinical testing. The study found the proportion of tropical disease drugs among all drugs in development decreased slightly after the PRV program was created. Study authors suggested the relatively small number of approved tropical disease products in the last decade indicates the PRV program did not serve as a stimulus for completing late-stage drug development. Medical countermeasure PRV program. A 2018 study reported that 25 of 26 medical countermeasures undergoing clinical trials received direct or indirect public support, such as funding from the Department of Defense. Authors stated that, given the extent to which development of medical countermeasures already occurs via direct or indirect federal funding, alternatives other than the PRV program could better stimulate development of medical countermeasures. While the few studies of the PRV program found little to no effect on drug development, the seven drug sponsors we contacted told us the PRV programs were an incentive that is, a factor in their decisionmaking for drug development. In contrast, the seven researchers and seven stakeholders we contacted reported mixed views of the PRV programs as an incentive for drug development. Drug sponsors. All seven drug sponsors told us the PRV programs were a factor in drug development decisions six sponsors said it was one of a number of factors, and one sponsor said it was pivotal in its development of a drug. For example, three drug sponsors told us PRVs were important to help fund drug development and one of these drug sponsors told us the PRV program supported its decision to move a drug already under development to market. Four drug sponsors told us PRV programs may be a more significant incentive for small drug sponsors, with one small, nonprofit drug sponsor noting that it entirely relied on the profits from the sale of its PRV to ensure its drug would become available to those who need it. Additional factors drug sponsors reported considering included whether the sponsor has a drug in their development pipeline that could particularly benefit from a PRV, and whether its drug development program has public financial support, such as direct federal funding. Researchers. The seven researchers reported mixed views of the PRV programs as an incentive for drug development, and their perceptions of the three programs varied. For example, when asked to describe the incentive for drug development provided by the tropical disease PRV program, two researchers described it as not significant, and two researchers described it as somewhat significant. However, one of these researchers told us the tropical disease PRV program encouraged drug development, particularly for diseases such as tuberculosis and malaria for which a drug is potentially more commercially viable. Regarding the rare pediatric disease PRV program, three researchers told us they have heard anecdotally that the program is an incentive to develop or continue development of rare pediatric disease drugs. In contrast, one researcher told us many drug sponsors have received a rare pediatric disease PRV for drugs they would have produced anyway, and another told us he did not believe the rare pediatric disease PRV provided an adequate incentive for adding new drugs into a drug sponsor s pipeline. Finally, four researchers told us it was too early to evaluate the medical countermeasure PRV program as an incentive. Stakeholders. The seven stakeholders also reported mixed views on the PRV programs as an incentive for drug development. For example, one stakeholder told us that drug sponsors have entered particular drug development areas because of the PRV programs, and the PRV program has been pivotal to the financial planning of small drug sponsors working in the medical countermeasures and rare pediatric disease spaces. In contrast, two other stakeholders told us the PRV programs are an incentive to obtain FDA approval for a drug that has already been developed and marketed outside of the United States but are not an incentive for developing new drugs. One of these stakeholders and an additional stakeholder also noted that PRVs are often a source of additional revenue to drug sponsors that would have developed their PRV drug anyway and did not need the PRV to finance drug development. The number of PRVs awarded by FDA could influence the effectiveness of the PRV programs as incentives, according to several drug sponsors, researchers, and stakeholders we contacted. Specifically, some indicated that the potential revenue from the sale of a PRV could decline if more PRVs are awarded, and there is an increased supply of PRVs available for sale. Specific comments included the following: One drug sponsor told us that, while the number of PRVs on the market was a concern, they have remained valuable. Another drug sponsor told us it was not concerned with the relative value of PRVs, because it did not plan to sell its remaining PRVs and would purchase more in the future if PRVs would benefit drugs in its pipeline. One researcher told us lower prices for PRVs merited concern, because the PRV alone might not be sufficient to motivate drug development. The researcher indicated that a drug would also need either sufficient sales or additional government incentives. Two stakeholders told us the sales prices of PRVs (and potential revenue from selling them) might be more of a concern for small drug sponsors than large drug sponsors, as these stakeholders told us small drug sponsors are more likely to sell their PRV instead of using it for another drug in their portfolio. Drug sponsors, researchers, and stakeholders we contacted also reported mixed views on whether the rare pediatric disease and medical countermeasure PRV programs set to expire by 2022 and 2023, respectively should be reauthorized. While FDA officials reported that, as of April 2019, the agency does not have a position on the reauthorization of these two PRV programs, drug sponsors generally indicated support for their reauthorizations, with some noting that PRV program expirations may negatively affect overall drug development and the willingness of drug sponsors to work in these areas. The researchers we contacted offered mixed opinions on reauthorization. For example, one recommended reauthorizing both PRV programs, but indicated that his opinion could change if a better incentive was developed. In contrast, another researcher supported the expiration of these two programs, noting that their expiration could ultimately raise the potential revenue from the sale of an available PRV and could also make the tropical disease PRV program, which does not require reauthorization, more popular to encourage drug development. Most stakeholders we contacted did not offer a clear opinion on reauthorization; those that did generally supported reauthorization. <4.2. Drug Sponsors, Researchers, and Stakeholders Suggested Improvements and Alternatives to the PRV Programs> Drug sponsors, researchers, and stakeholders we contacted suggested several improvements to the PRV programs, including those described below. Require innovation for PRV-eligible drugs. Two researchers and two stakeholders noted that the PRV programs, particularly the tropical disease PRV program, have been criticized for not providing incentives for innovation and suggested PRV awards be limited to drugs new to the global market. Currently, drug sponsors can receive a PRV for a drug that has already been developed and marketed outside of the United States, but which qualifies for a PRV because the drug has not been approved for marketing in the United States. One researcher suggested the federal government should not provide an incentive, like a PRV, for drugs already in existence outside of the United States, for which most research and development was already completed. However, one drug sponsor told us that requiring a tropical disease drug to be approved first in the United States to qualify for a PRV would delay entry of the drug into the international markets that need it the most. Additionally, two stakeholders told us that drugs that have already been developed may have significant benefits to patients when combined or used to treat other diseases. Require drug sponsors to guarantee access to PRV-eligible drugs. One researcher and two stakeholders suggested drug sponsors submit an access plan to help ensure the drug reaches the populations in need of the treatment, and one drug sponsor suggested they supply at cost the drugs for which the PRV was awarded. One of these stakeholders noted that a weakness of the PRV program is that drug sponsors awarded a PRV have no obligation to make the approved drug available at an affordable price. It suggested that requiring an access plan may result in drugs for which a PRV was awarded being more available and accessible to the populations that need them. However, three stakeholders noted that FDA may not have the resources or authority to enforce such access commitments. Limit PRVs to drug sponsors with financial need. One drug sponsor and one researcher suggested awarding a PRV only to drug sponsors that financially require it to develop their drug, such as a nonprofit organization that must leverage potential revenue from the PRV to help offset drug development costs. Make administrative changes. One drug sponsor told us FDA s process for determining the list of tropical diseases eligible for a PRV was not transparent and wanted clarification on FDA s timeline for editing this list. Another drug sponsor told us it wanted clarification on whether a drug would merit priority review on its own, so the sponsor could determine whether to redeem a PRV for that drug. In addition to suggesting improvements to the PRV programs, drug sponsors, researchers, and stakeholders we contacted, as well as our literature review, identified potential alternatives to the PRV programs that provide incentives for drug development (see table 2). <5. Agency Comments> We provided a draft of this report to HHS for review and comment. HHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Health and Human Services, and other interested parties. In addition, the report is 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) 512-7114 or [email protected]. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix IV. Appendix I: Priority Review Vouchers (PRV) Awarded by the Food and Drug Administration Sales price (dollars in millions) Gilead Sciences, Inc. Gilead Sciences, Inc. Novartis Pharmaceuticals Corporation Dengvaxia Sanofi Pretomanid The Global Alliance for TB Drug Development (TB Alliance) BioMarin Pharmaceutical Inc. Treatment of mucopolysaccharidosis type IVA (MPS IVA; Morquio A syndrome) PRV Sale date purchaser August 2015 AbbVie Inc. Drug name Drug sponsor Unituxin United Therapeutics Corporation Cholbam Asklepion Pharmaceuticals, LLC Xuriden Wellstat Therapeutics Corporation Strensiq Alexion Pharmaceuticals Inc. Kanuma Alexion Pharmaceuticals Inc. Exondys 51 Sarepta Therapeutics, Inc. Teva Pharmaceutical USA, Inc. Treatment of hypophosphatasia (HPP) Spinraza Biogen, Inc. Gilead Sciences, Inc. Treatment of Duchenne muscular dystrophy (DMD) Treatment of tripeptidyl peptidase 1 (TPP1) deficiency (Batten disease) Marathon Pharmaceuticals, LLC Brineura BioMarin Pharmaceutical Inc. Kymriah Novartis Pharmaceuticals Corporation Mepsevii Ultragenyx Pharmaceutical Inc. Luxturna Spark Therapeutics, Inc. Sales price (dollars in millions) Vertex Pharmaceuticals Inc. Crysvita Ultragenyx Pharmaceutical Inc. Epidiolex GW Research, Ltd. Treatment of X-linked hypophosphatemia (XLH) Inc. Biohaven Pharmaceuticals, Inc. Leadiant Biosciences, Inc. Gamifant Novimmune S.A. Zolgensma Avexis, Inc. Treatment of seizures associated with Lennox Gastaut-Syndrome and Dravet syndrome Treatment of adenosine deaminase-severe combined immunodeficiency (ADA- SCID) Treatment of primary hemophagocytic lymphohistiocytosis (HLH) Treatment of pediatric patients with spinal muscular atrophy (SMA) Legend: = transferred from original drug sponsor; = no public announcement of transfer; = not applicable. Appendix II: Redeemed Priority Review Vouchers (PRV) Appendix II: Redeemed Priority Review Vouchers (PRV) Appendix III: Key Milestones of the Priority Review Voucher Programs Appendix III: Key Milestones of the Priority Review Voucher Programs FDA may not award any rare pediatric disease priority review vouchers after September 30, 2020, unless the drug has received a rare pediatric disease designation by that date, and FDA has approved the drug application by September 30, 2022. Appendix IV: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Kim Yamane (Assistant Director), Erin C. Henderson (Analyst-in-Charge), Kaitlin Farquharson, Laurie Pachter, Vikki Porter, Helen Sauer, Meghan Shrewsbury, and Merrile Sing made key contributions to this report. Also contributing were Leia Dickerson, Hayden Huang, and Yesook Merrill.

Why GAO Did This Study Few drugs are currently available to treat certain tropical and rare pediatric diseases and to use as medical countermeasures, given their small market or potentially limited profitability. To help provide incentives for the development of such drugs, Congress created three PRV programs, which award PRVs to drug sponsors that develop drugs for tropical diseases, rare pediatric diseases, and medical countermeasures (e.g., drugs to mitigate harm from biological, chemical, radiological, or nuclear agents). FDA, an agency within the Department of Health and Human Services (HHS), administers these programs. The 21st Century Cures Act included a provision for GAO to study the PRV programs. GAO examined the number of PRVs awarded and redeemed and the drugs for which they were awarded or redeemed, and what is known about the extent to which the PRVs provide incentives for developing drugs to meet unmet needs. GAO analyzed FDA data on awarded and redeemed PRVs for fiscal years 2009 through 2019 and other publicly available information on their transfers and sales. GAO conducted a literature review of peer-reviewed articles published from January 2009 through May 2019 that examined the PRV programs and interviewed FDA officials. GAO also interviewed seven stakeholder groups, seven academic researchers, and seven drug sponsors selected based on factors such as familiarity with PRV programs or drug development. HHS provided technical comments on a draft of this report, which were incorporated as appropriate. What GAO Found The Food and Drug Administration (FDA) awards priority review vouchers (PRV) to drug sponsors that develop drugs for tropical diseases or rare pediatric diseases or to use as medical countermeasures. The PRV—which can be sold to another drug sponsor—may be redeemed later to receive priority review from FDA with a targeted review time of 6 months, rather than the 10-month standard review, for a drug application of the PRV holder's choice. The potential for additional revenue from either marketing a drug about 4 months sooner or from selling the PRV could provide an incentive for drug sponsors to develop drugs for these diseases or conditions. From fiscal year 2009, when the first PRV was awarded, through fiscal year 2019, FDA awarded 31 PRVs, mostly for drugs to treat rare pediatric diseases. Of the 31 PRVs awarded by FDA,17 were sold to another drug sponsor for prices ranging from about $67 million to $350 million, according to available data. As of September 30, 2019, available data show that drug sponsors had redeemed 16 of the 31 PRVs to obtain a shorter FDA review time for drugs to treat conditions and diseases such as human immunodeficiency virus (HIV), type 2 diabetes, and different forms of arthritis. These drug applications may not otherwise qualify for priority review. GAO found few studies that examined the PRV programs, and those that did found the programs had little or no effect on drug development. However, all seven drug sponsors GAO spoke with stated that PRVs were a factor in drug development decisions—six sponsors said they were one of a number of factors, while one sponsor said they were pivotal in its development of a drug. Some academic researchers and stakeholders expressed concerns about the PRVs as incentives for drug development, including the potential for the expected revenue from the sale of a PRV to decline as more are awarded and available for sale.

gao_GAO-20-370

gao_GAO-20-370_0

<1. Background> The Navy oversees the planning and execution of non-nuclear surface ship repair and maintenance through several organizations (see fig. 1), including the following: The Chief of Naval Operations is the senior military officer of the Department of the Navy and is responsible to the Secretary of the Navy for the command, utilization of resources, and operating efficiency of the operating forces of the Navy and of the Navy shore activities assigned by the Secretary. The Assistant Secretary of the Navy for Research, Development and Acquisition, as the Navy Acquisition Executive, has overall authority, responsibility, and accountability for all acquisition and sustainment functions and programs, including surface ship repair and maintenance. Naval Sea Systems Command (NAVSEA) and its subordinate organizations maintain ships to meet fleet requirements within cost and schedule parameters, among other duties for combat systems design and operation. <1.1. Types of Availabilities for Surface Ship Repair> The Navy contracts with private shipyards and other firms collectively known as the ship repair industrial base for the repair and maintenance of non-nuclear surface ships. This work may be performed in either government-owned or contractor-owned facilities, potentially including shipyards with piers, cranes or facilities for pipefitting and valve repair. Certain types of work, such as inspecting, repairing or otherwise maintaining a ship s hull, might require placing a ship in the ship repair contractor s dry dock. Ship repair availabilities can range from a few weeks to years depending on the extent of work required and degree of complexity. The types of availabilities include the following: Chief of Naval Operations (CNO) availabilities accomplish major repair work. This includes industrial maintenance requiring complex processes to complete restorative work, such as structural, mechanical, and electrical repairs. These may include modernization work to upgrade a ship s capabilities along with repair work, and can last for over a year. Larger contractors typically execute these types of availabilities rather than small businesses. Continuous Maintenance availabilities (CMAV) accomplish non- major repair work, which includes routine maintenance work requiring relatively little time compared to CNO availabilities typically only weeks to a few months in duration. Small business contractors commonly execute CMAVs, and, at some ports, larger companies that have contracts for CNO availabilities also take on this type of work. <1.2. NAVSEA s Oversight of MAC-MO Strategy Implementation> Within NAVSEA, several organizations oversee MAC-MO strategy implementation (see fig. 2), including key functions such as contract administration, program management, and planning for future availabilities. <1.3. Availability Planning under the MAC-MO Strategy> Prior to awarding a contract for ship repair work under MAC-MO, the Navy plans and defines requirements for upcoming availabilities as depicted in figure 3 below. <1.4. Availability Execution under the MAC-MO Strategy> Contracting for availability execution under the MAC-MO strategy differs from that under the Navy s previous strategy, known as Multi-Ship, Multi- Option (MSMO), in several key ways, including by calling for: establishment of fixed contractual prices and completion time frames for an upcoming availability, rather than payment of contractors incurred costs; use of a third-party planning contractor under a cost-reimbursement contract to define contract specifications, rather than relying on planners employed by ship repair contractors; and award of indefinite delivery contracts to multiple contractors that can then compete for future availabilities, rather than all availabilities for a particular class of ships going to one contractor. Under the MAC-MO strategy, the Navy normally places fixed-price orders for availabilities with expected durations of 10 months or less using indefinite delivery/indefinite quantity (IDIQ) contracts. IDIQ contracts do not specify exact times for delivery of supplies or services at contract award; the Navy establishes those via orders placed during contract performance. With MAC-MO, the Navy generally solicits and awards contracts for five-year periods to a set of qualified contractors at specific home ports. These periods include an initial execution year and four additional option years. As a result, several qualified contractors are available to subsequently compete for availabilities in a specific home port under firm-fixed-price availability delivery orders until contract expiration. Availabilities that the Navy expects to last more than 10 months are not restricted to the ships home port. This allows for contractors outside the home port to compete for this work. The Navy then awards contracts for these coast-wide availabilities as stand-alone contracts to a single prime contractor, potentially at a port different from the home port of the ship. Shorter availabilities may be limited to the home port area provided there is adequate competition, which the Navy defines as the presence of two or more qualified bidders. If adequate competition is not available in the home port area, the geographic area for solicitation is expanded equally in all directions until adequate competition exists. Figure 4 below depicts contracting processes used for soliciting and awarding work under the MAC-MO strategy. In November 2016, we reviewed the Navy s implementation of the MAC- MO strategy through pilot maintenance periods, including its potential benefits and effects on the industrial base. We found MAC-MO had some potential benefits compared to the previous MSMO contracting strategy, including increased opportunities for competition and control of costs through fixed-price contracts. We additionally found that some contractors saw uncertainty associated with the need to continually compete for work, which could result in decisions to reduce their workforce and facilities, and the stability of ship repair workloads in their ports, irrespective of contract type. <2. The Navy Has Met Most of Its MAC-MO Goals, but Schedule Delays Persist> The Navy has achieved some, but not all, of the goals it set under the MAC-MO strategy. Among the achievements, the Navy provides more opportunities for competition and received more offers under MAC-MO than under the prior strategy. Further, MAC-MO s fixed-price contracts help enable the Navy to ensure quality of work, and we found no evidence of deficient work at availability completion in our review of four completed case studies. At the same time, the Navy also desired improved availability cost and schedule outcomes under the MAC-MO strategy. The Navy s results in these two areas have been mixed. Through April 2019, the Navy had completed 41 CNO availabilities under its MAC-MO strategy with, on average, 5 percent cost growth and 30 percent schedule growth. Unplanned work, which can often be unavoidable in ship repair, has detracted from both cost and schedule performance. <2.1. MAC-MO Strategy Has Increased Opportunities for Competition and Helps the Navy Ensure Quality Standards Are Met> The MAC-MO strategy has provided more opportunities than MSMO for competition by awarding a delivery order for each ship repair availability. The Navy has competed over 500 delivery orders under the MAC-MO strategy from April 2015 to March 2019. This represents a departure from the MSMO strategy under which a single contract was awarded to one contractor to execute multiple availabilities for a class of ship. The MAC- MO strategy also allows small businesses in Norfolk and San Diego to compete for noncomplex maintenance. Previously, under the MSMO strategy, small businesses said that they were more likely to work as subcontractors for the businesses that held one of the MSMO contracts. Navy officials have since stated that small businesses are now acting as prime contractors. The Navy has also achieved competition for soliciting its delivery orders under the MAC-MO strategy. According to our analysis of data from the Federal Procurement Data System-Next Generation (FPDS-NG), from the start of the MAC-MO strategy (April 2015) through March 2019, at least 78 percent (435 of 554) of MAC-MO awards solicited within home ports received two or more offers. Further, in the 18 percent of instances when the Navy awarded a delivery order after receiving only a single offer, it may have attained the benefits of having solicited that delivery order in a competitive environment. Table 1 shows the number of offers for both complex and noncomplex MAC-MO awards through March 2019. The MAC-MO strategy also gives the Navy flexibility to ensure that a contract s quality requirements are met under a fixed price by the time of availability completion. The Navy identified improving the quality of workmanship as a goal when it switched from MSMO to MAC-MO. The previous MSMO contracting strategy relied on use of cost-reimbursement contracts, which only require the government to reimburse the contractor its allowable incurred costs, regardless whether the contractor completed the work. The MAC-MO strategy uses firm-fixed-price contracts, which provide for a price that is not subject to any adjustment on the basis of the contractor s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and performance, including meeting the quality requirements of the contract. NAVSEA officials stated that in the event that the contractor doesn t meet the quality terms of the contract, the Navy has two options: (1) require the contractor to complete the deficient work, at the contractor s cost, to meet the specifications or (2) reduce the contract price to reflect the reduced value of the services performed and descope the related work requirements from the existing contract for performance on a future availability. Our review of availability completion reports from the four case study availabilities that were complete at the time of our assessment, out of six total, showed no instances where the Navy accepted quality deficiencies at availability completion. Navy contracting officials stated that in a firm- fixed-price contracting environment, they would not agree to accept deficient work without first obtaining concessions from the performing contractor, which would require modifying the delivery order. In one of these availabilities, we found evidence that the Navy elected to descope a non-option work item and defer it to a future availability. The maintenance team stated that this decision followed poor planning of the work item, which would have caused delays in completing the availability if not deferred. We also discussed these four availabilities with the responsible Navy maintenance teams, and none of those teams reported to us any deficient work at the time each availability completed. <2.2. CNO Availabilities Have Experienced Limited Cost Growth under the MAC- MO Strategy, but Schedule Delays and Growth Work Persist> <2.2.1. Cost> Between April 2015, when the Navy implemented the MAC-MO strategy, and April 2019, the Navy completed 41 CNO availabilities with an average cost growth per availability of 5 percent, or $1.7 million in fiscal year 2020 dollars. However, more than half of these availabilities (21 of 41) were completed at a lower cost than the Navy initially estimated. The cost growth of the remaining CNO availabilities (20 of 41) ranged between 1 percent and 78 percent and drove the aggregate average increase. Figure 5 shows the variation in cost performance, or the actual cost compared to the Navy s estimate, for the 41 CNO availabilities. Figure 6 shows the cost performance, or actual cost compared to the Navy s estimate, for the 41 CNO availabilities grouped by their location. Figure 7 shows cost performance, or actual cost compared to the Navy s estimate, for the 41 CNO availabilities grouped by ship class. <2.2.2. Schedule> Between the start of the MAC-MO strategy in April 2015 and April 2019, the Navy completed 41 CNO MAC-MO ship repair availabilities with an average schedule growth, or actual number of days from availability start to completion, compared to the Navy s estimate, of 30 percent, or 64 days. Twelve of 41 availabilities finished on time, and none finished ahead of schedule. In addition, two availabilities more than doubled in length, with one finishing with 123 percent schedule growth. We discuss some factors that can contribute to schedule growth below. Figure 8 shows the schedule growth for individual CNO availabilities. Figure 9 shows the schedule growth for the 41 CNO availabilities grouped by location. Figure 10 shows the schedule growth for the 41 CNO availabilities grouped by ship class. Navy officials stated that one potential source of delays is unplanned work, which consists of both growth work and new work. The Navy defines growth work as additional work that is identified or authorized after contract award that is related to a work item included in the original contract. We previously found that growth work contributed to cost and schedule increases, and it remains a contributing factor. Navy officials stated they expect some growth work in availabilities, as officials stated that certain tasks are difficult to fully scope within the original contract. As an example, one official stated that they cannot fully inspect ballast tanks and accurately write work specifications for their repair until the ship is at the repair yard and the availability has begun. Alternatively, the Navy defines new work as any additional work that is identified or authorized after contract award that is not related to a work item included in the original contract. Maintenance team officials stated that new work can originate when an item that needs repair breaks or the maintenance team first discovers it after the Navy awards the contract. The Navy can also add new work to an availability whenever it sees fit. In our six case study availabilities, we found that five added growth work, including examples of growth items that the Navy considered unavoidable. Our analysis of RMC data showed that the USS Stout (DDG 55) CNO Availability had 60 instances of growth work that the Navy considered unidentifiable prior to the start of the availability, including welding for the fuel tanks and repair to the bulkheads. The maintenance team did not consider these growth items to be unusual. Some non-CNO availabilities, like Continuous Maintenance availabilities, are smaller in scope and less susceptible to growth work. Maintenance team officials at SERMC consequently stated that they can often complete CMAVs on schedule. We found that the Navy completed one of our case study availabilities, the USS Iwo Jima CMAV, on schedule, and maintenance team officials stated they had time to add three new work items to the availability. Figure 11 describes the USS Stout (DDG 55) case study. Figure 12 describes the USS Iwo Jima (LHD 7) case study. According to Navy officials, managing growth work under firm-fixed-price contracts has contributed to schedule delays. In our November 2016 report on the Navy s transition to the MAC-MO strategy, we described the importance of contractors and RMC staff negotiating contract changes and agreeing on costs in a timely manner in order to minimize schedule impact. In our current review, Navy officials stated that negotiating change orders for unplanned work under MAC-MO is more difficult and time consuming than under the prior MSMO strategy because the Navy can no longer direct the contractor to continue to work without agreeing on the cost. In one of our case study availabilities, the USS Whidbey Island (LSD 41) CNO Availability, the maintenance team officials stated that they had difficulties negotiating contract changes. As a result, the officials stated that the Navy used unilateral modifications to direct the contractor to execute growth work items and avoid further schedule disruptions. See Figure 13 below for more detail on the USS Whidbey Island (LSD 41) case study. <3. The Navy Has Taken Action to Respond to MAC-MO Lessons Learned, but Funding Process Continues to Contribute to Delays> The Navy recognizes the negative schedule outcomes it currently faces with MAC-MO strategy implementation and has worked to mitigate them. It has implemented new contracting provisions and is moving key availability milestones to earlier in the process in an effort to better plan availabilities and facilitate their on-time completion. The Navy has also tried to better coordinate with the third-party planner to plan for availabilities and improve schedule performance. Statutory requirements and their implementation, however, have hindered the Navy s ability to further mitigate schedule delays. Specifically, the Navy must obtain approval from the Under Secretary of Defense (Comptroller) before funding growth work that occurs in subsequent fiscal years and exceeds $4 million an amount established under a 1990 law. Late last year, Congress established a pilot program in fiscal year 2020 that affords the Navy the ability to use procurement funds for availabilities, and these funds remain available for obligation for three years. A congressional statement accompanying the appropriations law that established the pilot program states that the Navy is to submit quarterly reports on the execution of ship availabilities funded through the pilot program. <3.1. The Navy Has Taken Action to Address Key Lessons Learned with MAC-MO Implementation> In our November 2016 report, we identified several key lessons learned stemming from MAC-MO pilot maintenance availabilities. When we revisited these lessons learned during interviews with Navy officials, they discussed two persistent MAC-MO strategy attributes that remain points of emphasis for lessons learned from 2016. These strategy attributes, namely the use of firm-fixed-price contracts and the use of a third-party planner, led to two new key lessons learned and another ongoing lesson learned from our 2016 report. Most of these center on the importance of the Navy accurately planning for and anticipating needs during availabilities in order to avoid schedule delays a theme that was also evident in our November 2016 report. According to NAVSEA leadership officials, the Navy primarily relies on two activities to determine lessons learned and identify actions that NAVSEA needs to take to improve ship repair maintenance, including under the MAC-MO strategy. Surface Team One compiles lessons learned that the individual RMCs recommend and reviews the implementation and status of actions to address those lessons learned. Performance to Plan (P2P) is a data-centric, analytical approach the Navy uses for a variety of improvement initiatives, including ship maintenance, to clearly characterize availability performance goals and develop solutions to improve availability duration outcomes. As shown in Table 2 below, the Navy has developed new contracting provisions and milestones to respond to lessons learned the Navy has identified. Additional information on each action follows the table. <3.2. The Navy Has Recently Implemented New Contract Provisions and Revised Milestones Based on Lessons Learned to Reduce Disruptive Effects from Growth Work> In 2018, the Navy began implementing two new contract provisions originating from lessons learned regarding the MAC-MO strategy Small Dollar Value Growth and Level of Effort to Completion in an effort to mitigate schedule delays typically associated with growth work. <3.2.1. Small Dollar Value Growth (SDVG)> The November 2018 SDVG provision specifically addressed schedule delays due to growth items that cost $25,000 or less. Under SDVG, during availability planning the Navy and contractor agree on a set price to be used anytime a growth work item equal to or under the $25,000 threshold is added to the work specification. This provision eliminates the need for the Navy and the contractor to engage in time-consuming negotiations on small dollar items during the availability. According to the Navy s 2018 biennial assessment, small dollar growth work negotiations accounted for around 70 percent of all contract changes. According to Navy documentation, contract negotiations for small dollar growth work caused delays of up to a week. In our discussion with officials from the USS Whidbey Island maintenance team, they reported that the availability required 972 contract changes, which they suggested SDVG would have helped expedite. The Navy s SDVG policy memo states that in using SDVG, the contractor can now typically begin work on the growth item 24 hours after discovery. Figure 14 describes the SDVG process. While it can expedite work on smaller dollar value items, the use of SDVG carries cost risk for the Navy and the executing contractors, which RMC leadership officials and contractor representatives acknowledged. According to these officials, under SDVG the Navy, at times, will likely pay more for growth items than it would if it devoted increased time to negotiate prices, with the same being true for the contractors. For example, the Navy awarded a contract delivery order for the USS Bulkeley (DDG 84) availability in February 2019 that included SDVG. The SDVG line item provided for up to 291 changes for growth during that availability at a firm-fixed-price of $7,144 per change based on historical needs of similar availabilities. This meant that the Navy could use SDVG up to 291 times during the availability, and each of those growth items would cost the Navy $7,144 regardless of whether the actual cost to the contractor underran or exceeded that amount. After the contractor identifies the in-scope growth item, the Navy only must determine that the cost is equal to or less than the $25,000 threshold in the contract. Nonetheless, Navy officials expressed that the benefit of significantly decreased negotiation time outweighs the potential cost risk. <3.2.2. Level of Effort (LOE) to Completion> As reflected in table 2, the Navy implemented a second new contract change process, known as LOE to Completion, in November 2018. This process is used for growth work items when the price exceeds the SDVG threshold of $25,000. LOE to Completion allows the Navy, within the already awarded contract for the availability, to fund growth work that contractors regularly discover during availability execution without having to separately negotiate each item. Through LOE to Completion, RMC leadership officials stated they have decreased negotiations and schedule delays during availability execution. LOE to Completion allows the Navy to obligate funding for labor-hours and material costs for estimated growth work at the time of award, rather than having to obtain appropriate funds after repair work begins. The Navy can then use those labor-hours and materials for individual growth work items over the course of the availability. According to RMC leadership officials, this provision allows them to avoid incurring additional delays. To establish the amounts of funding, the Navy reviews historical cost for growth work by class type and whether the availability is a docking or non-docking availability. For example, the Navy provided up to 134,002 work hours and $1.4 million for materials under the LOE to Completion contract process for the USS Bulkeley (DDG 84) availability. Figure 15 describes the LOE to Completion process. Because the Navy just recently implemented this process in November 2018, it has collected only limited data to date on its effectiveness. However, as described in figure 16, an availability involving complex ship repair work for the USS Princeton (CG 59) included contract terms that Navy officials described as a precursor to LOE to Completion. <3.2.3. Revised Availability Milestones> In August 2019, the Navy began targeting award of delivery orders for individual availabilities 120 days prior to the scheduled work start date. Previously, the Navy awarded these delivery orders 60 days prior to the scheduled work start date. According to Navy supply officials, awarding the delivery orders 120 days prior to the start of scheduled work allows the officials involved in the planning process to procure long lead-time materials early enough so that material delays do not impact schedule a challenge they cited under the 60-day schedule. Figure 17 shows how the change awarding delivery order 120 days before work is scheduled to begin will affect availability milestones. As reflected in figure 17, another change is that long lead time materials are now ordered 365 days ahead of the start of work, as opposed to the prior schedule of 170 days ahead. Navy supply officials said that some materials require lead times from 1 year to 18 months. Consequently, ordering these materials 170 days before an availability begins increased the likelihood that they would arrive too late to fulfill the Navy s stated goal of procuring all materials 30 days prior to the start of repair work. Unless repair work requiring these materials is nonessential and can be deferred to a future availability, these material delays can delay completion of availabilities by several months. Several ship repair contractor representatives we interviewed with pointed to long lead-time materials as drivers for schedule growth. While noting the potentially positive effects of shifting award date to 120 days before the availability begins, Navy officials also raised some challenges. They said that locking ship repair requirements almost a full year before an availability actually begins means that the Navy could finalize a ship s upcoming availability work specifications before a ship even begins its next deployment. During this deployment, equipment breakages or other deficiencies not anticipated and subsequently not included in the work package could arise on the ship, all of which would likely become growth work during the availability. This new time frame for delivery orders has only recently been implemented. The first MAC-MO delivery order awarded 120 days prior to the start of work occurred in January 2020, with another awarded since then. The Navy was scheduled to award availabilities 120 days prior to the start of work in November 2019, but, according to Navy officials, lacked necessary funds to award several availabilities due to the continuing resolution in place at the time. The Navy is not yet certain whether awarding delivery orders earlier will improve the Navy s ability to provide long lead-time materials on time. <3.3. The Navy Has Taken Action to Address Availability Planning Lessons Learned, but Views Are Mixed on the Results> Both the Navy and the third-party planner recognize the need for the two parties to work closely together to produce the best specifications and work packages possible under MAC-MO. As within the Navy, third party planner staff also seek to identify lessons learned, in order to improve the quality of ship repair specifications they produce. According to third-party planning contractor representatives, they monitor contract changes involving growth work, assess whether that growth is due to planning deficiencies or other causes, and then identify lessons learned, which they use to improve their specification writing process. For example, contractor representatives stated that they used lessons learned during the USS Bainbridge (DDG 96) availability to create a template for a section of the forecastle deck plate. This template could be used on future availabilities for ships of the same destroyer class, providing potential cost savings to future availabilities. However, RMC officials across the three ports implementing the MAC-MO strategy expressed concerns over the quality of third-party planning contractor specifications used in ship repair availability solicitations and contracts. They stated that the specifications developed by the third-party planning contractors have frequently included errors and discrepancies. As a result, the maintenance teams have had to work with the third-party planning contractor to resolve the issues prior to award. According to RMC officials, maintenance teams within a given port have their own preferences with regard to how the third-party planning contractor writes specifications. Consequently, a specification written and approved in one RMC is sometimes deemed inadequate within another RMC. Figure 18 describes how specification deficiencies and other events affected a USS Roosevelt (DDG 80) availability. Even with the issues that Navy maintenance teams have encountered with third-party planner-developed specifications, RMC officials stated that they continue to find ways to enhance their coordination with the third-party planning contractor. For instance, according to MARMC officials, they found that when availability maintenance teams physically worked alongside third-party planning contractor staff, the planning process went much more smoothly. After SWRMC officials learned of this practice, SWRMC s maintenance teams were co-located with the third- party planning contractor staff in an effort to improve its process as well. According to RMC staff, they found that having all parties coordinating closely in the planning process to be an effective way to mitigate some of the specification writing issues. In contrast to RMC officials, from NAVSEA leadership officials perspective, the third-party planning contractor is currently accomplishing the goals the Navy has set forth and has provided accurate enough specifications to earn the incentive fees outlined in its contract. The NAVSEA officials noted that the contractor has also received annual incentive fees for providing recommendations to the Master Specification Catalog utilized by the Navy to incorporate lessons learned and improve specifications written at all RMCs. <3.4. Congressional Action Offers Relief to the Navy s Lengthy Funding Approval Processes, but Navy Does Not Have Plans to Assess Results> Historically the Navy has used its operation and maintenance account to pay for ship repair. By law, those funds have generally only been available for new obligations for one fiscal year which corresponds with the fiscal year in which the availability contract is awarded after which the funds expire. In order for the Navy to use any remaining expired funds in the subsequent fiscal year for an in-scope contract change, the executing RMC must request what is called an upward obligation. The Navy can request an upward obligation at the fleet level as long as the request for a specific availability is less than $4 million. RMC officials stated this type of request involves a short process. However, if the upward obligations request exceeds $4 million for an availability, the executing RMC must receive approval from the Office of the Under Secretary of Defense (OUSD) Comptroller. According to RMC leadership officials, this process can take several months. We found that the Navy has requested upward obligations from the OUSD Comptroller 25 times across 14 ship repair availabilities since implementing the MAC-MO strategy in April 2015. In November 2016, we reported that the Navy identified the need for training for staff on how to obtain upward obligations funding. In our interviews with RMC leadership officials and Navy financial officials, some said they now had experience with upward obligations because of their regular need to obtain funding for ship availabilities that crossed fiscal years. Nonetheless, in our discussions with the RMC commanding officers, they described the upward obligations process to obtain OUSD Comptroller approval for upward obligations as cumbersome and unnecessarily complicated. Other Navy officials and contractors echoed these views and highlighted the upward obligations request process as a significant impediment to schedule performance. According to the RMC commanders, it requires several months to successfully execute and complete the upward obligations process for many availabilities because of reviews required within the Navy and the Office of the Secretary of Defense before approval is granted. Navy officials said the process also results in significant delays to the availabilities, as work cannot proceed without funding. For example, of six availabilities for which the Navy provided data, the shortest upward obligations request took 26 days, with the longest request spanning 189 days. Figure 19 describes how for one of our case studies, the USS Chosin (CG 65), the Navy experienced several months of schedule delay due in part to the upward obligations process. Navy officials stated they have attempted to identify legislative solutions to reduce the frequency under which they must obtain upward obligations, given the negative schedule effects this process precipitates. In 2018, the Office of the Assistant Secretary of the Navy (Financial Management and Comptroller), in conjunction with the Office of the Under Secretary of Defense (Comptroller), proposed two legislative initiatives to Congress intended to accomplish this goal. The first of these proposals seeks to raise the legal threshold for ship repair upward obligations requiring Navy and Defense Comptroller approval from $4 million to $10 million. The proposal also provides for a pilot ship availability with these new thresholds, which would allow the Navy to determine the proposal s effectiveness before fully implementing the new threshold. According to Navy and DOD comptroller officials, this proposal holds merit on several levels. First, the upward obligations threshold has not changed since 1990, when the law implementing the process first passed. The proposed increase to the threshold would account for inflation and subsequent increases in the cost of ship repair over the last 30 years. For example, the average maintenance availability for a DDG 51 Arleigh Burke class destroyer cost $6 million in 1991, but costs $36 million when the Navy proposed the legislative change. Additionally, the scope of the Operations and Maintenance, Navy (O&M) budget has increased by a factor of 2.5 since the law s 1990 passage. Navy officials believe that increasing the threshold to $10 million would potentially raise this amount to a level corresponding to increases in Navy ship repair budgets since that time. The second proposal would permit Navy O&M funds which the Navy uses to fund ship repair, among other sustainment-related activities to be available for the Navy to obligate for up to 2 fiscal years following their appropriation by Congress. Currently, these funds are available to be obligated by the Navy for only 1 year. According to Navy financial officials, since most ship repairs extend into a second year, this proposal would allow ship availabilities to avoid using upward obligations. A senior official with the Office of the Under Secretary of Defense (Comptroller) said that the threshold change was more logical, as the thresholds are no longer practical, and that the logistics of implementing 2-year funding were likely to be more complicated because of the various DOD software systems that would be affected. In December 2019, Congress and the President enacted legislation that although differing from the Navy s legislative proposals is responsive to the Navy s concerns relating to the process of approving upward obligations more than $4 million in its MAC-MO availabilities. In the Fiscal Year 2020 Consolidated Appropriations Act, Congress established a pilot program that allows the Navy to use the Other Procurement, Navy (OPN) account to fund Pacific fleet surface ship repair availabilities for 2020. Our review of Navy budget documentation shows that the Navy plans to execute 16 pilot availabilities using fiscal year 2020 OPN funds, and it has requested funding for another 26 pilot availabilities in fiscal year 2021. Unlike the Operations and Maintenance, Navy account, which the Navy typically uses to fund ship repair availabilities in 1-year increments, the OPN account provides the Navy with funding that will not expire for 3 years. Consequently, for availabilities the Navy funds through the pilot program, any growth work that necessitates an availability stretching into a second or even third year will avoid upward obligations and the related approval processes, provided sufficient funding remains in the OPN appropriation to cover the work. The joint explanatory statement accompanying the enacted legislation further stated that the Secretary of the Navy is to provide quarterly reports to Congress on the execution of ship availabilities funded through the pilot program in the OPN account. In these quarterly reports, the Navy is to report on the estimated or actual start or end dates of pilot availabilities, as well as the actual funded amount and estimate to complete. The Navy already completes systematic, biennial assessments of MAC- MO implementation, in response to our November 2016 report. While the Navy recognized upward obligations as an issue in its 2018 biennial assessment, the Navy did not examine potential solutions to the schedule delays that these obligations cause. Further, according to NAVSEA officials, the Navy has yet to determine whether it will address schedule outcomes and lessons learned from its pilot program availabilities within future biennial assessments. Our prior work identified leading practices for designing a well-developed and documented pilot program. These leading practices include the following: Establish well-defined, appropriate, clear, and measurable objectives Clearly articulate assessment methodology and data gathering strategy that addresses all components of the pilot program and includes key features of a sound plan Identify criteria or standards for identifying lessons about the pilot to inform decisions about scalability and whether, how, and when to integrate pilot activities into overall efforts Develop a detailed data-analysis plan to track the pilot program s implementation and performance and evaluate the final results of the project and draw conclusions on whether, how, and when to integrate pilot activities into overall efforts Ensure appropriate two-way stakeholder communication and input at all stages of the pilot project, including design, implementation, data gathering, and assessment These practices enhance the quality, credibility, and usefulness of evaluations and help ensure that time and resources are used effectively. As the Navy moves into implementation of the OPN-funded pilot program, establishing a plan for analysis of the pilot program would provide a means to identify opportunities to take the data on availability schedules, which Congress directed, and compare it to the schedule performance the Navy has attained in its other non-pilot, MAC-MO availabilities. Such evaluations would provide information to the Navy and Congress to determine if the pilot approach should be expanded to help address persistent schedule challenges. In addition, similar to the lessons the Navy has learned in implementing the MAC-MO strategy, the Navy is likely to learn lessons from its OPN-funded pilot availabilities, including ones that relate to schedule drivers currently overshadowed by delays cast by the upward obligations process. Unless the Navy documents within an analysis plan a process for evaluating lessons learned, it runs the risk of missing opportunities to improve its overall performance outcomes across availabilities executed under the MAC-MO strategy. <4. Navy Has Taken Action to Enhance the Predictability of Increasing Maintenance Workloads in Response to Contractor Concerns> Representatives of private ship repair contractors that the Navy relies on to execute availabilities under the MAC-MO strategy told us that their workforce and facilities investment decisions are driven by two key considerations. First, the contractors seek visibility on planned workload within a given port, which, under current law, the Navy must publicly report on a quarterly basis. Second, the contractors assess that planned workload to determine what share of the work they are most likely to receive. This assessment affects whether a contractor hires more or fewer people, recapitalizes or expands facilities, and, ultimately, elects to remain part of the Navy s industrial base for ship repair. In recognition of these considerations, the Navy has taken recent steps to increase predictability of workloads at each port, for example by bundling contracts for both sequential and concurrent availabilities. The Navy anticipates that these steps will help further increase contractors confidence in their ability to forecast their share of future workloads. <4.1. Navy Forecasted Port Workloads Continue to Fluctuate but Are Expected to Exceed Ports Capacities in the Near- term> As we found in our November 2016 report, various factors regarding the Navy s level of demand for maintenance and repair work at each of the three home ports implementing MAC-MO, including the deployment of ships, can affect the demand for work in each of the home ports. Based on our analysis of Navy data, this workload remains cyclical in nature, and at times fluctuates above and below what port capacities ordinarily support, as it was under the prior contracting strategy. In May 2016, we found that wide swings in port workload can have a negative effect on the private-sector industrial base, and various factors can affect those workloads. Subsequent to that report, Congress required the Navy to publicly release on a quarterly basis workload projections covering the three ports implementing MAC-MO. Navy s forecasts indicate that ports implementing MAC-MO will, at times during the next 3 years, be assigned workloads beyond their current capacity, particularly for the Southeast Regional Maintenance Center in Mayport, Florida. Figures 20, 21, and 22 identify the Navy s port workload projections for each of the three ports as of December 2019. <4.2. Large Contractors Offered Mixed Views on Workforce and Facilities Investment Planning under MAC-MO> Although the Navy projects that overall workload at the ports implementing MAC-MO will fluctuate with periodic increases, lack of certainty about company-specific workload is driving mixed views among contractors on their willingness to make facility and workforce investments. Multiple contractor representatives we interviewed stated they have always worked within an environment of peaks and valleys of workload regardless of the Navy s contracting strategy. Representatives of large ship repair contractors we interviewed commented on challenges and changes they have made to remain competitive in the MAC-MO strategy s competitive, firm-fixed-price contracting environment. Under MAC-MO, which requires competition for every availability within a home port, large contractor representatives stated that they do not have a high level of confidence or visibility into future work that the Navy will award to their companies. They have noted that this uncertainty has affected their planning for hiring and facilities investments. Specifically, contractor representatives cited the following: Of the eight large MAC-MO contractors in our review, four reported that they have increased their full-time workforce and the other four have reported a decreased workforce since 2015. Representatives of three contractors selected in our review noted that they have had to rely more heavily on temporary labor to conduct work on Navy availabilities because of inability to predict workloads. For example, a representative of one large contractor noted that their company retains a permanent core workforce, which it then supplements with temporary labor, as needed, depending on the number of contracts it is awarded by the Navy. Representatives of another large contractor noted that the company recently reinstated a training program for new ship repair workers. A representative from the third contractor stated that the company is considering reinstating its equivalent training program based on workload forecasts and confidence in their amount of workload, which underpins investments in workforce training. Representatives of multiple large contractors in our review also stated that they increasingly rely on their subcontractors to execute ship repair work. For example, a representative from one noted that although the company reduced its full time workforce, it is still able to execute availabilities through their use of subcontractor labor. A representative of another large contractor noted that their company staffed a recent availability with about 70 percent subcontracted labor, in part to help the contractor work within the contract s price as agreed to with the Navy and to help the company make a profit. Representatives of another large contractor stated their company s preference is to use subcontractors rather than to surge its permanent staff, especially given the contractor s uncertainty about its portion of future Navy ship repair and maintenance workloads. Representatives of three of the large contractors we interviewed also stated that unstable workloads have limited their plans for significant capital investments in new or expanded facilities. However, representatives of two large contractors reported making new investments in facilities due to high volume of work at their ports. For example, representatives of one large contractor noted that their parent company invested $100 million into building a new dry dock as part of the company s commitment to win new availabilities and complete them on schedule. The company reported that it was willing to make this investment, in part, because Navy forecasts show an increase in ships being homeported at that location. These contractor representatives further stated their company is considering additional facilities investments. Apart from the considerations that affect their hiring and facilities investments, representatives from all of the large companies we interviewed told us that they plan to continue competing for Navy ship repair work under the MAC-MO strategy. For seven out of the eight of these contractors, the Navy is their primary customer. A representative of one large contractor noted their company s preference for the MAC-MO strategy, as compared to earlier Navy contracting strategies, especially as a means to increase its ability to propose on and compete for availabilities. Representatives of two additional large contractors also echoed the positive effect of increased opportunities to propose on Navy ship repair and maintenance contracts as a means to potentially grow their workloads. <4.3. Representatives of Selected Small Business Contractors Report Expanded Hiring and Facility Investments under MAC-MO> Representatives of the three small business contractors we interviewed told us that they have each increased their workforces since 2015, when the Navy began implementing the MAC-MO strategy. Under this strategy, small businesses are able to compete for noncomplex ship repair work as prime contractors. Overall, these small business contractor representatives stated they intend to further grow their workforces and facilities, correspondent with the amounts of ship repair work they receive. Specifically, representatives of these small business contractors told us the following: Representatives of one small business prime contractor reported that their company grew its workforce from 625 to 982 between December 2015 and March 2019 as they stated that MAC-MO provided additional opportunities to propose on ship repair contracts. A representative of another small business prime contractor we interviewed estimated that their company hired an additional 100 personnel at two locations because of new, increased workloads related to MAC-MO s implementation. One small business prime contractor included in our review completed a major facilities expansion, including the addition of a dry dock intended to serve all lines of business, including commercial business customers. A representative of one small business prime contractor stated that their company is considering significant infrastructure upgrades and plans to aggressively compete for noncomplex Navy ship repair and maintenance work. <4.4. The Navy Is Taking Steps to Increase Predictability of Future Workloads> The Navy has recently begun implementing two new contractual approaches horizontal and vertical contract bundling within its MAC- MO strategy, but has not yet had sufficient time to collect or assess results. These approaches are intended to increase contractors visibility into and confidence regarding future ship repair workloads. Navy leadership officials stated that by awarding multiple availabilities, industry receives a body of work that creates confidence in hiring and retaining a skilled workforce and investment in infrastructure. These approaches provide for contractors to propose on multiple ship repair availabilities that the Navy has bundled within a single request for proposal. Figure 23 illustrates these new contractual approaches. Horizontal Contract Bundling: Navy leadership officials testified to Congress in October 2019 that horizontal bundling helps them decide where to direct ship repair and maintenance work, especially as a means to not surpass capacity at a given port. A representative of one large contractor told us the company anticipates positive effects from horizontal bundling to include being awarded two availabilities from one proposal process and guarantees of work for a longer period than one availability. Another large business contractor representative noted that horizontal bundling would help in stabilizing workloads over a longer period of time, which would also help with its hiring planning. The Navy awarded its first horizontally bundled availabilities in September 2019, and the contractor is expected to complete work on the two ships at its shipyard in Seattle, Washington in June 2021 and May 2022, respectively. NAVSEA leadership officials noted that Navy intends to implement horizontal contract bundling at all of its ports in the future. Vertical Contract Bundling: This contract bundling approach has the potential to allow contractors to increase their workload through only one proposal process, as they may then have the possibility to work on two availabilities at one time. The Navy awarded its first vertically bundled availabilities in February 2019 to three contractors. The second award, in September 2019, resulted in one contractor receiving two simultaneous availabilities. Additionally, NAVSEA leadership officials state they are undertaking other initiatives intended to avoid (1) large fluctuations in ship repair work at individual ports, and (2) the need for contractor workforce layoffs and surge hiring. These initiatives are outlined in further detail below: Attempting to Level Port Workloads: Through its P2P initiative, the Navy intends to use historical timelines from recent availabilities to more accurately plan and forecast future availability time frames. This effort is using computer modeling to avoid either underutilizing or exceeding the available port loading capacity of the industrial base in any given timeframe. On average, NAVSEA leadership stated that they intend to lengthen planned availability timeframes by 56 days to more accurately reflect completion times. The officials assessed that this strategy will help ship repair contractors better manage their workforce planning. They further stated that if contractors have increased visibility in port loading, they will be more likely to hire an increased number of permanent staff in key ship repair trades. According to NAVSEA leadership officials, this could then allow for increased workload capacity at a given port, as those permanent rather than temporary staff would become more skilled over time and therefore would require less on-the-job training. Contractor Workforce Capacity Reporting: NAVSEA leadership officials also noted that the Navy is considering options for including language in future ship repair contracts requiring contractors to identify their workforce capacity, including by trade and skill set. NAVSEA leadership officials noted that the intention of such an initiative would be to obtain better workforce capacity data to better plan future port workloads. <5. Conclusions> Although the MAC-MO strategy appears to have stabilized the cost and quality components, completing maintenance availabilities within allotted schedules continues to elude the Navy. The Navy has taken steps to more readily accommodate growth work needs as they emerge, however these likely cannot completely eliminate the Navy s need for upward obligations. The Navy has pointed to the low cost threshold and upward obligations approval process, as provided for in statute, as not providing it with the agility it needs to fund growth work on a schedule that minimizes disruption to an availability. Recently, Congress enacted legislation, signed into law by the President, which establishes an OPN-funded pilot program and provides the Navy a platform to potentially demonstrate that it can meet its MAC-MO schedule goals when freed from the time intensive process of upward obligations. Nonetheless, every pilot program should be thought out before it starts, including consideration of what data need to be collected and how the data will be analyzed. Otherwise, the pilot could be poorly run or could miss opportunities to gain information and lessons learned. Such planning for the OPN-funded pilot could enhance the quality, credibility, and usefulness of the pilot program. <6. Recommendation for Executive Action> The Secretary of the Navy should establish an analysis plan for the evaluation of OPN-funded pilot program availabilities, based on the leading practices for pilot programs. This analysis plan should identify opportunities to evaluate schedule outcomes of pilot program availabilities as compared to non-pilot program availabilities and document a process for evaluating lessons learned from the pilot program (Recommendation 1). <7. Agency Comments> We provided a draft of this report to the Navy for review and comment. In written comments provided by the Navy (reproduced in appendix II), the Navy concurred with our recommendation. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; and the Secretary of the Navy. 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) 512-4841 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. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology In 2015, the Navy transitioned to the Multiple Award Contract, Multi Order (MAC-MO) contract strategy for the maintenance and modernization of surface ships. This report (1) examines competition, cost, schedule, and quality outcomes under the strategy; (2) evaluates actions the Navy has taken related to recent lessons learned; and (3) describes considerations informing contractors plans for future hiring and facilities investments. <8. Outcomes of the Strategy> To examine the competition outcomes of the MAC-MO strategy, as well as number of offers received, we analyzed delivery orders for all of the MAC-MO availabilities in Norfolk, Mayport, and San Diego from the start of the strategy in April 2015 through March 2019. Navy provided a list of MAC-MO Indefinite Delivery, Indefinite Quantity contracts and identified which were complex and noncomplex. We used the Federal Procurement Data System Next Generation (FPDS-NG) to identify the delivery orders associated with these contracts, and the number of offers received for each order. To assess the reliability of the FPDS-NG data, we reviewed documentation, interviewed Navy officials, performed logic checks, and compared the FPDS-NG data to contract documents. To confirm that we had correctly identified orders related to MAC-MO availabilities, we reviewed the order description in FPDS-NG to confirm that it was a valid ship repair availability and the type of availability. For cases in which the FPDS-NG description did not contain the availability type, we obtained the contract to confirm that it was a valid ship repair availability. To assess the reliability of the number of offers, we performed a logic check to confirm the number of offers received for the delivery order was generally different from the number of offers received for the base contract. Documents reviewed included the FPDS-NG data dictionary, FPDS-NG data validation rules, and Fiscal Year 2013-2018 Federal Procurement Data Quality Summary, which contains results of agency testing of selected fields in FPDS-NG. We determined the FPDS-NG data were reliable for the purpose of assessing the competition outcomes of the MAC-MO strategy. To assess the quality outcomes of MAC-MO availabilities, we reviewed Federal Acquisition Regulations to identify differences between fixed- price and cost reimbursement contract types, and interviewed Navy officials regarding the steps the Navy takes to manage quality in a fixed- price environment. To examine the cost and schedule outcomes of the MAC-MO strategy, we collected ship maintenance availability data from NAVSEA and the Commander, Navy Regional Maintenance Center (CNRMC). This data contained the planned cost and schedule of Chief of Naval Operations (CNO) availabilities, as well as the actual cost and schedule for the availabilities that the Navy closed out between February 2, 2011 and January 15, 2019. While we were directed to assess the MAC-MO outcomes against the Multi-Ship, Multi-Option outcomes, differences in how the availability cost and schedule are estimated between the two strategies prevented us from comparing their cost and schedule outcomes. To assess the reliability of the data, we (1) gathered information from the Navy s users of the data related to its reliability, (2) compared different snapshots of the data over time to check the consistency of completed entries, including the version that the Navy used to publish its first assessment of the MAC-MO strategy, and (3) compared availability documentation from our completed case study CNO availabilities. We determined the data were reliable for the purpose of assessing cost and schedule outcomes. To narrow our sample, we filtered the data to the ship classes and locations covered under the MAC-MO strategy and eliminated availabilities that had yet to report final cost and schedule entries. This yielded 41 closed out CNO availabilities since the start of the MAC-MO strategy in April 2015. We then adjusted all dollar values for inflation to fiscal year 2020 dollars by using the deflators for Operations and Maintenance funding found in table 5-9 of the Department of Defense budget estimates for fiscal year 2020. To calculate cost and schedule change, we determined the difference between the final cost and completion date, and the planned cost and completion date. The planned cost and schedule represents the Navy s estimate at the time the Navy awarded the contract. We then calculated the average cost and schedule change for all 41 availabilities, as well as the availabilities at each of the three maintenance centers and classes of ships. To help examine the cost, schedule, and quality outcomes of the MAC- MO strategy, as well as to identify lessons learned, we selected six availabilities as non-generalizable case studies, four of which were completed at the time of our review. To select the availabilities, we used a list of MAC-MO Indefinite Delivery, Indefinite Quantity (IDIQ) contract numbers provided by the Naval Sea Systems Command. We used the Federal Procurement Data System, Next Generation (FPDS-NG) to collect the descriptions of contract actions to determine the ship and availability type, estimated cost, estimated completion dates, contractor, and place of performance. We selected a combination of six availabilities that provided a variety of the following characteristics: We selected two availabilities of each class of ship under the MAC- MO strategy, including destroyers, cruisers, and amphibious ships. We selected two availabilities from each maintenance center executing the strategy: Mid-Atlantic Regional Maintenance Center, Southeast Regional Maintenance Center, and Southwest Regional Maintenance Center. We selected availabilities awarded to a variety of ship repair contractors, including two from BAE Systems, two from General Dynamics NASSCO, one from Marine Hydraulics International, and one from Huntington Ingalls Industries. We selected a variety of availability types to describe different types of ship repair work, including two Selected Restricted Availabilities, a Special Selected Restricted Availability, Depot Modernization Period, Phased Maintenance Availability, and a Continuous Maintenance availability. For each of the case study availabilities, we collected and reviewed Navy availability documentation including the delivery order, correspondence between the maintenance teams and contractors, availability completion reports, weighted progress reports at the time of completion, and briefings containing lessons learned following completion of the availability. We reviewed the documents to: 1) confirm our selection criteria, 2) identify any deficiencies in quality of work and contract changes as a result, 3) identify the presence of growth work items, new work items, or deferred work items, 4) corroborate interview statements, and 5) identify any other issues during the availability and solutions that could be lessons learned for future availabilities. <9. Actions Taken Related to Lessons Learned> To evaluate the actions the Navy has taken related to recent MAC-MO strategy lessons learned, we analyzed Navy documentation containing lessons learned that aim to improve the Navy s implementation of MAC- MO. We identified a total of three lessons learned as key based on our assessment of the Navy s documentation of the MAC-MO contracting strategy. These three lessons learned were also identified as such in one or more interviews with NAVSEA officials knowledgeable about the challenges associated with MAC-MO implementation and the steps the Navy has taken to fix those issues. To evaluate the Navy s progress in taking actions to address potential challenges posed by the key lessons learned, we reviewed Navy documents, including Navy assessments of the contracting strategy s effectiveness, documents implementing revised planning milestones and contracting processes, strategy and planning documents, documents from availability completion meetings, case study contract file documents and other documentation related to lessons learned. To assess the extent to which the Navy has taken actions, we developed the following three-point scale: Not Complete The Navy has not taken any action to respond to identified lessons learned. Partially Complete The Navy has taken some action to respond to the identified lessons learned, but has not completed the action needed to address the identified risk. Complete The Navy has completed the action needed to address the identified lesson learned. <10. Considerations Informing Contractors Plans for Hiring and Facilities Investments> To describe considerations informing ship repair contractors plans for future hiring and facilities investments under the MAC-MO strategy, we conducted semi-structured interviews with and reviewed questionnaire responses from 11 non-nuclear surface ship repair contractors. This included all eight contractors responsible for executing major ship repair work under this strategy at the three home ports implementing it, including Mayport, Florida, Norfolk, Virginia and San Diego, California. We randomly selected a non-generalizable sample of three small business contractors performing noncomplex ship repair work at the three home ports implementing MAC-MO, to obtain the views of small businesses executing MAC-MO contracts. We used FPDS -NG data to identify those small businesses that have been awarded MAC-MO delivery orders. Further, we used a data collection instrument to gather information from each of the selected 11 contractors on their facilities, workforce, and sources of revenue. For example, we collected contractor-reported information on what types of facilities the contractor owned, such as a dry dock or a pier, the number of the contractor s full-time staff, and the percentage of revenue from entities other than from the Navy. To identify the Navy s projected workload for non-nuclear surface ships where the MAC-MO strategy is implemented, we obtained data from the Navy from fiscal years 2019 through the end of 2023. Since the purpose of our analysis was to show the Navy s projections in anticipated port workload, we did not conduct our own assessment of the accuracy of this data. We also interviewed key Navy officials and reviewed statements from testimonies to Senate subcommittees, including of the NAVSEA Commander and of the Assistant Secretary of the Navy for Research, Development, and Acquisition, on their approaches to provide increased visibility and avoid large fluctuations of workloads at Navy ports, including the three home ports implementing the MAC-MO strategy. We collected documentation on these approaches, such as for the Performance to Plan initiative on how the Navy intends to use computer modeling to more accurately plan and forecast future availability timeframes, leveraging Navy historical datasets to provide more accurate and realistic planning forecasts. In addition, for all three objectives, we interviewed officials responsible for overseeing, planning, administering, and funding the Navy s ship repair contracts, including representatives of the Office of the Under Secretary of Defense (Comptroller); Office of the Assistant Secretary of the Navy (Financial Management and Comptroller); the Office of the Chief of Naval Operations; Commander, Navy Regional Maintenance Center (CNRMC) and Deputy Commander, Surface Ship Maintenance and Modernization (SEA 21); Surface Maintenance Engineering Planning Program (SURFMEPP); Commander, Naval Surface Force, Atlantic; Commander, Naval Surface Force, Pacific; Mid-Atlantic Regional Maintenance Center (MARMC) in Norfolk, Virginia; the Southwest Regional Maintenance Center (SWRMC) in San Diego, California; and the Southeast Regional Maintenance Center (SERMC) in Mayport, Florida. We additionally interviewed management representatives of 11 ship repair contractors included in our review and the third party planning contractor. We conducted this performance audit from November 2018 to May 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. Appendix II: Comments from the Department of the Navy Appendix III: GAO Contact and Staff Acknowledgments <11. GAO Contact> <12. Staff Acknowledgments> In addition to the contact named above, GAO staff who made key contributions to this report include Christopher R. Durbin (Assistant Director); Sean Seales (Analyst-in-Charge); Pete Anderson; Sonja Bensen, Lorraine Ettaro; Lori Fields; Suellen Foth, Kurt Gurka; Cale Jones; Ethan Kennedy; Sophia Payind; and Carol Petersen.

Why GAO Did This Study The Navy relies on its fleet of over 150 surface ships to be ready to operate when needed for the defense of the United States. The Navy spends billions annually in maintaining this fleet. In 2015, the Navy changed how it contracts for such maintenance work, aiming to better control costs and improve quality. The new approach, called MAC-MO, generally uses firm-fixed-price contract delivery orders for individual ship availabilities competed among pre-qualified contractors at Navy regional maintenance centers. House Report 115-676 included a provision for GAO to review the Navy's implementation of the MAC-MO strategy. This report (1) examines outcomes under the strategy; (2) evaluates actions the Navy has taken related to recent lessons learned; and (3) describes contractors' considerations when planning for hiring and facilities. GAO analyzed data on ship repair under MAC-MO; reviewed six case studies involving different availability types, classes of ships, maintenance centers, and contractors; and interviewed Navy officials and contractors. What GAO Found Since shifting to the Multiple Award Contract-Multi Order (MAC-MO) contracting approach for ship maintenance work in 2015, the Navy has increased competition opportunities, gained flexibility to ensure quality of work, and limited cost growth, but schedule delays persist. During this period, 21 of 41 ship maintenance periods, called availabilities, for major repair work cost less than initially estimated, and average cost growth across the 41 availabilities was 5 percent. Schedule outcomes were less positive and Navy regional maintenance centers varied in their performance (see figure). To mitigate these delays, the Navy has identified and taken actions to implement lessons learned, including negotiating and funding undefined but expected increases in work at the time of contract award. However, these actions have not resolved the delays that result from the approval process the Navy often must use to obtain funds to complete this maintenance work. Namely, if an availability extends into a new fiscal year and needs more than $4 million in additional prior-year funding, both Navy and Defense Department approvals are required. GAO found this approval process took between 26 and 189 days based on Defense Department data. In December 2019, Congress established a pilot program that would potentially allow the Navy to avoid this process. Leading practices GAO identified for pilot programs call for development of an analysis plan to track implementation and performance and for evaluating final results. As the Navy moves into implementation of its pilot program, developing an analysis plan would provide it with a means to identify opportunities to evaluate schedule outcomes of pilot program availabilities, as compared to non-pilot program availabilities, and document a process for evaluating lessons learned from the pilot program. Such evaluations would provide information to determine if the pilot approach should expand to help address persistent schedule challenges. Ship repair contractors now operating in the MAC-MO environment told GAO that two key considerations drive their decisions on workforce and facilities investments: visibility regarding planned workloads within a given port and their assessment of the share of that work they are most likely to win. In recognition of these considerations, Navy officials have begun taking steps to increase predictability of workloads at each port. These officials anticipate that these steps, coupled with increasing workloads at the ports, will help increase contractors' confidence in their ability to forecast their share of future work. What GAO Recommends GAO recommends that the Navy establish an analysis plan for the evaluation of the pilot program. The Navy concurred with GAO's recommendation.

gao_GAO-20-147T

gao_GAO-20-147T_0

<1. Background> The federal government and states share responsibility for the financing and administration of the Medicaid program. With regard to financing, Medicaid is funded jointly by the federal government and states, with FMAP rates ranging from a statutory minimum of 50 percent to a statutory maximum of 83 percent. Under PPACA, expenditures for Medicaid expansion enrollees are matched at 90 percent for fiscal year 2020. Program administrative responsibilities are shared between states and the federal government. State administrative responsibilities include, among other things, determining eligibility, enrolling beneficiaries, and adjudicating claims. With regard to eligibility, states are primarily responsible for verifying eligibility and enrolling Medicaid beneficiaries. These responsibilities include verifying and validating individuals eligibility at the time of application and periodically thereafter, accurately assigning enrollees to the appropriate eligibility group, and promptly disenrolling individuals who are not eligible. PPACA requires states to use third-party sources of data to verify eligibility to the extent practicable. Consequently, states have had to make changes to their eligibility systems, including implementing electronic systems for eligibility determination and coordinating systems to share information. In addition, states have had to make changes to reflect new sources of documentation and income used for verification. In certain circumstances, states may delegate responsibility to the federal government to make eligibility determinations. At the federal level, CMS is responsible for overseeing states design and operation of their Medicaid programs and ensuring that federal funds are appropriately spent. CMS oversees state enrollment of beneficiaries and reporting of expenditures. For example: CMS reviews and approves states Medicaid eligibility verification plans, which rely primarily on information available through data sources including federal data sources such as the Social Security Administration and the Internal Revenue Services, or state data sources such as state tax records or unemployment information rather than paper documentation from families. CMS has various review processes in place to ensure that expenditures reported by states are supported and consistent with Medicaid requirements. The agency also has processes to check whether the correct federal matching rates were applied only to expenditures receiving a higher than standard federal matching rate, which can include certain types of services and populations. CMS estimates Medicaid improper payments, including improper payments due to erroneous beneficiary eligibility determinations. Although CMS has not calculated the improper payments related to beneficiary eligibility determinations since 2014, it plans to begin reporting this estimate in November 2019. <2. CMS Oversight of Medicaid Eligibility Determinations and Related Expenditures Has Gaps> Our previous work has identified gaps in CMS oversight of Medicaid eligibility determinations, which affect the federal matching rate. An accurate determination of eligibility is critical to ensuring that only eligible individuals are enrolled, that they are enrolled in the correct eligibility group, and that states expenditures are appropriately matched with federal funds for Medicaid enrollees. The implications of inaccurate eligibility determinations can be significant, especially given the growth in enrollment and spending of the expansion population, which represented nearly one quarter of program enrollment and federal expenditures in fiscal year 2017. (See fig. 1.) In September 2016, we reported on our undercover testing for determining Medicaid eligibility and the vulnerabilities we found. We found weaknesses that led to inaccurate eligibility determinations. For example, three of eight fictitious applications we submitted to federal and state marketplaces were approved for Medicaid, despite having identity information that did not match Social Security Administration records. These results, while illustrative of the challenges of assuring accurate eligibility determinations, cannot be generalized. With respect to CMS s reviews of eligibility determinations, in 2015, we also found that CMS did not review federal Medicaid eligibility determinations in the states that delegated such authority to the federal government. Based on our findings, we made the following recommendations. CMS should use information obtained from state and federal eligibility reviews to inform the agency s review of expenditures for different eligibility groups in order to ensure that expenditures are reported correctly and matched appropriately. In February 2019, we considered this recommendation implemented, as CMS confirmed that it was sharing information between its eligibility reviews and quarterly expenditure reviews regarding Medicaid expansion enrollees. CMS should conduct reviews of federal Medicaid eligibility determinations to ascertain their accuracy and institute corrective action plans where necessary. CMS has taken some action to review federal eligibility determinations; however, until the review results are publicly reported, which CMS expects to occur in November 2019, this recommendation is not fully implemented. We will continue to monitor CMS s implementation of this recommendation. In August 2018, we reported that improvements in oversight of state expenditures could help CMS ensure that individuals are enrolled in the correct Medicaid eligibility group. CMS processes for reviewing expenditures reported by states and FMAP rates collectively have had a considerable federal financial benefit, with CMS resolving errors that reduced federal spending by over $5.1 billion in fiscal years 2014 through 2017. However, we identified weaknesses in how CMS targets its resources to address risks when reviewing whether states expenditures are supported and consistent with Medicaid requirements. For example: CMS devotes similar levels of staff resources to review expenditures despite differing levels of risk across states. For example, the number of staff reviewing California s expenditures which represent 15 percent of federal Medicaid spending is similar to the number reviewing Arkansas expenditures, which represents 1 percent of federal Medicaid spending. Additionally, CMS reviews a sample of claims for expansion enrollees to examine Medicaid expansion expenditures, but the sample size does not account for previously identified risks in a state s program. Specifically, as we noted in a 2015 report, CMS s sampling review of expansion expenditures was not linked to or informed by reviews of eligibility determinations conducted by CMS, some of which identified high levels of eligibility determination errors. To address these weaknesses, we made three recommendations, including that the Administrator of CMS revise the sampling methodology for reviewing expenditures for the Medicaid expansion population to better target reviews to areas of high risk. CMS concurred with this recommendation, but in November 2018, CMS officials indicated that given the agency s resources, they believe the current sampling methodology is sufficient and have no plans to revise it. However, we continue to believe action is needed to better target areas of high risk and this recommendation remains unimplemented. Our examination of Medicaid eligibility determinations will continue as we have work underway that will describe how selected states decide the basis of eligibility for individuals who may qualify for Medicaid under more than one category of eligibility, such as a low-income individual with a disability; what is known about the accuracy of Medicaid eligibility determinations and selected states processes to improve the accuracy of determinations; and CMS efforts to recoup funds related to eligibility errors. We expect to complete this work early next year. <3. CMS Efforts to Improve Medicaid Data Could Benefit Program Oversight> Improvements in Medicaid data could benefit program oversight, including ensuring that only eligible beneficiaries are enrolled. CMS has acknowledged the need for improved Medicaid data and the Transformed Medicaid Statistical Information System (T-MSIS) initiative is the agency s primary effort conducted jointly with states to improve its collection of Medicaid expenditure and utilization data. According to CMS officials, aspects of T-MSIS are designed to broaden the scope and improve the quality of state-reported data, as well as the data s usefulness for states. T-MSIS also includes automated quality checks that should improve the quality of data that states report. In addition, T-MSIS is designed to capture significantly more data from states than was previously reported. For example, T-MSIS will include a beneficiary eligibility file that will have expanded information on enrollees, such as their citizenship, immigration, and disability status; and expanded diagnosis and procedure codes associated with their treatments. T-MSIS also is intended to benefit states by reducing the number of reports CMS requires them to submit, and by improving program efficiency by allowing states to compare their data with other states data in the national repository or with information in other CMS repositories, including Medicare data. With the continued implementation of T-MSIS, CMS has taken an important step toward developing a reliable national repository for Medicaid data. While recognizing CMS s progress, we have made several recommendations aimed at improving the quality and usefulness of T- MSIS data. For example, we recommended in 2017 that CMS refine its T- MSIS data priority areas to identify those that are critical for reducing improper payments and expedite efforts to assess and ensure their quality. CMS has implemented this recommendation, yet other recommendations that CMS concurred with related to T-MSIS have not been fully implemented, including outlining a specific plan and associated time frames for using T-MSIS data for oversight. <4. Further Collaboration with Stakeholders Could Improve Program Oversight and Better Ensure Appropriate Enrollment> We have previously reported that oversight of the Medicaid program could be further improved through leveraging and coordinating program integrity efforts with state agencies, state auditors, and other partners. CMS has engaged state agencies and other partners to promote program integrity through the Medicaid Integrity Institute, a national training program for states, and other partnerships to combat Medicaid fraud. These efforts have created more opportunities for program integrity professionals to collaborate, share best practices, and ultimately increase the effectiveness of their oversight activities. We have also testified that state auditors are uniquely positioned to help CMS in its oversight of state Medicaid programs, because of their roles and responsibilities which can include carrying out or overseeing their state s single audits. Through their program integrity reviews, state auditors have identified improper payments in the Medicaid program and deficiencies in the processes used to identify them. For example, state auditors have found that in some cases their state Medicaid agencies eligibility determinations did not identify or address beneficiaries changes in circumstances, and in other cases relied on incorrect or incomplete income or asset information. A 2018 audit of New Jersey s Medicaid program found the state was not identifying and disenrolling some deceased individuals. When state auditors conducted a data match to a Social Security number verification service, they found managed care payments of $510,834 and fee-for-service claims of $217,913 for 41 individuals after their reported date of death. Auditors recommended that the eligibility system be reconciled with a Social Security number validation service on a periodic basis to better identify deceased individuals. In 2017, state auditors in North Carolina found that most of the 10 sample county departments of social services did not consistently provide adequate oversight or controls for the eligibility determination of new applications and re-certifications. For new applications, the auditors showed accuracy error rates ranging from 1 percent to nearly 19 percent; for redeterminations of eligibility, accuracy error rates ranged from 1 percent to 23 percent. Based on information from an independent verification service, state auditors in New York found, during a 9-month period in 2014, that 354 Medicaid enrollees were actually deceased, and that the state made $325,030 in Medicaid payments for a subset of these individuals. Auditors noted that the state s eligibility system did not have a standard process to periodically verify the life status of all enrollees and end coverage for deceased individuals. In April 2019, the Comptroller General and representatives from the National State Auditors Association sent a letter to CMS requesting changes to the Compliance Supplement to leverage state auditors ability to examine key areas of Medicaid, including improvements in the oversight of Medicaid eligibility processes. The Compliance Supplement which is issued by the OMB based on agency input and direction is used by state auditors during their annual audit of state entities that administer federal financial assistance programs, including Medicaid. In June 2019, OMB issued the 2019 Compliance Supplement, which included changes related to overseeing testing of eligibility determinations that GAO and the state auditors had proposed. Specifically, the supplement now permits state auditors to test eligibility determinations to ensure that beneficiaries qualify for the Medicaid program and are in the appropriate enrollment category. The supplement also notes a requirement for states to coordinate with other state and federal insurance affordability programs, including the federally facilitated exchanges. These changes to the Compliance Supplement will better enable state auditors to audit states eligibility determinations to ensure beneficiaries qualify for the Medicaid program and are enrolled in the correct eligibility group. Such eligibility determinations will supplement CMS s eligibility determination reviews and may yield insights into program weaknesses that CMS could learn from and potentially address nationally. We continue to believe that CMS could help improve program integrity by further providing state auditors with a substantive and ongoing role in auditing their state Medicaid programs. Chairman Toomey, Ranking Member Stabenow, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions you may have. <5. GAO Contact and Staff Acknowledgments> If you or your staff members have any questions concerning this testimony, 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 statement. Other individuals who made key contributions to this testimony include Leslie V. Gordon (Assistant Director), Kristin Ekelund (Analyst-in-Charge), Michael Erhardt, Arushi Kumar, and Drew Long. Also contributing were Susan Anthony, Vikki Porter, and Emily Wilson. Appendix I: Selected GAO Recommendations to Strengthen Oversight of Medicaid Beneficiary Enrollment Take immediate steps to assess and improve the data available for Medicaid program oversight, including, but not limited to, the Transformed Medicaid Statistical Information System (T-MSIS). Such steps could include (1) refining the overall data priority areas in T- MSIS to better identify those variables that are most critical for reducing improper payments, and (2) expediting efforts to assess and ensure the quality of these T-MSIS data. (GAO-17-173) Recommendation implemented; no action needed. Take additional steps to expedite the use of data for program oversight. Such steps should include, but are not limited to, efforts to (1) obtain complete information from all states on unreported T-MSIS data elements and their plans to report applicable data elements; (2) identify and share information across states on known T-MSIS data limitations to improve data comparability; and (3) implement mechanisms, such as the Learning Collaborative, by which states can collaborate on an ongoing basis to improve the completeness, comparability, and utility of T-MSIS data. (GAO-18-70) Status of recommendation; actions needed to implement recommendations Not fully implemented. Continue taking steps to make T-MSIS data usable for Medicaid program oversight, such as (1) obtaining information on the completeness and comparability of T-MSIS data, (2) notifying states of their compliance status and obtaining corrective action plans, and (3) establishing mechanisms for ongoing feedback and collaboration across states. Articulate a specific plan and associated time frames for using T-MSIS data for oversight. (GAO-18-70) Not fully implemented. Outline a specific plan and associate time frames for using T- MSIS data for oversight. GAO, Medicaid: Additional Efforts Needed to Ensure that State Spending is Appropriately Matched with Federal Funds, GAO-16-53 (Washington, D.C.: Oct. 16, 2015). GAO, Medicaid: Further Action Needed to Expedite Use of National Data for Program Oversight, GAO-18-70 (Washington, D.C.: Dec. 8, 2017). Related GAO Reports Medicaid: CMS Has Taken Steps to Address Program Risks but Further Actions Needed to Strengthen Program Integrity. GAO-18-687T. Washington, D.C.: August 21, 2018. Medicaid: CMS Needs to Better Target Risks to Improve Oversight of Expenditures. GAO-18-564. Washington, D.C.: August 6, 2018. Medicaid: Actions Needed to Mitigate Billions in Improper Payments and Program Integrity Risks. GAO-18-598T. Washington, D.C.: June 27, 2018. Medicaid: Opportunities for Improving Program Oversight. GAO-18-444T. Washington, D.C.: April 12, 2018. Federal Health-Insurance Marketplace: Analysis of Plan Year 2015 Application, Enrollment, and Eligibility-Verification Process. GAO-18-169. Washington, D.C.: December 21, 2017. Medicaid: Further Action Needed to Expedite Use of National Data for Program Oversight. GAO-18-70. Washington, D.C.: December 8, 2017. Improper Payments: Improvements Needed in CMS and IRS Controls over Health Insurance Premium Tax Credit. GAO-17-467. Washington, D.C.: July 13, 2017. Medicaid: Program Oversight Hampered by Data Challenges, Underscoring Need for Continued Improvements. GAO-17-173. Washington, D.C.: January 6, 2017. 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. Health Care: Results of Recent Undercover Testing for Patient Protection and Affordable Care Act Coverage, and Review of Market Concentration in the Private Insurance Markets. GAO-16-882T. Washington, D.C.: September 14, 2016. Patient Protection and Affordable Care Act: Results of Undercover Enrollment Testing for the Federal Marketplace and a Selected State Marketplace for the 2016 Coverage Year. GAO-16-784. Washington, D.C.: September 12, 2016. Patient Protection and Affordable Care Act: Final Results of Undercover Testing of the Federal Marketplace and Selected State Marketplaces for Coverage Year 2015. GAO-16-792. Washington, D.C.: September 9, 2016. Patient Protection and Affordable Care Act: CMS Should Act to Strengthen Enrollment Controls and Manage Fraud Risk. GAO-16-29. Washington, D.C.: February 23, 2016. 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: Additional Actions Needed to Help Improve Provider and Beneficiary Fraud Controls. GAO-15-313. Washington, D.C.: May 14, 2015. 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.

Why GAO Did This Study Medicaid, a joint federal-state health care program, is one of the nation's largest sources of funding for medical and other health-related services for tens of millions of low income and medically needy individuals. In fiscal year 2018, estimated federal and state expenditures for Medicaid were $629 billion. The size and complexity of Medicaid make the program particularly vulnerable to improper payments—including payments made for people not eligible for Medicaid. States have significant flexibility to design and implement their Medicaid programs based on their unique needs. These programs are administered at the state level, overseen at the federal level by CMS, and jointly funded by the states and federal government. The federal government matches most state expenditures for Medicaid services based on a statutory formula. Under the Patient Protection and Affordable Care Act, states have the option to expand their Medicaid programs to cover nearly all adults with incomes at or below 133 percent of the federal poverty level. States that choose to expand their programs receive a higher federal matching rate for the Medicaid expansion enrollees. This testimony will cover improvements needed to ensure accurate eligibility determinations and focuses on (1) CMS's oversight of Medicaid eligibility and related expenditures; (2) CMS's efforts to improve Medicaid data; and (3) other opportunities to improve oversight and ensure appropriate enrollment. This testimony is generally based on GAO findings and recommendations on the Medicaid program issued from 2015 through 2018, and steps taken to address them through September 2019. What GAO Found The Centers for Medicare & Medicaid Services (CMS) has taken steps to improve its oversight of the Medicaid program; however, GAO has identified areas where additional actions could improve program oversight and ensure that only eligible individuals are enrolled in the Medicaid program. These actions include closing gaps in oversight of eligibility determinations and related expenses, improving data, and furthering federal-state collaboration. Gaps in oversight of Medicaid eligibility determinations and related expenses. Since 2014, CMS has not estimated improper payments due to erroneous eligibility determinations; it plans to report these estimates in November 2019. GAO found that for fiscal year 2017 Medicaid expansion enrollees accounted for nearly a quarter of all Medicaid enrollees and federal Medicaid expenditures. GAO's prior work has identified gaps in CMS oversight, which affects the federal match. An accurate determination of eligibility is critical to ensuring that only eligible individuals are enrolled, that they are enrolled in the correct eligibility group, and that states' expenditures are appropriately matched with federal funds for Medicaid enrollees. GAO recommended that CMS conduct reviews of federal Medicaid eligibility determinations to ascertain their accuracy and institute corrective actions where necessary, and revise the sampling methodology for reviewing expenditures for the expansion population. CMS concurred with these recommendations, though has since indicated that it will not revise the sampling methodology. We continue to believe that additional steps are needed to fully implement these recommendations. Better Medicaid data. Improvements in Medicaid data could aid program oversight to ensure that only eligible beneficiaries are enrolled. CMS officials acknowledged the need for improved data and cited the Transformed Medicaid Statistical Information System (T-MSIS) initiative as its primary effort—conducted jointly with states—to improve the collection of Medicaid expenditure and utilization data. According to CMS officials, aspects of T-MSIS are designed to broaden the scope and improve the quality of state-reported data, as well as the data's usefulness to states. GAO made a series of recommendations related to T-MSIS. CMS concurred with the recommendations, but some have not been fully implemented, including expediting the use of T-MSIS data for oversight, and outlining a plan and associated time frames for using the data for oversight. Further federal-state collaboration needed for oversight and appropriate enrollment. GAO has previously reported that collaborative activities between the federal government and the states are important to improving oversight of the Medicaid program. CMS has ongoing efforts to engage state agencies and others through a national Medicaid training program for state officials and partnerships to combat Medicaid fraud. Recently, steps were taken to better enable state auditors to audit states' eligibility determinations to ensure beneficiaries qualify for the Medicaid program and are enrolled in the correct eligibility group. GAO has previously suggested that CMS could leverage the unique qualifications of state auditors and help improve program integrity by further providing state auditors with a substantive and ongoing role in auditing state Medicaid programs.

gao_GAO-19-457

gao_GAO-19-457_0

<1. Background> OSS is software distributed under a license that provides broad rights to use, modify, and redistribute the original source code. Open source licenses impose certain obligations on users who exercise these rights. Specific obligations vary among the many different open source licenses. Common obligations include making the source code available, publishing a copyright notice, or giving any recipient of the program a copy of the license. Certain restrictive open source licenses allow users to copy, modify and distribute software provided that modified versions (i.e., derivatives) are subject to the same license terms and conditions as the original code. This is intended to prevent software that is derived from or contains code issued under such a license from becoming a closed- source product that can be marketed and sold exclusively. The reuse of OSS is viewed as a promising means to reduce development costs while improving software quality. According to software experts, software reuse has the potential to: increase reliability because systems will be developed with thoroughly tested and proven components, increase productivity by reducing the time and effort needed to develop software, reduce costs by enabling the sharing of knowledge and practices needed to develop and maintain software, and establish a more standard and consistent approach to software development and maintenance by using common components and procedures. <1.1. OMB Memorandum on Federal Source Code Policy> In August 2016, OMB issued a memorandum to the heads of departments and agencies to ensure that new custom-developed source code be made available for reuse across the federal government. The memorandum was intended to improve the way federal agencies buy, build, and deliver information technology and software, and required that all agencies establish a pilot program under which at least 20 percent of new custom-developed code would be released as OSS for 3 years. OMB also required that agencies develop a metric to calculate the percentage of code released as OSS to gauge its progress on implementing the pilot program. OMB s memorandum also identified four supporting requirements, among others, needed to implement an OSS pilot program: Issue an OSS policy that ensures code is available for government- wide reuse. Conduct an OSS three-step software solutions analysis that includes: (1) a strategic analysis and analysis of alternatives, (2) consideration of existing commercial solutions, and (3) consideration of custom development. In addition, agencies must consider several factors throughout each of the three-steps of the analysis such as cloud computing and open standards. Secure data rights to government-wide reuse and inventory new custom code, in accordance with the guidance provided by the code.gov website. Facilitate the OSS community by developing and releasing the code in a manner that (1) fosters communities around shared challenges; (2) improves the ability of the OSS community to provide feedback on, and make contributions to, the source code; and (3) encourages federal employees and contractors to contribute back to the broader OSS community by adding value to existing projects. In doing so, agencies should comply with the following principles: (1) leverage existing communities, (2) engage in open development, (3) adopt a regular release schedule, (4) consider code contributions, and (5) document source code to facilitate use and adoption. <1.2. DOD Implementation of OMB s Open Source Software Requirements> DOD s CIO is responsible for implementing OMB s requirements for the department s OSS pilot program. The CIO reports directly to the Secretary of Defense, and is responsible for the department s information technology (including national security systems and defense business systems), information resources management, and efficiencies. The CIO is also responsible for developing strategies and policy on the operation and protection of all of the department s information technology and information systems. Other responsibilities include maintaining a consolidated inventory of mission critical and mission essential information systems, evaluating and monitoring performance measurements, and other duties to manage the information environment throughout the department. In addition, the Defense Digital Service is responsible for assisting the CIO in implementing the OSS pilot program, among other initiatives. The Defense Digital Service is composed of commercially experienced software developers, software designers, product managers, and problem solvers within DOD. The organization works on specific projects or programs in support of the DOD in a hands-on way to materially improve digital services across the department. The Defense Digital Service also works with the CIO to monitor the identified programs, facilitate the process to open source the code, and populate the source code inventory located on Code.mil. <1.3. DOD s Efforts to Increase Use of Open Source Software> In June 2018, DOD s CIO issued a report to Congress as directed by section 875(b) of National Defense Authorization Act for Fiscal Year 2018 (Public Law 115-91). The report provided Congress with the department s plan to implement the OSS pilot program established by OMB s memorandum. In the report, the CIO committed to sharing its unclassified, custom-developed source code as widely as possible in four ways: (1) review and select software programs that have self-identified to the Defense Digital Service as ready to open source its code; (2) query its contracts database to identify contracts that contain appropriate data rights language; (3) determine if source contained within existing source code repositories can be made available; and (4) issue a department- wide data call to identify and select programs where new, custom code is being developed. The CIO also reported that the department would prioritize and assess identified software programs and work with components to develop mechanisms to report progress. The report included selection criteria for identifying candidate software programs: (1) programs with contractually secured government data rights; (2) programs with contractual rights to enable, support, and enforce DOD and government-wide sharing and reuse of custom-developed code; (3) programs that have appropriate administration to ensure that government s rights are maintained; and (4) programs that utilize best practices to ensure custom-developed code, documentation, and other associated materials are delivered in a reusable manner. The CIO also reported that the Defense Digital Service would assist programs. Specifically, the Defense Digital Service is to develop guidelines, processes, and answers to frequently asked questions regarding the use of OSS. In October 2018, the CIO issued a memorandum to the Chief Management Officer, secretaries of the military departments, Chairman of the Joint Chiefs of Staff, under secretaries of Defense, chiefs of the military services, general counsel, Director of Cost Assessment and Program Evaluation, Director of Operational Test and Evaluation, and the Assistant Secretary of Defense for Legislative Affairs notifying them of the need to implement an OSS pilot program in accordance with OMB s 2016 memorandum. The CIO required these organizations to take four actions within 30 days of issuing the memorandum: Identify all unclassified custom-developed source code created or paid for by the department regardless of data rights and open source status created on or after August 2016 and provide the CIO information required by the guidelines on the code.gov website; Identify and provide a point of contact that can participate in open source efforts; Direct authorizing officials to rapidly review and approve unclassified code for public, open source release after appropriate security, code, and policy review; and Direct contracting officers to secure the least restrictive data rights to custom-developed source code in all future contracts in accordance with DOD federal acquisition regulations. <2. DOD Has Not Fully Implemented an Open Source Software Pilot Program and Related OMB Requirements> DOD was mandated by law to initiate the OSS pilot program established by OMB memorandum M-16-21 which required (1) releasing at least 20 percent of newly custom-developed code each year for the term of the pilot program, and (2) collecting additional data concerning new custom software to inform measures to gauge the performance of the pilot program. Further, the OMB memorandum also required DOD to (1) issue an OSS policy, (2) conduct an OSS analysis, (3) secure data rights and inventory custom code, and (4) facilitate the OSS community. As of late April 2019, DOD had not fully implemented the OSS pilot program mandated by law. DOD had partially implemented the requirement of releasing at least 20 percent of newly custom-developed code as OSS. Specifically, as of July 2019, the Code.gov website reported that the department had released less than 10 percent of its custom developed code. The department was in the early stages of its pilot program and had not determined when the pilot would be fully implemented. The CIO reported that the size of the department makes it nearly impossible to inventory all of its source code custom developed since August 2016. As such, the CIO stated that it would be difficult to meet the OMB memorandum s goal of releasing at least 20 percent of its new custom code as OSS. In addition, DOD had not implemented the requirement to develop a consistent measure to gauge the performance of the department s pilot program. DOD had not developed such a measure due to a lack of consensus in the department about what data should be collected. According to the CIO, if the measure is lines of code, then it unfairly discounts projects that invest a significant amount on research, but are small otherwise. If the measure is project hours, then it discounts those projects that came about from sparks of innovation that took little time to develop. If the measure is project count, then it ignores the other two possible measures. The CIO noted that since the components will be expected to collect and report the required data, the CIO office plans to reach out to them to facilitate consensus around data needs and what measure should be used to calculate and monitor performance. Regarding the four OMB memorandum requirements supporting the implementation of the pilot program, the department partially implemented three and did not implement the remaining one. Table 1 describes the extent to which DOD implemented the OMB supporting requirements, and is followed by a description of DOD s efforts on each requirement. Issue OSS policy. DOD had not implemented the requirement to issue an OSS policy. According to DOD s CIO, the department has existing acquisition policies applicable to OSS, such as the 5000 series and a memorandum issued in October 2009 that clarifies OSS. However, according to DOD officials, these policies are outdated and do not comply with OMB s memorandum. For example, while the department s policies indicated that programs must conduct an analysis of alternatives, trade studies, or a business case analysis prior to initiating any technology acquisition or custom code development, they did not require programs to consider the value of publishing custom code as OSS and negotiate data rights reflective of its value. The department acknowledged that it does not have a policy that addresses the OMB memorandum s requirement. According to the CIO, the department had been slow to develop a policy because these types of changes require significant resources, coordination, and buy-in across the department that will take additional time to address. The CIO also stated that the department plans to update its existing OSS memorandum by the end of the 2019 calendar year and issue it as policy. In particular, DOD intends to work with acquisition and program management officials to define approaches, processes, and best practices to expand software reuse. If the department effectively implements this intended step consistent with the OMB memorandum, DOD should be able to fully address this requirement. Conduct OSS analyses. DOD had partially implemented the requirement to conduct analyses to consider alternative software solutions. According to the DOD CIO, of the three elements required by OMB for a three-step analysis, the department s current 5000 series policy addresses some of these elements. For example, as previously mentioned, the policy required programs to conduct an analysis of alternatives, trade studies, or a business case analysis prior to initiating any technology acquisition or custom code development. However, according to the CIO, DOD s policy did not require programs to consider the value of publishing custom code as OSS and negotiate data rights reflective of its value-consideration. According to the CIO, the department has plans to address gaps in its existing policy by the end of the 2019 calendar year. If the department effectively implements this intended step consistent with the OMB memorandum, DOD should be able to fully address this requirement. Secure data rights and inventory new custom code. DOD had partially implemented this requirement by initiating the process to secure data rights for government-wide reuse and inventory its new custom code. Specifically, the October 2018 memorandum called for defense organizations to direct contracting officers to secure the least restrictive data rights for custom-developed source code in all future contracts, and identify all unclassified custom-developed source code created after August 2016. However, when we discussed this matter with DOD information technology and software officials responsible for the management of software in December 2018 2 months after the October 2018 memorandum had been issued seven of 11 officials were unaware of the statutory mandate to initiate the pilot program in compliance with the OMB memorandum. Further, DOD has not provided a milestone for when it expects its inventory to be completed. Facilitate OSS community. DOD had partially implemented the requirement to establish an OSS community. According to the DOD CIO s Custom Developed Source Code Data Call memorandum, dated October 2018, the DOD CIO is working with Defense Digital Service to develop guidelines and processes on when and how to open source code. In February 2017, DOD announced the launch of Code.mil, an open source initiative led by Defense Digital Service, that allows software developers around the world to collaborate on unclassified code written by federal employees in support of DOD projects. Finally, the Defense Information Systems Agency established a website (Forge.mil) where community members can collaborate on open source and DOD community source software. The Forge.mil website also enables collaborative development through services such as software version control, requirements management, discussion forums and document repositories. However, DOD had not yet fully engaged in open source code development, established a regular release schedule for its software code, or fully documented its source code to facilitate use and adoption department-wide. According to the CIO, the department is in the early stages of implementing the OSS pilot program and had not yet published a revision to the existing OSS policy memorandum. The CIO stated that the office plans to request collaboration and input from organizations throughout DOD for improvement initiatives and identifying specific processes and expectations for improving custom-developed software within the Department. However, DOD has not provided a milestone for when the requirements will be fully implemented and stated that achieving 100 percent compliance is not a realistic expectation. Until DOD fully implements the OSS pilot program mandated in the National Defense Authorization Act for Fiscal Year 2018 including the requirements of OMB memorandum M-16-21, the department will likely miss opportunities to achieve related cost savings and efficiencies. Further, the department will not be effectively positioned to ensure management oversight and implementation of the pilot program. <3. DOD Officials Shared Views of Expected Benefits and Risks Associated with the Use of Open Source Software> <3.1. DOD Officials Agree That Using Open Source Software Could Result in Financial Benefits and Increased Efficiency> DOD officials representing 11 components reported that OSS can potentially yield financial benefits and increase efficiency. Officials provided the following examples of financial benefits: Officials in the office of the Navy Chief Information Officer, the Army Communications-Electronics Command, the Office of the Under Secretary of Defense for Acquisition and Sustainment, and the Office of the Assistant Secretary of the Air Force for Acquisition, Technology, and Logistics stated that OSS is generally less expensive than commercial off-the-shelf (COTS) leading to cost savings. An Air Force official we spoke with stated that the increased use of OSS may potentially result in cost savings. Further, the official noted general criteria used by the Air Force to identify software projects that may potentially be appropriate for the use of OSS. Specifically, OSS should be considered if, among other things, the required maintenance would not result in a reduction of cost savings or efficiency if the maintenance is performed in-house. An official we spoke with at the Defense Advanced Research Projects Agency stated that OSS has positive benefits in terms of reducing costs by reducing duplicative efforts. In addition, this official also stated that OSS allows institutions of any size and budget to partake in shared investments providing access to software capabilities at a much lower cost. A program manager from the Defense Information Systems Agency reported that the agency had identified an OSS solution that provided more functionality at less cost than the commercial solution provided through a vendor. The program manager explained that when the agency implemented the new OSS solution, it realized $20 million in annual savings over the commercial solution that had been maintained by a vendor. Officials also shared examples of how OSS can increase efficiency in software development. For example, Officials from the offices of the Navy CIO and the US Marine Corps CIO stated that OSS solutions may increase efficiency by providing a rapid resolution to the needs and requirements of users. In contrast, rapid development efforts are not conducive for COTS solutions because of the long process required to obtain solutions that are needed quickly. Similarly, an Air Force official noted that the increased use of OSS may result in increased efficiency by providing rapid responses to user requirements. A program manager from the Defense Information Systems Agency reported that the selection of an OSS solution rather than a COTS solution contracted through a vendor had resulted in increased efficiency. The official explained that the use of the OSS solution allowed the agency to develop and maintain in-house skills that would not have been available had they opted to contract with a vendor providing a skilled workforce. <3.2. DOD Officials Expressed Differing Views on the Cybersecurity Risk Posed by Open Source Software> Officials from the 11 components expressed mixed views on managing cybersecurity risks that could be posed by using OSS. Specifically, officials from three components expressed their views that security concerns and the lack of a cybersecurity governance process could result in the sporadic use of OSS. For example: A Navy CIO official viewed insider threats, such as a disgruntled employee embedding malicious code, as a factor that could significantly limit the use and sharing of OSS. According to Navy officials, without a process to verify that the software is free of malicious code, the Navy would risk the assurance it requires to increase the use of OSS. The official said that, in contrast, such concerns are not an issue when it comes to COTS software because of the test and verification process to ensure it is free from malicious code. An official in the office of the Marine Corps CIO stated that OSS is used sporadically in their software development efforts because some cybersecurity officials within the Marine Corps discourage its use due to security concerns. An official from the Army s Communications-Electronics Command noted that DOD lacks a governance process once the originating entity releases the source code as open source. The originating entity no longer retains control over redistributed versions of the source code. According to Communications-Electronics Command officials, Army project managers may be hesitant to utilize OSS because of this perceived security risk. On the other hand, DOD officials from eight components stated that the potential cybersecurity risks posed by the use of OSS were manageable and that the use of OSS should not be limited. For example: The policy advisor from the Office of the Under Secretary of Defense for Acquisition and Sustainment noted that scanning tools to analyze and identify safe and reliable open source code are not being used. Employing available scanning tool options could result in discovering available OSS. The policy advisor also noted that building security into software operations, rather than through the development of software, would enable users to know if code has been subverted and to react appropriately. A program management official from the Office of the Under Secretary of Defense for Acquisition and Sustainment suggested that security concerns may be mitigated by establishing a secure repository for trusted code. An official in the Office of the Assistant Secretary of the Air Force for Acquisition, Technology, and Logistics reported that, as long as OSS is properly vetted to ensure it is secure and free from malware, it offers an opportunity for the department to achieve cost savings and efficiencies. <4. Conclusions> Pilot testing the use of OSS is an important way to ascertain and improve the way DOD buys, builds, and delivers information technology and software solutions. However, the department is in the early stages of implementing its pilot program and had not determined when the pilot would be fully implemented. Specifically, DOD has not made 20 percent of its new code available for reuse nor has it identified a measure to gauge the performance of its pilot program. Moreover, DOD has not yet established milestones for securing data rights and conducting an inventory or facilitating community. Until DOD fully implements its pilot program and establishes milestones for completing the OMB requirements, the department will not be positioned to take advantage of significant cost savings and efficiencies. <5. Recommendations for Executive Action> We are making the following four recommendations to DOD: The Secretary of Defense should ensure the department implements the pilot program by releasing at least 20 percent of newly custom- developed code as OSS. (Recommendation 1) The Secretary of Defense should ensure the department identifies a measure to calculate the percentage of code released to gauge its progress on implementing the pilot program. (Recommendation 2) The Secretary of Defense should ensure the department establishes milestones for completing the requirements of OMB memorandum M- 16-21 of securing data rights and conducting an inventory. (Recommendation 3) The Secretary of Defense should ensure the department establishes a milestone for completing the OMB memorandum s requirement of facilitating an OSS community. (Recommendation 4) <6. Agency Comments and Our Evaluation> DOD provided written comments on a draft of this report, which are reproduced in appendix II. In its comments, the department did not concur with our first recommendation, partially concurred with our second recommendation, and concurred with the third and fourth. DOD did not concur with the first recommendation on ensuring that the department implements the pilot program by releasing at least 20 percent of newly custom-developed code as OSS. The department stated that it does not believe that the pilot program as described in the OMB memorandum is implementable as proposed. For example, DOD asserts that most of DOD s custom developed software is created for weapons systems and releasing the associated code is sensitive for national security reasons. In addition, the size and complexity of DOD presents unique challenges for the department compared to other federal agencies such as inventorying all software development projects to establish a baseline. DOD added, however, that the OMB memorandum explicitly states that national security exceptions do not apply to the pilot program. DOD also stated that it recognizes the value of collaborative software development and has plans to release additional guidance on releasing OSS and procedures for maintaining its inventory. Once DOD establishes a baseline inventory of custom-developed software and the procedures for maintaining it, the department states it will be able to determine if the 20 percent is an appropriate goal. We understand the potential constraints DOD faces and that national security considerations are to be factored into decisions DOD will need to make about which custom developed software to include in the pilot. However, DOD is mandated by law to implement the OSS pilot program established by OMB memorandum M-16-21. Further, the OMB memorandum instructs agencies to refrain from selecting code for release that would fall under exceptions such as national security risk. As such, DOD has flexibility on making decisions about which custom-developed code to include in the pilot. While we agree that a baseline inventory is needed, DOD must include at least 20 percent of new custom-developed code each year for the term of the program to satisfy the mandate. DOD partially concurred with the second recommendation on ensuring that the department identifies a measure to calculate the percentage of code released to gauge its progress on implementing the pilot program. Specifically, the department stated that the additional guidance it plans to release before the end of 2019 on OSS will include measures to gauge how much code has been developed and how much has been released. In addition, DOD noted that these measures will support good management of the overall portfolio of information technology, even in the absence of the mandated pilot program established by the OMB memorandum. We believe that the measure to calculate the percentage of code should be used to assist the department in meeting the OMB memorandum s requirements. We also agree with the benefits of developing a measure to manage the portfolio of information technology. DOD concurred with the third and fourth recommendations related to establishing milestones for completing the OMB memorandum s requirements of securing data rights, conducting an inventory, and facilitating an OSS community. According to the department, it has issued a memorandum that directed contracting officers to secure the least restrictive data rights to custom-developed source code, in furtherance of the OMB requirements, and also included a data call that forms an initial basis of an inventory of custom-developed software. Regarding facilitating an OSS community, DOD stated that it has formed a community of practice called DevSecOps that is open to all software development organizations in the department and plans to use this forum to facilitate collaboration on the use of OSS. We are sending copies of this report to the appropriate congressional requesters and the Secretary of Defense. In addition, the report is 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) 512-4456 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. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology Our objectives were to: (1) assess the extent to which the Department of Defense (DOD) has implemented the open source software (OSS) pilot program and other related requirements established by the Office of Management and Budget (OMB), and (2) describe the views of responsible DOD officials on the use of OSS to achieve efficiency at the department. To address the first objective, we selected six requirements from the OMB memorandum titled the Federal Source Code Policy: Achieving Efficiency, Transparency, and Innovation through Reusable and Open Source Software (M-16-21, Aug. 8, 2016) as criteria to assess the extent to which DOD has implemented the OSS pilot program. Two requirements establish the OSS pilot program: (1) releasing at least 20 percent of newly custom-developed code each year for the term of the pilot program, and (2) developing a metric to gauge the performance of the pilot program. The other four requirements support the implementation of the pilot program: (1) issuing an OSS policy, (2) conducting an OSS analysis, (3) securing data rights and inventorying custom code, and (4) facilitating the OSS community. We met with officials from OMB to collect background information on the selection of requirements for the pilot program established in memorandum M-16-21. We also met with officials from the Office of the DOD Chief Information Officer (CIO) and the Defense Digital Service to discuss the status of the department s implementation of the OSS pilot program. We reviewed DOD s June 8, 2018 report to Congress and its October 2018 memorandum that details the department s plans to implement the pilot program and compared them to the six requirements. To determine the extent to which the pilot program had been implemented, we evaluated DOD s efforts to address each of the requirements using a 3- stage gradient scale (implemented, partially implemented, and not implemented). The requirement was assessed to be fully implemented if DOD provided us with sufficient evidence that the requirement had been fully met. We assessed a requirement to be partially implemented if DOD provided us with documentation of initial plans or had initiated action towards implementing the requirement. We determined that a requirement was not implemented when DOD did not provide us with documentation of planned or initiated actions to implement the requirement. To address the second objective on views of various responsible DOD officials, using professional judgement, we selected components across the department responsible for the management and development of OSS. The scope of stakeholders selected represent department-wide nongeneralizable views including military components, defense agencies, and other offices. At least one representative was selected from the following components: (1) Office of the Under Secretary of Defense for Acquisition and Sustainment, (2) Office of the DOD CIO, (3) office of a military service CIO, (4) Military Service Software Center or Command Center, (5) the Defense Information Systems Agency, and (6) the Defense Advanced Research Projects Agency. We conducted interviews with DOD officials from the following entities: Office of the Under Secretary of Defense for Acquisition and Sustainment; Office of the DOD CIO; Offices of the Navy and Marine Corps CIOs; Office of the Air Force Chief Technology Officer; Army Communications Electronics Command; the Defense Information Systems Agency; the Defense Advanced Research Projects Agency; and the Office of the Assistant Secretary of the Air Force for Acquisition, Technology, and Logistics. In order to summarize and report the views of the responsible DOD officials, we conducted structured interviews with representatives from the selected components. Each interview consisted of the same discussion topics based on the pilot program requirements established in OMB s memorandum. The scope of this objective represents individual thoughts, views, and opinions and is not intended to convey an official or department response. Prior to each interview, participants were provided with OSS discussion topics, and the OMB memorandum, titled the Federal Source Code Policy: Achieving Efficiency, Transparency, and Innovation through Reusable and Open Source Software (M-16-21, Aug. 8, 2016). The contents of each interview were reviewed and summarized to identify the general views of OSS and on the anticipated implementation of the pilot program requirements established in OMB s memorandum. We noted similarities and differences in the responses provided by the officials in the use of OSS including, but not limited to, potential benefits of using OSS, managing associated risk, and opinions on implementing the pilot program in compliance with the OMB memorandum. Discussions were split into two topic areas: practices on the use of OSS, and OMB s memorandum to establish an OSS pilot program. Specifically, the discussion topics were presented during each meeting as follows: Part I: Practices on the use of OSS Your experience or your organization s history with the practice of using OSS as a means to achieve cost reduction or efficiencies when buying, building, or delivering information technology and software solutions. The processes or practices that you or your organization perform to leverage open source code for projects that require the acquisition or development of custom source code. The extent to which you or your organization shares or uses open source software. For example, do you share or use open source software: (1) within your organization only, (2) across the DOD with other military services or defense agencies, (3) with other federal agencies, or (4) outside the federal government with the public. Also, how is the source code shared, leveraged, catalogued, stored, and accessed. Policies or guidance currently in use for OSS. General views and opinions on the use of open source code. Part II: OMB s Memorandum to Establish an OSS Pilot Program When and how you or your organization became aware of OMB s memorandum on Federal Source Code Policy. Your opinions and views about the OMB memorandum. Any specific concerns or reservations about the requirements contained in the OMB memorandum. The extent to which you or your organization may already be performing the steps in OMB s proposed Three-Step Software Solutions Analysis. Discuss the feasibility of the pilot program requirement to release at least 20 percent of new custom-developed code as OSS. We conducted this performance audit from August 2018 to September 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Eric Winter (Assistant Director), John Ortiz (Analyst-in-Charge), Rebecca Eyler, Franklin Jackson, and Kate Nielsen made key contributions to this report.

Why GAO Did This Study Open source software is code that is released under a license which grants users the right to modify, share, and reuse the software. Making code available for reuse as open source can have major benefits such as decreasing costs and improving efficiencies. The National Defense Authorization Act for Fiscal Year 2018 required DOD to submit a plan to Congress for initiating the open source software pilot program established by OMB memorandum M-16-21. DOD submitted its plan to Congress in June 2018. The act includes a provision for GAO to report on DOD's implementation of the open source software pilot program. GAO's objectives were to (1) assess the extent to which DOD has implemented the open source software pilot program and other related requirements established by OMB; and (2) describe the views of responsible DOD officials on the use of open source software to achieve efficiency, transparency, and innovation at the department. To address these objectives, GAO compared DOD's plan for implementing the program to OMB's memo. GAO also interviewed defense officials at 11 DOD components including military departments, and defense agencies on their views about the benefits and risks of making code available as open source software. What GAO Found The Department of Defense (DOD) has not fully implemented an open source software pilot program and related Office of Management and Budget (OMB) requirements as mandated by the National Defense Authorization Act for Fiscal Year 2018. OMB memorandum M-16-21 calls for agencies to implement a pilot program, which it defines as (1) releasing at least 20 percent of new custom developed code as open source, and (2) establishing a metric for calculating program performance. However, DOD has not fully implemented the program and has not established the metric. The OMB memorandum also requires agencies to implement other supporting activities. These include issuing policy on government-wide use of code, conducting analyses of software solutions, securing data rights and inventory code, and facilitating the open source community. DOD has not implemented the policy requirement and has partially implemented the remaining three requirements. Regarding the policy and analysis requirements, DOD plans to issue a policy and conduct analyses by the end of the 2019 calendar year. If the department effectively implements these intended steps consistent with OMB direction, DOD should be able to fully address these requirements. For the requirement of securing data rights and inventorying code, DOD issued a memorandum that directs contracting officers to secure data rights and to identify all source code created after August 2016. However, DOD's components have not executed these activities nor has DOD identified a milestone for when they will be completed. For the facilitating community requirement, DOD issued a memorandum that encourages conversations to foster communities and allow others to contribute knowledge, among other initiatives. However, DOD has not fully engaged in open development, established a release schedule, or fully documented its source code to facilitate use and adoption. To address these areas, DOD's Chief Information Officer plans to issue guidance but has not established a milestone for doing so. Until DOD fully implements the pilot program and develops milestones for two of the four OMB requirements (secure data rights and inventory code, and facilitate community), it will not be positioned to satisfy the mandate established in the law. DOD officials from 11 components expressed their opinions that an open source pilot program would potentially result in financial benefits and increased efficiency. However, there were disparate views on how to manage the cybersecurity risk of using open source software. Specifically, officials from three components noted that security concerns could result in the sporadic use of OSS, whereas eight officials stated that the potential cybersecurity risks were managable. What GAO Recommends GAO is making four recommendations to ensure DOD implements the program and develops milestones for completing requirements in the OMB memo. DOD agreed with two but did not agree with one and partially agreed with another. As discussed in this report, GAO maintains that all recommendations are needed to satisfy the act.

gao_GAO-20-470

gao_GAO-20-470_0

<1. Background> Each year more than a dozen federal agencies and state and local jurisdictions were involved in the Fourth of July events on the National Mall. Some were involved in the overall planning, production, and execution of the events as a whole, while others played specific roles in only one event. Figure 1 shows the overall geographic layout of each event that occurred on the National Mall. <1.1. Overall Event Organization, Security, and Attendee and Participant Health> For 2016 through 2019, the National Park Service (NPS) was responsible for the overall organization and execution of Fourth of July events on the National Mall, including the National Independence Day Parade; A Capitol Fourth Concert; Independence Day Fireworks Display; and in 2019, A Salute to America. Successful completion of these events depended on NPS, including United States Park Police (Park Police), coordinating with federal agencies and state and local jurisdictions to ensure that attendees could safely and securely attend each event. In addition, during the 2019 events, because of the addition of the Salute to America event and attendance by the President of the United States, additional federal agencies were involved with the planning, production, and execution of the events. Overall event security for the 2016 though 2019 events on the National Mall was coordinated among several federal agencies and state and local jurisdictions. Specifically, the following organizations provided security personnel and assets for the events overall: Park Police provided overall coordination with federal, state, and local law enforcement agencies and assisted with event security. State and local law enforcement agencies assisted with security, traffic, and crowd control. The District of Columbia Government (DC Government) provided a comprehensive command, control, and coordination system, in conjunction with federal partners, to ensure seamless event activities and the safety and security of all attendees. The DC Government tasked multiple offices in its organization to help with ensuring event security, including the Metropolitan Police Department, which deployed uniformed officers in areas surrounding the National Mall and provided traffic control and road closures. The National Guard deployed hundreds of personnel who provided security, movement of supplies, and crowd management at road intersections and metro stations. The Washington Metropolitan Area Transit Authority provided buses to barricade road closures for 2016 through 2018. The Federal Bureau of Investigation; Bureau of Alcohol, Tobacco, Firearms and Explosives; and Department of Energy deployed specialized law enforcement and security support units during all of the Fourth of July events on the National Mall. Given the large crowds and potential for high temperatures in July in Washington, D.C., it was important that organizers ensured that adequate medical resources were available to attendees and participants for the 2016 through 2019 events. This was accomplished by coordination between the following federal agencies and state and local jurisdictions: The Department of Health and Human Services (HHS) provided medical aid stations for attendees and participants and veterinarian services for NPS working animals at various locations on the National Mall. In 2019, HHS provided additional efforts, including a larger medical aid station at the end of the parade route to assist with heat casualties and a command and control team to coordinate and support HHS personnel on the National Mall. The Federal Emergency Management Agency participated in the public safety planning for the Fourth of July events on the National Mall in 2016 through 2018. Because of increased security levels in 2019, the agency coordinated the support of federal agencies and state and local jurisdictions, and deployed an emergency response team. The DC Government deployed numerous personnel from its offices, including Fire and Emergency Medical Services and the Department of Health to respond to health emergencies at the events. The Smithsonian Institution (SI) and the Federal Protective Service (FPS) assisted by providing their facilities as safe havens for citizens to seek shelter in the event of severe weather or other emergency. Each year, SI staffed its facilities near the National Mall with security protection officers, grounds cleanup crews, and emergency medical technician support as part of its assistance. In addition, FPS personnel staffed federal buildings near the National Mall and operated safe haven locations. <1.2. National Independence Day Parade> For 2016 through 2019, the National Independence Day Parade ran along Constitution Avenue NW from 7th Street NW to 17th Street NW. A private entity produced the parade, and obtained a Public Gathering Permit from NPS. The entity managed the parade, its participants, and associated costs, with funding from nonfederal sponsors. NPS participated in the parade by coordinating with an additional private entity, which fully funded the creation and operation of a parade float for NPS. In addition, several military bands regularly participated in the parade. To ensure security for the parade, the Park Police requested assistance annually from the DC Government, National Guard, and FPS. The DC Government assisted by ensuring roads were closed to vehicle traffic on the parade route, the National Guard assisted by providing personnel and assets for road closure, and FPS provided personnel to ensure parade- route safety. <1.3. A Capitol Fourth Concert> For 2016 through 2019, the Capitol Fourth Concert was broadcast live from the West Lawn of the U.S. Capitol by the Public Broadcasting Service. As we have previously reported, a private entity in the District of Columbia has produced the annual concert for many years. The private entity received federal funding from NPS through a cooperative agreement that provided funding from NPS and the Department of the Army and sponsorships from other private entities. The private entity was responsible for producing the concert, including the selection of musical acts and coordination with DOD for military band attendees. Because of its jurisdiction over the Capitol grounds, the United States Capitol Police (Capitol Police) provided perimeter security and security screening of concert attendees, in coordination with multiple federal agencies and local jurisdictions. In addition, the Architect of the Capitol provided security barriers, fencing, ground protection, turf restoration, trash removal, and setup and teardown of the security elements on the Capitol grounds. <1.4. Independence Day Fireworks Display> For 2016 through 2019, annually, NPS entered into a contract with a private entity that was responsible for producing and executing the fireworks display. For 2016 through 2018, the fireworks were launched from the Reflecting Pool between the Lincoln Memorial and the Washington Monument, with that area being restricted to visitors for safety and security. However, in 2019, the launch site was relocated to the West Potomac Park. The Park Police provided security over the fireworks and coordinated with federal law enforcement agencies, which provided security and conducted a sweep of the fireworks launch area. Many attendees of the fireworks display viewed the show from their personal watercraft on the Potomac River. The United States Coast Guard (Coast Guard) provided security on Potomac River waterways to ensure attendee safety and to establish a secured perimeter for the launch site. <1.5. Salute to America> In 2019, the Salute to America event was held for the first time in front of the Lincoln Memorial. The event included military band performances, a military display, a speech by the President of the United States, military aircraft flyovers, and a fireworks display. The planning of the event began after a meeting at the White House where the Secretaries of the Interior and Defense were tasked with event planning, production, and execution. The Executive Office of the President (EOP) coordinated the content of the event and contracted with a private entity, which was responsible for general event production. NPS and EOP entered into a reimbursable agreement whereby EOP, and the private entity with which it contracted, coordinated and produced the event, paid for with NPS appropriations. The EOP determined the guest list and distributed tickets for the event. According to EOP, it distributed tickets in a manner similar to that for other White House events. The Secretary of the Interior tasked NPS with permitting for the event, coordinating with the United States Secret Service (Secret Service) on security and with the DC Government on movement of DOD assets, relocating the existing contracted fireworks display from the Reflecting Pool to the West Potomac Park and coordinating the acceptance of an additional donated fireworks display. The DC Government had additional responsibilities in 2019 compared to prior years because of the vehicles that the Department of the Army provided for the Salute to America event. For example, DC Government personnel consulted with engineers to verify that affected roads, sewer pipes, and bridges could withstand the weight of bringing in the M2 Bradley Infantry Fighting Vehicles and conducted damage assessments after the event, during which no damage was identified. The DOD Joint Staff received orders from the Secretary of Defense directing United States Northern Command (NORTHCOM) to organize a flyover and provide support to the Salute to America event. NORTHCOM tasked the Coast Guard, Department of the Army, Department of the Navy, United States Marine Corps, and United States Air Force to ensure that various DOD assets were in attendance. The Department of the Army stood up a Joint Operations Center within its Joint Force Headquarters Branch, National Capital Region, to coordinate the various DOD assets involved. Prior to the President s speech, several military bands performed for the audience in front of the Lincoln Memorial. Displayed on both sides of the performing bands were two M2 Bradley Infantry Fighting Vehicles provided by the Department of the Army. At designated times during the President s speech, DOD aircraft participated in flyovers, including Air Force B-2 Stealth Bombers, Air Force One, F-22 Raptors, and F- Navy F/A 18 Hornet Blue Angels and F-35 Lightning IIs; Marine Corps MV22 Osprey helicopters and Marine One; Army AH-64 Apache and CH-47 Chinook helicopters; and Coast Guard H-65 Dolphin and H-60 Jayhawk helicopters and HC- 144 Medium Range Surveillance Aircraft. Following the President s speech and associated flyovers, a fireworks display, donated by two private entities through a donation agreement with NPS, was presented from the Lincoln Memorial. Because the President, Vice President, and other government officials attended the event, the Secret Service had primary responsibility for security of the event and surrounding areas, in coordination with the Park Police. The Secret Service requested the assistance of the Transportation Security Administration, which provided security screening for the event. The Coast Guard provided additional support on the Potomac River during the event, because of the additional firework display, and requested the assistance of the United States Customs and Border Protection, which provided additional waterway security. The Federal Aviation Administration provided an air traffic controller that shut down the airspace around the National Mall and assisted with the Salute to America flyovers. Because of the additional fireworks, the Park Police provided additional security at the storage site of the fireworks and additional road closures. The Park Police coordinated with state and local law enforcement to provide escorts for the M2 Bradley Infantry Fighting Vehicles. <2. Fourth of July Events on the National Mall Costs Estimated at Millions of Dollars Annually> According to estimates we obtained, federal agencies and state and local jurisdictions combined spent millions of dollars annually for the Fourth of July events on the National Mall during 2016 through 2019. Not all costs were tracked separately by the organizations for each of the Fourth of July events. Therefore, in order to develop a comprehensive estimate of the costs, we grouped costs into five categories, which include general event costs as well as costs for each of the specific events held on the National Mall. Table 1 summarizes the event costs we obtained, by year and event. In addition to costs that could be directly attributed to Fourth of July events on the National Mall, there were other costs incurred associated with federal personnel and assets that we did not capture as event costs because they would have been incurred regardless of whether the Fourth of July events had occurred. For example, costs such as salaries of federal civilian, military, and law enforcement personnel who worked during the events were not included in cost estimates because those salaried personnel would have been paid even if the Fourth of July events did not occur. <2.1. General Event Costs> We categorized costs attributable to more than one specific event, or to agencies that did not track costs by event, as general event costs. According to documents we reviewed and interviews with agency officials, more than $2 million was spent annually on general event costs. Table 2 contains general event cost by federal agency and state or local jurisdiction, and by year. General event costs consisted primarily of the personnel and supplies costs for HHS medical aid stations, Department of the Interior overtime, holiday pay and supply costs, and costs for DC Government personnel payroll. Specifically, federal and local law enforcement agencies provided security, screening of attendees, traffic control, road blockades, and escorts for participants at all the events. These agencies incurred salaries, overtime, and overtime with differential pay for civilian and law enforcement personnel. Other costs included providing personnel and supplies for fire and emergency medical services, crowd control, information and directions for attendees, cleaning of the grounds, and safe haven areas in case of an emergency. <2.2. National Independence Day Parade Event Costs> According to documents we reviewed and agency officials we interviewed, no federal agency recorded costs specifically attributable to the National Independence Day Parade for 2016 through 2019. A private entity produced the parade and managed its participants and associated costs, which was funded through nonfederal sponsors. The security during the event, provided by the National Guard and FPS, was not included in cost estimates because those salaried personnel would have been paid regardless of the parade. The majority of federal participants in the parade were local ceremonial military personnel, including military bands, marching platoons, color guards, Army Old Guard fife and drum corps, an Army anthem vocalist, and other ceremonial military participants who would have received their salaries and benefits on the Fourth of July even if the parade did not occur. <2.3. A Capitol Fourth Concert Event Costs> According to documents we reviewed and agency officials we interviewed, the concert cost the federal government an estimated $4 million annually from 2016 through 2019. The concert takes place on the grounds of the Capitol and the costs are primarily for the contractor that plans and executes the concert. NPS provided minimal operations support to the entity that produced the concert but was responsible for funding the concert from its annual appropriations and with additional funding that the Department of the Army provides each year. Table 3 contains the concert cost by agency for 2016 through 2019. The Capitol Police is the primary law enforcement agency responsible for security and screening the attendees on the Capitol grounds. The Capitol Police estimated that it incurred several hundred thousand dollars annually in overtime and holiday pay costs that would not have been incurred had the concert not taken place. The Architect of the Capitol incurred other concert costs for its involvement. Additionally, DOD had bus rental costs for movement of ceremonial military personnel in 2017. Other costs not considered directly attributable to the concert included salaries and benefits of federal military participants. The salary costs for these personnel would have been incurred regardless of their participation in the Fourth of July events. <2.4. Independence Day Fireworks Display Event Costs> Independence Day Fireworks Display event costs were estimated from $253,000 to $409,000 annually from 2016 through 2019 (see table 4). Each year, NPS contracted with a private entity, which produced and executed the fireworks display. The cost associated with this contract was the majority of the cost of the event. In addition to the contract costs, other fireworks display event costs included paying overtime for security personnel during the event, conducting security sweeps prior to the event, securing areas for storage of fireworks, closing roads, and performing cleanup after the fireworks. In addition, the Coast Guard had personnel travel costs in 2019. Other event costs not considered directly attributable to the fireworks display were for Coast Guard personnel and boats that patrolled a security perimeter around the event area. The Coast Guard stated that these boats and personnel would have been operating on the Fourth of July regardless of whether the fireworks display event occurred. <2.5. Salute to America Event Costs> The 2019 Salute to America Event cost an estimated $4.3 million, primarily related to the EOP contract with a private entity to plan and execute the event (see table 5). The cost of that contract was approximately $2.45 million and was funded with NPS appropriations through a Memorandum of Agreement with EOP. The movement of DOD ground assets to the Washington, D.C., area was also a cost for the event. Specifically, DOD used a contractor to transport vehicles and other military equipment to the event area at a cost of more than $1.12 million. The Secret Service had significant involvement with events on the National Mall, and specifically with the Salute to America event, because the President, Vice President, and other government officials attended. In order to prepare for and execute security, the Secret Service used numerous special agents from its Washington, D.C., Field Office, and incurred overtime pay and cost for materials. In addition, the airspace in the area was shut down for this event, which included a fireworks display. Various federal agencies incurred overtime costs for storing the donated fireworks and for keeping additional roads closed. While DOD and the Coast Guard provided military flyovers during the Salute to America event, most of the costs associated with the flyovers, such as crew salaries, fuel, and asset depreciation, were not attributable to the event. According to DOD and the Coast Guard, flying hours associated with the event were used to satisfy annual training requirements for their pilots. However, some travel costs were incurred for pilots and crew, which we included in the cost estimates in table 5. Finally, the estimate includes salaries for a small number of DOD civilian personnel who were paid holiday or overtime pay. <3. Fourth of July Events Funding Sources, Reimbursements to State and Local Jurisdictions, and Effects on Other Federal Activities> We found that the majority of the agencies funded costs of the Fourth of July events with annual appropriations and did not receive any other funding. NPS used amounts from multiple appropriation accounts to pay for costs of the Fourth of July events for 2016 through 2019. For the Salute to America event in 2019, NPS used the Operation of the National Park System, Centennial Challenge, and Federal Lands Recreation Enhancement Act (FLREA) accounts to cover costs. NPS obligated $2.45 million of the FLREA amounts to pay for the private entity with which the EOP contracted to plan and execute the event. NPS also used the Centennial Challenge appropriation account to pay for certain costs attributable to the Salute to America event. NPS used the Operation of the National Park System account to fund the other Fourth of July events during 2016 through 2019. The Department of the Army transferred funds from its annual appropriations for fiscal years 2016 through 2019 to NPS to support the Capitol Fourth and Memorial Day concerts. The Army entered into an agreement with NPS each fiscal year and transferred a lump sum to NPS. NPS allocated the funding for the two concerts each fiscal year. The DC Government received an appropriation each fiscal year from the federal government for emergency planning and security costs in the District of Columbia that remains available until expended. This appropriation is for the costs of providing public safety at events related to the presence of the National Capital in the District of Columbia. According to DC Government officials, DC Government obligated the entire amount appropriated in fiscal year 2019 for the various events in the District of Columbia, including the Fourth of July events on the National Mall. DC Government officials stated that they did not request additional appropriations from Congress because they used funds from other appropriations to cover the cost of events exceeding the fiscal year 2019 appropriation. Park Police reimbursed local law enforcement outside of the District of Columbia for assistance with security, traffic, and crowd control, costs which were estimated from $85,000 to $132,000 annually from 2016 through 2019. These costs are included as regular operations. Finally, according to the officials at agencies we contacted, none of them delayed, deferred, or canceled any programs or activities as a result of resources being used for the Fourth of July events for 2016 through 2019. <4. Agency Comments> We provided a draft of this report to the EOP, DOD, Department of the Interior, Department of Homeland Security, Capitol Police, Architect of the Capitol, DC Government, SI, American Red Cross, Department of Energy, HHS, Washington Metropolitan Area Transit Authority, Department of Transportation, and Department of Justice for review and comment. The EOP, DOD, Department of the Interior, DC Government, Washington Metropolitan Area Transit Authority, and Department of Justice provided technical comments, which we incorporated as appropriate. The Department of Homeland Security, Capitol Police, Architect of the Capitol, SI, Department of Energy, HHS, and Department of Transportation informed us that they had no comments on the draft report and the American Red Cross did not provide comments. As agreed with your offices, unless you publically announce the contents of this report earlier, we plan no further distribution until 8 days from the report date. At that time, we will send copies to the Executive Office of the President, the Secretary of the Interior, the Acting Secretary of Homeland Security, the Secretary of Defense, the Secretary of Health and Human Services, and other interested parties. In addition, the report will be available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2989 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. Appendix I: Objectives, Scope, and Methodology Our objectives were to describe for the Fourth of July events on the National Mall for 2016 through 2019 (1) the total costs that federal agencies and state and local jurisdictions are estimated to have incurred and (2) the appropriations that were used to pay for the estimated federal costs; the extent, if any, to which the federal government has reimbursed costs incurred by state and local jurisdictions; and the extent, if any, to which federal agencies delayed, deferred, or canceled other programs or activities as a result of resources being used for Fourth of July events. To accomplish these objectives, we obtained and reviewed documentation, such as financial data, contracts, and relevant agreements, from federal agencies and state and local jurisdictions that contributed resources to the events. Agencies we contacted were the Executive Office of the President, Department of Defense (DOD), Department of the Interior, Department of Homeland Security, United States Capitol Police, Architect of the Capitol, District of Columbia Government, Smithsonian Institution, American Red Cross, Department of Energy, Department of Health and Human Services, Washington Metropolitan Area Transit Authority, Department of Transportation, and Department of Justice. In addition, we reviewed cost documents and other agency records to gain an understanding of the assets, including financial, physical, and human capital that each agency devoted to the events. In addition, we interviewed officials about estimated costs; any reimbursed costs; and any delayed, deferred, or canceled programs or activities. The scope of our review consisted of estimated costs of the events and associated appropriations incurred by federal agencies and state and local jurisdictions. For the purposes of this engagement, we defined estimated costs as the costs that are directly traceable to the planning, production, and execution of the specific Fourth of July events on the National Mall. For example, we included the transportation costs of moving material, equipment, and supplies to the National Mall for Fourth of July events as well as personnel overtime and holiday pay expenses for federal employees. The costs also included contracts that various federal agencies awarded to private entities that were specifically attributable to the events. We excluded costs that are not directly attributable to the planning, production, and execution of the specific Fourth of July events on the National Mall, such as salary costs for civilian federal employees and military personnel who performed duties during the events that would have been incurred regardless of whether the events took place. Also, we excluded the costs to operate and maintain DOD aircraft that were used in the Salute to America event. According to DOD, the aircraft were existing DOD assets, and the flying hours associated with the event were used by DOD to meet annual pilot training requirements that were required regardless of the events on the Fourth of July. In addition, we excluded the cost associated with private entity parade participation and firework donations. Finally, cost estimates were provided by and attributable to each agency and department, and we did not independently verify the data during this audit. We conducted this performance audit from July 2019 through June 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. Appendix II: GAO Contact and Staff Acknowledgments <5. GAO Contact Staff Acknowledgments> Kristen Kociolek, (202) 512-2989 or [email protected] In addition to the contact named above, Jonathan Meyer (Assistant Director), Kevin Scott (Auditor in Charge), and John Ledford made major contributions to this report. Other key contributors include Carl Barden, Anthony Clark, Marcia Carlsen, Elizabeth Erdmann, Pat Frey, Richard Geiger, Jason Kelly, Jason Kirwan, Quang Nguyen and Shahrzad Nikoo.

Why GAO Did This Study The Second Continental Congress formally adopted the Declaration of Independence on July 4, 1776. Since that day, Americans have celebrated this holiday through events held in towns and cities across the country. In the nation's capital, Washington, D.C., visitors have celebrated on the National Mall by attending federally sponsored events such as the National Independence Day Parade; A Capitol Fourth Concert; Independence Day Fireworks Display; and in 2019, A Salute to America. GAO was asked to review the impacts and estimated costs associated with the Fourth of July events on the National Mall. Specifically, this report describes the following for the Fourth of July events on the National Mall for 2016 through 2019: (1) the total costs federal agencies and state and local jurisdictions are estimated to have incurred and (2) the appropriations that were used to pay for the estimated federal costs; the extent, if any, to which the federal government reimbursed costs incurred by state and local jurisdictions; and the extent, if any, to which federal agencies delayed, deferred, or canceled other programs or activities as a result of resources being used for Fourth of July events. To perform this work, GAO reviewed documentation and interviewed personnel from federal agencies and state and local jurisdictions about their estimated costs and resources used for the events. What GAO Found From 2016 through 2019, hundreds of personnel from numerous federal agencies, state and local jurisdictions, and private entities planned, produced, and executed events on the National Mall that celebrated Independence Day of the United States. The National Park Service (NPS) was responsible for the overall execution of Fourth of July events on the National Mall. In addition, various federal agencies—including the Department of Homeland Security, United States Capitol Police, United States Coast Guard, and Department of Justice—helped to ensure safety. Beyond the federal effort, the District of Columbia Government (DC Government) and local law enforcement played a role in the overall events. Further, given the crowds and potential for high temperatures in July in Washington, D.C., it was important that organizers—including the Department of Health and Human Services—ensured adequate medical resources were available to attendees and participants. The estimated costs for the events held in 2016, 2017, and 2018 ranged from $6 million to $7 million annually, and included contract costs with private entities tasked with producing and executing the concert and fireworks. They also included the costs for overtime and holiday pay for federal employees working at the events. In 2019, with the addition of the Salute to America event, the Department of Defense (DOD) and Executive Office of the President undertook additional efforts. Estimated costs for the 2019 events on the National Mall increased to more than $13 million. This increase was attributable to the cost for DOD to transport several vehicles to the National Mall, the production and execution of the Salute to America event, and the additional security involved because the President attended the event. In addition, there were costs not directly attributable to the events, including salaries of some federal employees who performed duties during the events, as well as costs for fuel and depreciation on DOD assets. These costs were classified as not directly attributable to the Fourth of July events because they would have been incurred regardless of whether the events occurred. For example, according to DOD, the flight time related to the military flyovers for the Salute to America event were required training hours that pilots must complete annually, and therefore the related expenses, such as pilot salaries and fuel costs, were not included in event cost estimates. Finally, federal agencies and the DC Government primarily used annual federal appropriations to pay for the event costs. The DC Government received an appropriation each year to provide for public safety at certain events within the District of Columbia. According to DC Government officials, DC Government obligated the entire amount appropriated in fiscal year 2019 for the various events in the District of Columbia, including the Fourth of July events on the National Mall. DC Government officials stated that they did not request additional appropriations from Congress because they used funds from other appropriations to cover the cost of events exceeding the fiscal year 2019 appropriation. Agency officials did not identify any federal activities that were delayed, deferred, or canceled because of the resources used for the Fourth of July events on the National Mall in 2016, 2017, 2018, and 2019.

gao_GAO-19-407

gao_GAO-19-407_0

<1. Background> In general, date labels on packaged foods are not required by federal regulations, except in the case of infant formula. However, manufacturers may choose to provide date labels to help consumers and retailers decide when the food is of best quality. These date labels may carry different introductory phrases, such as best by, sell by, use by, or best if used by, prior to the date, according to the preference of the manufacturer. In most cases, these labels indicate quality or freshness (i.e., the last date by which the manufacturer believes the food will be fresh or taste best), according to USDA. However, according to representatives from the Food Marketing Institute, because date labels are not federally regulated, manufacturers use a number of different date labels across industry, and this variation in date labels may result in consumer confusion about the meaning of the labels. Consumer confusion about date labels on packaged foods contributes to food waste, according to various studies. Due to this confusion about what date labels mean, consumers may throw out food that is safe to eat, even if the food does not have visible signs of spoilage, according to these studies. For example, in a 2017 study, participants were asked to state what they thought a particular date label on a certain packaged food meant. The study found that participants did not have a consistent understanding of date labels some thought the labels indicated safety, and some thought they indicated quality, and others were unsure what the labels meant. Furthermore, three studies estimated that from 34 percent to 70 percent of consumers think that their risk of foodborne illness increases if they consume a packaged food product past the date label. In addition to confusion about the meaning of date labels, one study found that consumers are confused about who is responsible for date labels. According to the study, more than one-third of consumers surveyed believed the federal government regulates date labels, and 26 percent were unsure. <1.1. Federal and Nonfederal Roles Related to Date Labels> USDA and FDA share oversight of nearly all the nation s food supply but do not regulate most date labels and are not required to do so by federal law. USDA is responsible for the safety and proper labeling of meat, poultry, and egg products, and FDA is responsible for the safety and proper labeling of virtually all other foods. Within USDA, FSIS is the public-health agency responsible for ensuring that meat, poultry, and processed egg products are safe, wholesome, and accurately labeled. According to FSIS, its goals include lowering the incidence of pathogens that cause foodborne illnesses and limiting the occurrence of outbreaks, and ensuring that regulated products are properly packaged and labeled so consumers have access to important information about the product. Also within USDA, AMS provides voluntary quality-grading programs for producers of products such as milk, eggs, and meat. These quality- grading programs are paid for by the producers of these commodities and can require, among other things, that producers participating in these programs use date labels. In addition, USDA has research components that could address issues relating to date labels. For example, USDA s National Institute of Food and Agriculture supports research through grants to individuals, institutions, and organizations, and the Economic Research Service conducts economic research to inform and enhance decision-making. FDA has statutory authority to regulate the safety of foods and nutrition labels on packaged foods not regulated by FSIS. However, the agency is not required by statute to regulate the use of date labels. FDA also exercises its general authority to assist state and local governments with food safety efforts through its State Cooperative Programs specifically for Grade A milk, molluscan shellfish, and retail and food-service establishments. As part of these programs, FDA provides technical support, guidance, and training to help its regulatory partners with reducing foodborne illnesses associated with these commodities. Also, in coordination with its regulatory partners and industry, FDA develops guidance, including guidance on date labels for certain products and in certain circumstances. Such guidance represents FDA s best advice for a uniform system of provisions that address the safety and protection of food offered at retail and in food service. <1.1.1. State, Municipal, and Tribal Governments> As we reported in May 2016, the federal food safety oversight system is supplemented by states, localities, tribes, and territories, which may have their own laws and agencies to address the safety and quality of food. Generally, state, local and tribal governments may choose whether to regulate date labels on packaged foods. For example, the majority of states and the District of Columbia have some date labeling requirements for, most commonly, shellfish, dairy, and eggs, as figure 1 shows. Additionally, some states and the District of Columbia prohibit retailers from selling some packaged foods to consumers if the date on the label has passed. Furthermore, some municipalities choose to regulate date labels in addition to, or in the absence of, state regulations. For example, while Maryland prohibits the sale of grade A milk or milk products past the Sell by date marked on its cap or container, the city of Baltimore generally prohibits the sale of any perishable food past its expiration date. Tribal governments may also have regulations that address labels on packaged food. For example, the Navajo Nation Code has requirements related to labeling of some packaged foods, such as shellfish. <1.1.2. Industry> Where no state or local regulations are in place regarding date labeling, manufacturers may decide which of their packaged food products display a date label and what wording to use on the date label. Estimates on the number of different date labels currently in use across industry vary. Figure 2 below provides examples of introductory phrases for date labels currently used by packaged food manufacturers. In response to consumer confusion about date labels and resulting food waste, two industry associations, the Food Marketing Institute and the Grocery Manufacturers Association, in 2017 announced a voluntary industry initiative to encourage manufacturers and retailers to standardize date labels on packaged foods. This initiative calls for manufacturers to use either of two introductory phrases for date labels on packaged foods: (1) a best if used by label as an indication of product quality and (2) use by for certain perishable products that may be more susceptible to degradation of quality or potential food safety concerns. In December 2018, the Food Marketing Institute and the Grocery Manufacturers Association reported that in a consumer survey on these date labels, 88 percent of those surveyed said these two date label phrases were clear to them and 85 percent said they were helpful. <1.1.3. Advocacy Groups, International Organizations, and Countries> Some advocacy groups work to reduce consumer confusion over date labels as part of their overall food waste reduction efforts. For example, Rethink Food Waste Through Economics and Data (ReFED), an advocacy group committed to reducing food waste in the United States, in 2016 issued a report that outlined key steps to reduce food waste. The report listed standardizing date labeling as one of the top three solutions to reducing food waste with the greatest economic value and net environmental benefit. According to representatives from ReFED, the organization works alongside industry to promote the Food Marketing Institute and the Grocery Manufacturers Association joint voluntary initiative by providing manufacturers with a tool they can use to determine which wording to use on date labels for different products. In addition, according to these representatives, ReFED is developing methods to disseminate information to consumers about the meaning of date labels. Representatives from the Natural Resources Defense Council (NRDC), an international nonprofit environmental advocacy organization, said that NRDC is coordinating with the National Ad Council, a nonprofit organization that provides public-service communications, to develop a multiyear outreach and education campaign aimed at reducing household food waste. According to NRDC representatives, this joint effort may include information about date labels. Furthermore, in 2017, NRDC and the Harvard Food Law and Policy Clinic issued a report that found that the lack of standard date labels leads to a mistaken belief that past-date food is unsafe to consume, which causes unnecessary waste. The report called for Congress to pass legislation or for FDA and USDA to work together to create uniform regulations that standardize date labels throughout the nation. International entities have also taken steps to address date labeling practices and make date labels clearer to consumers. For example, according to its website, the Consumer Goods Forum an association of 400 manufacturers and retailers across 100 countries that sell globally has teamed up to help meet the United Nations sustainable development goal that calls for cutting in half per capita global food waste at the retail and consumer levels and reducing food losses along production and supply chains by 2030. As part of this effort to reduce food waste, the Consumer Goods Forum has called for standardized date labels. Other countries have also taken steps to address date labels. For example, in the United Kingdom, in 2008 a nonprofit group conducted research that found that consumers threw out about 22 percent of food that they could have eaten, because they were confused about what the date labels meant. In 2015, the United Kingdom government issued guidance on date labels, specifically that packaged foods must display either a best before or use by date on the packaging or label of prepacked food products. According to this United Kingdom guidance, a use by date label communicates that there may be a safety issue with consuming the product after the date. Furthermore, selling food that is past its use by date is prohibited in the United Kingdom. Additionally, the Canadian government has standardized date labels, requiring that prepackaged products with a durable life of 90 days or less be labeled with date markings and storage instructions, where applicable. Such foods must display best before and its corresponding French, meilleur avant. <1.2. Federal and International Roles Related to Food Loss and Waste> According to a 2014 USDA report, food loss and waste represents significant amounts of money and other resources invested in food production, including land, fresh water, labor, energy, agricultural chemicals (e.g., fertilizer, pesticides), and other inputs to produce food that does not ultimately meet its intended purpose of feeding people. Furthermore, according to the 2014 report, reducing food waste will become an increasingly important strategy in the future to help feed a growing human population both here and abroad. In the United States, USDA and EPA are leading the federal government s efforts to reduce food loss and waste, according to officials from the Office of Management and Budget and the Council on Environmental Quality. For example, in 2013, USDA and EPA launched the U.S. Food Waste Challenge for participants across the food supply chain to share best practices on reducing, recovering, and recycling waste. Furthermore, in September 2015, USDA and EPA announced a national goal to reduce food loss and waste in the United States by 50 percent by 2030, which aligns with the United Nations sustainable development goal that calls for cutting in half per capita global food waste. According to FDA officials, the agency was not involved with establishing the national goal because the agency has a limited mission related to food loss and waste; it is primarily responsible for protecting public health by ensuring the safety of the nation s food supply, among other things. <2. USDA and FDA Have Taken Steps to Address Consumer Confusion about Date Labels USDA Has Issued Guidance for Consumers and Industry> USDA and FDA have taken steps to address consumer confusion about date labels on packaged foods. For example, USDA has issued guidance to consumers and industry, promulgated regulations and implemented policies, and funded research on issues related to date labeling. In addition, FDA has issued information to consumers and supported industry efforts to standardize date labels. In December 2016, USDA s FSIS announced the availability of a fact sheet that provides guidance related to date labels for industry and consumers. The fact sheet, among other things, explains the meaning of commonly used phrases on date labels and recommends that grocery manufacturers and retailers that use date labels on their products use the language best if used by to reduce consumer confusion and resulting food waste. According to an FSIS announcement at the time, the agency chose this phrase because research showed that consumers easily understand the phrase as an indicator of food quality rather than food safety. FSIS also solicited comments on the fact sheet and, in April 2019, after receiving and reviewing comments, updated the fact sheet by, among other things, adding freeze by to the list of phrases commonly used on labels to describe food quality dates. Figure 3 shows excerpts from the 2019 fact sheet. In addition, FSIS offers a smartphone application (app), called FoodKeeper, that provides information for consumers on the shelf life of products, how to use food when it is at peak quality, and how to store food properly. FSIS developed the FoodKeeper app in 2015 in partnership with Cornell University and the Food Marketing Institute. The app offers users advice on how to store more than 650 food and beverage items, with specific storage timelines for the refrigerator, freezer, and pantry, depending on the nature of the product. In addition, the app allows consumers to note in their devices calendars when they purchased the products and to receive notifications when these products are near the end of their recommended storage date, among other things. According to FSIS, the agency is working on an updated version of the app. <2.1. USDA Has Promulgated Regulations and Implemented Policies> USDA has promulgated regulations and implemented policies related to required or voluntary date labels on certain products, such as poultry and eggs, and on foods used for its nutrition assistance programs. For example, FSIS has promulgated regulations that require that either the immediate container or the shipping container of all poultry food products be marked with a code or with the date the product was packed. According to FSIS, while USDA does not require date labeling for quality or food safety for products under its purview, the agency requires this pack date for poultry products to help the agency identify product lots and facilitate trace-back activities in the event of an outbreak of foodborne illness. Additionally, FSIS has promulgated regulations regarding voluntary date labeling. While there are no regulations requiring meat products to have a calendar date, a meat manufacturer may voluntarily place a date on the package. For both poultry and meat products, FSIS s regulations regarding language on these labels require that this date contain the day and month and be accompanied by a phrase explaining the meaning of the date, specifically packing date, sell by, or use before. The regulations also give manufacturers the option of adding a further qualifying phrase such as for maximum freshness or for best quality. In the case of meat and poultry products that are hermetically sealed, dried, or frozen, the year must be included as well, to prevent misleading consumers. According to FSIS, a retailer cannot remove or change the date while the product remains in its original packaging if a meat or poultry manufacturer voluntarily places a date on the package. In addition, AMS has promulgated regulations regarding a voluntary egg grademark program, in which egg producers may obtain a USDA grademark, or shield, on their eggs that indicates they meet applicable quality and size standards. The regulations contain requirements related to date labels. Among other requirements to obtain a grademark, the cartons or consumer packaging containing these eggs must show the day of the year on which the eggs were packed. Specific introductory phrasing for the date label such as sell by, best by, or use before is not required, but if these terms are used, AMS policies restrict the number of days from the pack date that can be used on a date label. An egg producer may choose to not use an expiration date and still receive AMS certification, but the lot number must be present on each carton. Cartons not identified with a USDA grademark are not subject to federal regulation; however, regardless of whether the eggs bear a USDA grademark, they are subject to state and local date labeling requirements. Furthermore, USDA s Food and Nutrition Service, which administers 15 federal nutrition assistance programs, policy, last updated in 2017, clarifies that date labels indicate quality, not safety. This policy references the agency s regulation that prohibits distributors of food assistance from providing food with expired date labels or food that is out-of-condition, regardless of the date on the label, to recipients of any Food and Nutrition Service programs. The policy states that, to give program recipients the opportunity to eat all donated foods before their expiration dates, distributors and recipient agencies should use an inventory-management system that distributes products marked with the earliest end date first, even if they were received after other similar products. <2.2. USDA Funded Research Related to Date Labels> From 2008 through 2018, USDA provided funding for two grants related to date labels, resulting in three studies: one grant resulted in a 2008 study, and the other grant resulted in studies in 2017 and 2018. The 2008 study assessed participant understanding of date labels on ready-to-eat meat and poultry products to minimize the risk of listeriosis in vulnerable populations. The study found that participants paid attention to the date labels but varied highly in their interpretation of the statements. However, they generally interpreted sell by date labels as primarily intended for the retailer s use on when to pull stock and best if used by labels as pertaining more to quality than safety considerations. The researchers reported that participants considered use by statements clearer and more helpful than sell by or best if used by labels and that they believed there was a need for a standardized approach to labeling. The study recommended that if a sell by date is used on a product solely for the store to know when to pull a product off the shelf, then a consume or use by date should also be implemented on behalf of the consumer. The 2017 study examined, among other things, consumer understanding of phrases on date labels specifically, best by, fresh by, sell by, and use by on specific products and how these labels affected the participants willingness to waste the food. The study found that participants had different levels of willingness to waste food depending on the phrase on the label. In the study, willingness to waste was highest for use by and lowest for sell by, and this difference held regardless of the product. The researchers suggested that this could be because use by may be the least ambiguous and suggestive of food safety, while, conversely, sell by may the most ambiguous and least suggestive of food safety. The researchers suggested that if manufacturers move exclusively to the sell by date label, this could lead to less waste in the food system. However, while the study identified phrases least likely to result in food waste, it focused on only three products and did not address or make recommendations about steps federal agencies could take to address consumer confusion about date labeling. The 2018 study examined consumer perception of date labels specifically, use by and best by on deli meat and spaghetti sauce. The study found that participants had differing perceptions of date labels by product and what each introductory phrase on the labels meant that is, whether they reflected safety, quality, taste, or nutrition. Generally, the study found that consumers tended to view use by as reflective of safety and nutrition, and best by as indicative of quality and taste. The three studies looked at consumer confusion on date labels on certain packaged foods but did not determine which introductory phrase for a date label would be most effective for reducing such confusion across a wide range of products that consumers may purchase, quantify the impact of such confusion on food waste, or determine steps USDA or other federal agencies could take to reduce waste resulting from such confusion. USDA s 2014 report on food waste noted that food loss (particularly the food waste component) was becoming an increasingly important topic both domestically and internationally. Moreover, according to that report, better estimates of the amount and value of food loss, including food waste, could help serve as quantitative baselines for policymakers and the food industry to set targets and develop initiatives, legislation, or policies to minimize food waste, conserve resources, and improve human nutrition. Previously, we have reported that the nation s increasingly tight budget environment underscores the need for federal research agencies to set priorities carefully and make effective use of limited research funding. USDA officials told us that their awareness of the role of consumer confusion about date labels and its effect on food waste had increased over time. Furthermore, these officials told us they planned to consider funding additional research if their process for determining research priorities indicates additional research is needed. <2.3. FDA Regulates Date Labels on Infant Formula, Has Provided Information on Date Labels to Consumers, and Has Supported Industry Efforts to Standardize Date Labels> FDA has taken some actions related to date labeling, such as promulgating regulations regarding date labels on infant formula. For example, since 1985, FDA has required that infant formula display a specific use by date on each container of infant formula, which specifies the date after which the formula should not be fed to infants. According to FDA, this label indicates that the manufacturer guarantees the nutrient content and the general acceptability of the quality of the formula up to that date. In addition, since 1993, FDA has published the Food Code, a model for safeguarding public health and ensuring food is unadulterated and honestly presented when offered to the consumer. According to FDA, it represents the agency s best advice for a uniform system of regulation that address the safety and protection of food offered at retail and in food service, and, while it is not a federal requirement, it is designed to be consistent with federal food laws and regulations. The 2017 FDA Food Code, which is the most recent, contains limited provisions related to date labels applied by manufacturers of packaged foods sold in retail food stores and food-service establishments. For example, the Food Code contains a provision regarding shellfish. It specifies that retailers should only obtain shucked shellfish in packages that identify the sell by or best if used by date for packages of less than a half-gallon or the date shucked for those of a half-gallon or more. According to Food and Drug Administration (FDA) documents, in response to infant- formula products that were causing illnesses among children because the products lacked sufficient nutrients and industry had too much discretion to decide the appropriate nutritional content of these products, Congress passed the Infant Formula Act of 1980. The act mandates that FDA set uniform standards for the nutritional content of infant formula. Under this act, FDA established a range of regulations affecting infant formula, including a requirement that its labels include use by dates. The regulations mandate that manufacturers determine dates on infant formula based on tests that prove the concentration of nutrients is adequate for the health of children up to the marked date. In addition to displaying a use by label, manufacturers are required to regularly test for the harmful pathogens (disease-causing bacteria) Salmonella and Cronobacter and demonstrate that the infant formula they produce supports normal physical growth. Additionally, the Food Code s provisions regarding the labeling of packaged foods state that food establishment or manufacturers dating information on foods may not be concealed or altered. However, the Food Code is voluntary and does not have provisions for the use of open- code date labels. The Food Code establishes limits for the time that a refrigerated, ready-to-eat food that has been opened or prepared in a food establishment may be held prior to sale or service. The date the food shall be consumed, sold, or discarded must be clearly marked; however, the date is not required to be visible to consumers and is handled separately from the disposition of packaged foods on which a manufacturer has voluntarily placed a date label. The Food Code also specifies how foods prepared in-house using specialized processing methods, such as reduced-oxygen packaging, are to be labeled to ensure they are stored, displayed for sale, or consumed within time limits considered adequate to reduce the risk of foodborne illness. In October 2017, FDA issued information on its website for consumers with food safety tips for foods purchased or received from a charity or bargain store. For example, according to the information, an expired sell by date does not necessarily mean that a food is spoiled or unsafe. However, in some cases, if food has not been handled safely, illness- causing bacteria may grow. In addition, the information states that consumers should avoid purchasing packaged foods that require refrigeration and that are past the use by or sell by dates because these foods may be perishable and may have begun to spoil. Moreover, in May 2019, FDA published an educational fact sheet for consumers on reducing food waste while maintaining food safety. This fact sheet includes information about the meaning of language on date labels, as consumers may waste food if they misunderstand what date labels actually mean. For example, it explains that a best if used by date indicates that a product will be at its best flavor and quality. On the fact sheet, FDA recommends consumers download USDA s FoodKeeper app to know how long various food products will keep in the pantry, in the refrigerator, and in the freezer. Furthermore, FDA has promoted a voluntary industry initiative to standardize approaches to date labeling of packaged foods and improve consumer understanding of the meaning of date labels. In May 2019, FDA issued a letter to industry that described FDA s position on the voluntary industry standard proposed by the Food Marketing Institute and the Grocery Manufacturers Association in January 2017. This voluntary industry standard called for using the best if used by introductory phrase in quality-based date labels on packaged foods. FDA said the agency strongly supports industry s voluntary efforts to use the best if used by introductory phrase when grocery manufacturers choose to include a quality-based date label to indicate when a product will be at its best flavor and quality. While the Food Marketing Institute and the Grocery Manufacturers Association recommended the use of the introductory phrase use by to indicate the date by which products should be consumed or discarded for safety reasons, FDA did not address the use by product date label for safety reasons in the agency s letter to industry. <3. USDA and FDA Have Taken Steps to Coordinate with Each Other and Some Stakeholders but Have Not Coordinated with Other Stakeholders on an Approach to Date Labels> <3.1. USDA and FDA Have Coordinated on Some Initiatives> USDA and FDA have coordinated on some initiatives focused specifically on date labels on packaged foods. For example, USDA and FDA officials told us the agencies are working together to develop information for food banks, food donors, and recipients of donated food regarding how to interpret date labels on packaged foods donated to food banks to ensure that food that is past the date on the label but otherwise edible is not wasted. USDA officials told us the agencies plan to finalize this information in 2019. USDA and FDA are also collaborating with EPA on an initiative to reduce food loss and waste. In October 2018, USDA, FDA, and EPA signed a formal interagency agreement, referred to by the agencies as the Winning on Reducing Food Waste Initiative. The formal agreement states the agencies are committed to increasing collaboration and coordination in existing federal programs in areas of mutual interest relating to the reduction of food loss and waste, and to developing an interagency strategy to address this issue. According to USDA s website, as part of this collaborative effort, the agencies agreed to coordinate food loss and waste actions, such as education and outreach, research, community investments, voluntary programs, public-private partnerships, tool development, technical assistance, event participation, and policy discussions on the impacts and importance of reducing food loss and waste. According to the agreement, the agencies will seek to work together at the federal level with actors throughout the entire food supply chain to leverage the private and nongovernmental sectors. Specifically, the agreement states the agencies will seek to educate these actors on best practices to reduce food loss and waste in the growing, manufacturing, transporting, selling and disposing of food, handling, preparation and storage of food, as well as creating new uses for excess food. After announcing the formal agreement in October 2018, the three agencies in April 2019 announced a federal interagency strategy to prioritize and coordinate their efforts as they implement the formal agreement. This strategy identifies date labeling as a priority action area and states that establishing and communicating clearer, coordinated voluntary guidance on food date labels and liability protection around food donation could help increase food recovery and lead to reductions in food waste and food insecurity. In the strategy, the agencies state that they built on information from several sources, including EPA and USDA s Call to Action by Stakeholders: United States Food Loss & Waste 2030 Reduction Goal and two reports from nonprofit organizations, all of which cited clarifying or standardizing date labels as a key element for food loss and waste reduction efforts. Establishing a formal agreement is a positive step and aligns with leading practices for interagency collaboration. We have previously found that interagency collaborations benefit from collaborative mechanisms, such as written agreements, in that agencies can strengthen their commitment to working collaboratively, which USDA and FDA have done. <3.2. USDA and FDA Have Taken Steps to Work with Some Nonfederal Stakeholders to Address Date Labels but Have Not Coordinated with Others> In addition to steps they have taken toward interagency collaboration, USDA and FDA have taken steps to work with some nonfederal stakeholders nonprofit organizations and an international organization on date labeling. For example, in February 2019, USDA, EPA, and FDA met with NRDC and the Ad Council to discuss campaigns to inform the public about ways to reduce food loss and waste, which includes consumer education on date labeling. According to FDA officials, the agencies will meet with the two groups later in 2019 to continue this discussion. In addition, in April 2019, in keeping with the goal in the agencies Winning on Reducing Food Waste Initiative to expand collaboration with nonfederal stakeholders, EPA, FDA, and USDA signed a formal agreement with ReFED to collaborate on efforts to reduce food loss and waste. The agreement outlines actions the agencies and ReFED agree to take, including that the agencies will consult with ReFED to develop approaches for measuring the success of various strategies and techniques being deployed nationwide to reduce food waste. Furthermore, USDA and FDA provide senior staff and executive delegates to represent the United States at the Codex Alimentarius Committee on Food Labelling, among other committees under the purview of the Codex Alimentarius Commission. The commission, an international intergovernmental body, produces the Codex Alimentarius, or Food Code, a collection of standards, guidelines, and codes of practice related to food, food production, and food safety. In 2018, the commission revised its voluntary guidance on date labeling to clarify the distinction between dates based on food quality and those based on food safety. Because the Codex Alimentarius is a voluntary reference standard, its guidance, including on date labels, is not binding on member countries, including the United States. However, USDA and FDA have not consulted with all relevant stakeholders. For example, state and local officials we spoke with told us that USDA and FDA had not collaborated with them or consulted them on approaches to date labels. In our prior work, we identified a leading practice for interagency collaboration that calls for ensuring that the relevant participants are included in interagency collaborative efforts. Such efforts can include other federal agencies; state, local, and tribal governments; industry; and nonprofit advocacy organizations. Generally, state, local and tribal governments may choose whether to regulate date labels on packaged foods. For example, the majority of states and the District of Columbia have date labeling requirements. Advocacy organizations and state officials told us that efforts at reducing consumer confusion about date labels could be hindered without federal leadership, as states may continue to have varying approaches. USDA and FDA officials told us that they did not have a specific mechanism to coordinate or consult with state, local, or tribal officials on creating a common approach to date labels. By developing a mechanism to facilitate coordination with nonfederal stakeholders including state, local, and tribal governments on actions related to date labels as part of their efforts to reduce food loss and waste, USDA and FDA could better assure that approaches they take to address consumer understanding of date labels are effective in helping reduce consumer confusion and resulting effects such as wasted food. <4. Conclusions> USDA and FDA have taken important steps toward reducing consumer confusion about date labels by, among other things, providing information to consumers and, in USDA s case, by conducting research on food waste. In addition, in October 2018, USDA, FDA, and EPA signed a formal agreement aimed at improving coordination and communication across federal agencies to educate Americans about the benefits of reducing food loss and waste. However, although USDA and FDA have taken steps to work with some nonfederal stakeholders, such as ReFED, on date labels, they have not worked with state, local, and tribal governments. We have identified that ensuring relevant stakeholders have been included in the collaborative effort as a leading collaboration practice. By developing a mechanism to facilitate coordination with relevant nonfederal stakeholders on actions related to date labels as part of their efforts to reduce food loss and waste, USDA and FDA could better assure that approaches they take to address consumer understanding of date labels are effective in helping reduce consumer confusion and resulting effects such as wasted food. <5. Recommendations for Executive Action> We are making two recommendations to the agencies in our review: The Secretary of Agriculture should work with the Commissioner of FDA to develop a mechanism to facilitate coordination with relevant nonfederal stakeholders, including state, local, and tribal governments, on actions related to date labels as part of their efforts to reduce food loss and waste. (Recommendation 1) The Commissioner of FDA should work with the Secretary of Agriculture to develop a mechanism to facilitate coordination with relevant nonfederal stakeholders, including state, local, and tribal governments, on actions related to date labels as part of their efforts to reduce food loss and waste. (Recommendation 2) <6. Agency Comments and Our Evaluation> We provided a draft of this report to the Departments of Agriculture and Health and Human Services for review and comment. In its comments, reproduced in appendix I, USDA agreed with our recommendation to the agency and described current and future actions to implement the recommendation. Similarly, in its comments, reproduced in appendix II, the Department of Health and Human Services agreed with our recommendation to it and described current and future actions to implement the recommendation. USDA and the Department of Health and Human Services provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Agriculture and Health and Human Services; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made contributions to this report are listed in appendix III. Appendix I: Comments from the U.S. Department of Agriculture Appendix II: Comments from the U.S. Department of Health and Human Services Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Anne K. Johnson (Assistant Director), David Bennett (Analyst-in-Charge), Tara Congdon, and Jordan Mettica made key contributions to this report. Carol Bray, Kevin Bray, Serena Lo, Oliver Richard, Danny Royer, Kiki Theodoropoulos, and Sarah Veale also contributed to this report.

Why GAO Did This Study USDA has reported that almost one-third of the U.S. food supply is lost or wasted at the retail and consumer levels. Studies indicate that some of this waste may occur because of consumer confusion about the meaning of date labels displayed on packaged food. Such labels are not federally regulated, and food manufacturers use different phrases on date labels. USDA and FDA have roles in ensuring the U.S. food supply is safe and properly labeled, but neither agency been directed—or given express authority—to regulate date labels. GAO was asked to examine consumer confusion about date labels. This report (1) describes the steps USDA and FDA have taken to address consumer confusion about date labels and (2) examines the extent to which USDA and FDA have coordinated with each other and with nonfederal stakeholders on date labels. GAO reviewed studies on date labels and FDA and USDA documents; interviewed agency officials and representatives of nonfederal stakeholders, such as industry, advocacy organizations, and state governments; and compared the agencies' efforts to leading practices identified by GAO. What GAO Found The U.S. Department of Agriculture (USDA) and Food and Drug Administration (FDA) have taken steps to address consumer confusion about date labels on packaged foods. For example, to reduce confusion about introductory phrases on date labels, such as whether the dates indicate food is safe to eat (see figure), and resulting food waste, USDA in December 2016 issued a fact sheet on date labels for consumers. In addition, USDA has funded research on issues related to date labels (e.g., how labels affected participants' willingness to waste food) and developed a smartphone application that provides consumers with information on the shelf life of products. FDA has issued educational materials to consumers about the meaning of phrases on date labels and in May 2019 issued a statement that it supports industry efforts to standardize date labels. USDA and FDA have coordinated on some initiatives focused on date labels on packaged foods. For example, agency officials said they were working together to develop information for food banks, food donors, and recipients of donated food on how to interpret date labels so food past the date on the label—but otherwise wholesome—is not wasted. In October 2018, the agencies, with the Environmental Protection Agency, signed a formal agreement to educate consumers about food loss and waste. In addition, USDA and FDA have taken steps to work with some nonfederal stakeholders—such as nonprofit organizations and an international organization—on date labeling. However, USDA and FDA officials told GAO that they do not have a specific mechanism to coordinate with state, local, and tribal officials on creating a common approach to date labels. State, local, and tribal governments may choose to regulate date labels, and the majority of states have date label requirements for certain foods. According to prior GAO work, ensuring that relevant participants are included in interagency collaborative efforts is a leading practice for interagency collaboration. By developing a mechanism to facilitate coordination with nonfederal stakeholders, such as state, local, and tribal officials, on actions related to date labels, USDA and FDA could better assure that approaches they take to address consumer understanding of date labels are effective in helping reduce consumer confusion. What GAO Recommends GAO is recommending that USDA and FDA develop a mechanism to facilitate coordination with relevant nonfederal stakeholders on actions related to date labels. USDA and FDA agreed with our recommendation and are planning actions to implement the recommendation.

gao_GAO-20-458T

gao_GAO-20-458T_0

<1. Background> GSA s existing government-wide telecommunications program is called Networx. As part of this program, in 2007 GSA awarded two sets of Networx contracts called Networx Universal and Networx Enterprise which had an estimated combined value of $20 billion. These contracts provide similar services, such as voice and data services, wireless services, video and audio conferencing, as well as mobile and fixed satellite services. One differing characteristic between the contracts is that Networx Enterprise contracts have a focus on internet-based services. The Networx Enterprise contracts also require telecommunications services to be available in a smaller geographic area than Networx Universal. Networx Universal contracts were set to expire in March 2017 and Networx Enterprise contracts were set to expire in May 2017; however, GSA has twice extended these Networx contracts. According to GSA officials, the most recent extension, which GSA announced in November 2018, is to include one base year and two 1-year options, plus an additional option for the number of months required for the contracts to reach May 31, 2023. If the extension is executed and all options are exercised, the Networx contracts will expire in May 2023. In addition, GSA provides telecommunications services through programs called Washington Interagency Telecommunications System 3 and Regional Local Service Agreements: Washington Interagency Telecommunications System 3: These contracts support a variety of telecommunications services available to all federal agencies in Washington, D.C., and surrounding Maryland and Virginia counties. For example, among other things, these contracts provide data and voice services, as well as cloud services. These contracts were set to expire on or before May 2020. As of December 2019, GSA planned to extend these contracts. GSA officials stated that the extension is to include one base year and two 1-year options, plus an additional option for the number of months required for the contracts to reach May 31, 2023. If the extension is executed and all options are exercised, the contracts will expire in May 2023. Regional Local Service Agreements: These contracts provide local telecommunications services in every state and major city in the United States. According to GSA officials, the expiration dates for these contracts ranged from October 2019 through March 2023. As of December 2019, GSA was in the process of extending these contracts. Specifically, GSA officials reported that certain contracts had already been extended to May 2023, and the officials planned to extend the remaining contracts through May 2023, as well. According to data provided by GSA officials, in fiscal year 2019, federal agencies spent approximately $2.5 billion on services acquired through Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements contracts. About $2 billion of this spending was on services acquired through Networx alone. <1.1. Enterprise Infrastructure Solutions Provides Contracts for Agencies to Acquire IT and Telecommunications Services> GSA s EIS program is the replacement for the agency s Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements telecommunications contracts. GSA intends for EIS to address federal agencies global telecommunications and IT infrastructure requirements. GSA plans for EIS to provide agencies with traditional and emerging services to meet current and future requirements by, among other things: simplifying the government s process of acquiring IT and telecommunications products and services; providing cost savings to each agency through aggregated volume buying and pricing (with generally lower costs for services on EIS compared to the costs for similar services on Networx), and spending visibility; and providing updated and expanded security services to meet current and future government cybersecurity requirements. In addition, GSA has identified several benefits that EIS is expected to provide to the agencies that participate in its telecommunications programs. These projected benefits include streamlined contract administration, a possible 15-year period of performance, simplified pricing, and enhanced management and operations support. On August 1, 2017, GSA announced that it had awarded EIS contracts to 10 vendors. These contracts have a combined value of up to $50 billion and are for a possible period of up to 15 years (one 5-year base period and two 5-year option periods). According to GSA s plans as of November 2019, the transition to EIS is expected to be completed by May 2023, when the current Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements telecommunications contracts are expected to expire (if all contract options are exercised, as discussed earlier). To help ensure that agencies services are fully transitioned to EIS before the current contracts expire, GSA issued guidance that identified several critical milestones that agencies should meet. These milestones include: (1) releasing all planned fair opportunity solicitations to EIS vendors by March 31, 2019; (2) issuing all planned task orders by September 30, 2019; and (3) achieving 100 percent transition of services by September 30, 2022. Figure 1 provides a timeline of the planned transition to EIS, including GSA s critical milestones, as of November 2019. <1.2. GSA, Agencies, and Contractors Have Transition Responsibilities> Central to the successful transition from GSA s current telecommunications services contracts to EIS are transition planning and execution activities that involve GSA, federal agencies, the incumbent telecommunications contractors, and EIS contractors. GSA serves as the facilitator for all transition management activities. The agency is using contractors to assist in tracking transition activities, in order to avoid delays and other problems that can arise throughout the process. In particular, GSA s primary responsibility is to provide program management for the current telecommunications programs (Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements) and EIS. As part of this, GSA is responsible for conducting government-wide strategy and project management; providing tailored assistance to agencies for transition planning and help with contractor selection and ordering; tracking and reporting the use of metrics that convey the relative complexity and transition progress; and providing customer support, training, and self-help tools and templates. GSA developed two contracting vehicles to provide transition assistance to agencies: (1) a Transition Coordination Center vehicle that includes assistance with inventory validation, transition planning, and solicitation development; and (2) a Transition Ordering Assistance vehicle that addresses tasks including requirements development and source selection assistance, and proposal evaluation. The Coordination Center vehicle was put in place in January 2016 and the Ordering Assistance vehicle was initially awarded in September 2016, but was not finalized until March 2017, after the conclusion of a bid protest. Agencies have principal responsibility for the transition. They are responsible for coordinating transition efforts with the incumbent contractors and EIS contractors to ensure that existing telecommunications services are disconnected and that new services are ordered under EIS. According to GSA, agencies responsibilities under EIS include, among other things: identifying key personnel, chiefly a Senior Transition Sponsor, Lead Transition Manager, and Transition Ordering Contracting Officer; engaging expertise from Chief Information Officers, Chief Acquisition Officers, and Chief Financial Officers to build an integrated transition team of telecommunications managers, acquisition experts, and financial staff; analyzing and confirming the accuracy of the inventory of active services that must be transitioned; developing a transition plan that describes technological goals, a transition schedule that includes GSA s major transition milestones (e.g., releasing all fair opportunity solicitations by March 31, 2019, and issuing all task orders by September 30, 2019), strategy for issuing task orders on EIS, and any constraints or risks; preparing solicitations for task orders; placing task and service orders; and reviewing, accepting or rejecting, and paying for services. At the agencies we reviewed, the staff responsible for the transition were part of their agencies offices that were headed by the Chief Information Officers. Finally, the incumbent and EIS contractors are responsible for disconnecting existing services under the current contracts and installing new services that agencies order under EIS. They are also to collaborate with GSA and agencies to (1) share transition planning and execution best practices and (2) help resolve issues. <1.3. GAO s Prior Work Has Examined Agencies Efforts to Plan for Transitioning between Telecommunications Contracts> We have previously reported on efforts by GSA and agencies to transition from one telecommunications program to another. In a June 2006 report, we identified a range of transition planning practices that can help agencies reduce the risk of experiencing adverse effects of moving from one broad telecommunications contract to another. These planning practices were to: (1) develop an accurate inventory of telecommunications assets and services, (2) perform a strategic analysis of telecommunications requirements, (3) develop a structured transition management approach, (4) identify the resources needed for the transition, and (5) develop a transition plan. Since that June 2006 report, we have reported multiple times on the extent to which selected agencies were following the transition planning practices. We have generally found that the selected agencies in our reviews had not fully implemented some of the key activities of the practices. For example, in 2008, we noted that one agency was not planning to clearly define all key transition roles and responsibilities and another agency was not planning to identify local and regional points of contact. In addition, in 2017, we reported that, among other things, the five agencies we selected had yet to fully apply most of the five planning practices. In each of our reports we made recommendations to the selected agencies focused on addressing the gaps in transition planning. All five agencies in our 2017 review undertook efforts to address our recommendations, but had not yet fully implemented them as of November 2019. <2. Agencies Have Various Plans for, and Are in Different Stages of, Transitioning from Their Current Telecommunications Contracts to Enterprise Infrastructure Solutions> Based on our ongoing work, our preliminary results indicated that the 19 selected agencies have varied plans for transitioning from their current telecommunications contracts to EIS program contracts. As of October 2019, these agencies were also in different stages of their EIS transitions. All of the selected agencies reported that they plan to fully transition their telecommunications services to EIS before the current contracts are set to expire in May 2023. However, over half of the selected agencies did not plan to complete the transition by GSA s September 30, 2022, milestone. In addition, the majority of selected agencies did not meet GSA s two critical EIS transition milestones in 2019 to (1) release all fair opportunity solicitations by March 31, 2019, and (2) issue all task orders by September 30, 2019. <2.1. Selected Agencies Had Varied Plans for Completing Their Transitions to Enterprise Infrastructure Solutions> As of November 2019, the 19 selected agencies had various plans for completing their transitions to EIS. Specifically, Eight of the selected agencies reported that they planned to finish their transitions to EIS by GSA s September 30, 2022, milestone. The 11 remaining agencies did not plan to complete their transitions by that date. Officials from the 11 agencies that did not plan to finish their transitions to EIS by GSA s September 30, 2022, milestone reported that they planned to complete the transitions before the current telecommunications contracts are set to expire in May 2023. However, four of these 11 agencies planned to complete their transitions in May 2023, just before the current telecommunications contracts are set to expire. In addition, the planned scope and amount of effort that is expected to be required to fully transition to EIS varied among the selected agencies. Specifically, agencies varied in the scope of their planned efforts related to two of GSA s critical transition milestones to release EIS fair opportunity solicitations and issue EIS task orders: One selected agency planned to release 54 EIS fair opportunity solicitations. The eighteen other selected agencies planned to release between one and six solicitations. Six agencies planned to issue more than five task orders. The other thirteen agencies planned to issue between one and five EIS task orders. Further, the selected agencies had different plans for the types of transitions that they would implement. Specifically, Four of the selected agencies planned to implement primarily a like- for-like transition of their services. The remaining 15 agencies planned to conduct a combination of a like-for-like transition and upgrading or transforming services. <2.2. Selected Agencies Were in Different Stages of Their Transitions to Enterprise Infrastructure Solutions> As of October 2019, the 19 selected agencies were in different stages of their EIS transitions. Eighteen of the agencies were in the acquisition planning and/or acquisition decision phases, during which the agencies release fair opportunity solicitations for vendor proposals and issue task orders to selected vendors, respectively. GSA established two critical milestones for agencies to complete these acquisition activities: (1) release all fair opportunity solicitations by March 31, 2019, and (2) issue all task orders by September 30, 2019. Regarding the first milestone to release all EIS fair opportunity solicitations by March 31, 2019: Five of the 19 selected agencies reported that they released all of their solicitations by this date. The 14 remaining selected agencies reported that they did not release all of their solicitations by this date. Officials from each of the five agencies that met GSA s milestone to finish releasing all of their planned EIS solicitations by March 31, 2019, reported that their agencies released either one or two solicitations. We asked officials from the 14 selected agencies that did not release all of their planned EIS solicitations by March 31, 2019, to identify the key factors that contributed to their agencies delays in releasing these solicitations. In response, agency officials cited numerous key factors for the delays, including the complexity of their telecommunications requirements, changes to the agency s or GSA s contracting strategy, and insufficient staff availability. Figure 2 identifies the key factors that contributed to delays in releasing all EIS solicitations by GSA s March 31, 2019, milestone, as identified by agency officials. In addition, regarding GSA s second milestone to issue all EIS task orders by September 30, 2019 one of the selected agencies reported that it issued all of its task orders by this date. The 18 other agencies reported that they did not issue all of their EIS task orders by this date. We asked officials from the 18 agencies that did not issue all of their EIS task orders by September 30, 2019, to identify the key factors that contributed to their agencies delays in issuing these task orders. In response, agency officials cited 19 key factors that led to the delays. Nine of the identified factors were the same factors that officials cited for their agencies delays in releasing EIS solicitations, including the complexity of requirements and having insufficient staff available. The officials also identified 10 other factors unique to their delays in issuing EIS task orders. For example, officials from two agencies reported that the EIS vendors needed clarification on the agencies requests for proposals. In addition, officials from three agencies reported that they needed clarification from the EIS vendors on the proposals that the agencies received. Figure 3 identifies the key factors that contributed to delays in issuing all EIS task orders by GSA s September 30, 2019, milestone, as identified by agency officials. Several of the identified factors, such as the partial government shutdown and the need for vendors to receive authorities to operate, have subsequently been resolved. For other factors, agencies can leverage GSA s available EIS training and customer support to help minimize delays in meeting GSA s transition milestones. Nevertheless, given that the majority of the selected agencies did not meet these transition milestones in 2019, it will be important for agencies to meet the remaining transition milestones to ensure that they complete the transition before the current telecommunications contracts expire in May 2023. <3. Selected Agencies Had Taken Steps to Implement Established Transition Planning Practices, but None Had Fully Implemented Them> In a June 2006 report, we identified five transition planning practices that can help agencies reduce the risk of experiencing adverse effects of moving from one broad telecommunications contract to another. Implementing these transition planning practices represents a comprehensive and rigorous management approach that can help agencies make the most of the opportunity for change that such a major telecommunications transition provides. Each of the five transition planning practices that we identified consists of various activities that should be implemented to fully address the planning practices. Table 1 identifies the five established transition planning practices and their associated activities. Based on our ongoing work, our preliminary results indicated that all five selected agencies had taken steps to implement the five established transition planning practices. However, consistent with our prior reviews of selected agencies efforts to implement these planning practices, none of the selected agencies had fully implemented any of the practices. <3.1. All of the Selected Agencies Had Developed Telecommunications Inventories, but None Were Complete> The five selected agencies had all partially implemented the first established transition planning practice to develop an accurate inventory of telecommunications assets and services. In particular, all of the selected agencies had partially implemented the two activities associated with this practice. Table 2 summarizes the extent to which the selected agencies had implemented the transition practice to develop an accurate inventory of telecommunications services. Identify a complete telecommunications inventory at every site, facility, and component. The five selected agencies had all partially implemented this activity. While all of these agencies had developed inventories of their telecommunications assets and services, none of the inventories were complete. Establish a documented process for updating and maintaining the inventories. All five selected agencies partially implemented this activity by taking steps to document their inventory update and maintenance processes. However, none of the agencies had fully documented these processes. Agency officials cited various reasons for partially implementing this first planning practice. For example, officials from three of the selected agencies all of whom were responsible for their agencies transitions to EIS stated that they did not track all of the assets and services ordered by the agencies. The officials added that they were not responsible for maintaining inventories of all of their agencies assets and services. Officials from another agency attributed their agency s lack of a complete telecommunications inventory and associated maintenance procedures to the agency s decentralized structure. Specifically, the officials stated that the agency s components were responsible for managing the services that are unique to them. However, the officials stated that the agency did not have a policy that required its components to maintain an inventory of telecommunications assets and services that they acquired independently. Without complete and accurate telecommunications inventories, the selected agencies may be unable to avoid unnecessary transition delays related to an inability to plan for services not identified in the inventory. In addition, without documented processes for maintaining their telecommunications inventories, the agencies may not be able to consistently and accurately incorporate into these inventories any changes made during and after the transition (e.g., adding new services or removing disconnected services), thus hindering their ability to ensure that they are billed appropriately by the vendor. <3.2. The Selected Agencies Took Steps to Strategically Analyze Their Telecommunications Requirements, but None Used a Complete Inventory to Determine Needs> All of the selected agencies had partially implemented the second established transition planning practice to perform a strategic analysis of telecommunications requirements. In particular, at least four agencies had partially, but not fully, implemented two of the four activities associated with this practice. For the other two activities, at least one agency had partially implemented each activity. Table 3 summarizes the extent to which the selected agencies had conducted strategic analyses of their telecommunications requirements. Identify current and future telecommunications needs using an inventory of existing services. All of the selected agencies had partially implemented this activity by identifying certain current and future telecommunications needs. However, as discussed earlier, none of the agencies had a complete inventory of current services. As a result, the agencies could not use such an inventory to fully identify their needs. Identify areas for optimization or sharing of telecommunications and IT resources. Three agencies had fully implemented this activity by completing strategic analyses to identify areas for optimization or sharing of telecommunications resources. The two remaining agencies had partially implemented this activity. For example, one of the two agencies had developed a draft analysis to justify the potential optimization and sharing across the agency of a telecommunications service for how hardware devices connect to the internet, but it had not yet finalized this analysis. Officials from the other agency had identified potential areas for the sharing of resources across the agency. However, the agency did not provide a documented analysis to justify the sharing of those resources. Evaluate the costs and benefits of any new technology and alternative options. Four agencies had fully implemented this activity by evaluating the costs and benefits of various technologies and alternative options for telecommunications services that they could implement as part of the transition. The one remaining agency had partially implemented this activity by evaluating the costs and benefits of upgrading one service by which hardware devices connect to the internet. While two of this agency s components had also analyzed the costs and benefits of implementing another type of service for connecting to networks, the agency s remaining components had not conducted such analyses. Determine that identified telecommunications needs and opportunities are aligned with the agency s mission, long-term IT plans, and enterprise architecture plans. One agency had fully implemented this activity by determining that its telecommunications needs aligned with its mission and plans. The four remaining agencies partially implemented this activity and did not demonstrate that they had fully aligned their telecommunications needs with their agency s mission, long-term IT plans, or enterprise architecture plans. Agency officials cited several reasons for not fully implementing the activities associated with this practice. For example, officials from one agency explained that they had not conducted and documented an analysis to identify areas for the sharing of telecommunications resources because they did not believe that there were any additional agency telecommunications resources that could be shared. The officials attributed this to the agency s security requirements and regulations, and noted that services on the agency s classified network may not be shared with services on its unclassified network. However, the agency did not provide documentation that demonstrated that it had determined that there were no additional resources that could be shared on its unclassified network. Officials from another agency stated that they thought their telecommunications needs were aligned with the agency s long-term IT plans. However, the officials did not provide documentation demonstrating this alignment. Agencies that do not use complete inventories of their current telecommunications services to identify their future needs are likely not fully identifying these needs. They may also miss out on opportunities to optimize or share services by consolidating them on EIS. In addition, without aligning their telecommunications needs and opportunities with their missions and plans, agencies risk missing opportunities to use the new contract to address their highest priorities, or may make decisions that are not aligned with their long-term goals. <3.3. All of the Selected Agencies Had Begun to Develop a Structured Management Approach, but None Had Fully Implemented It> All of the selected agencies had partially implemented the third transition planning practice to develop a structured management approach for the telecommunications transition. Specifically, four of the agencies had partially, but not fully, implemented two of the three activities associated with this practice. Three agencies had partially implemented the other activity. Table 4 summarizes the extent to which the selected agencies had established a structured management approach. Establish a transition management team and clearly define responsibilities for key transition roles. One agency had fully implemented this activity by establishing a transition management team and defining all key transition responsibilities for the planning and execution phases of the transition, including for project, asset, human capital, and information security management; and contract and legal expertise. The remaining four agencies had partially implemented this activity by establishing transition management teams, but none of these agencies had defined all key roles and responsibilities for their transitions. Develop transition communications plans in order to facilitate information sharing during transition planning and execution. Two agencies had fully implemented this activity by developing transition communications plans and identifying all key parties that need to be involved during the agency s transition effort. The remaining three agencies partially implemented this activity by identifying stakeholders responsible for communicating transition information to other stakeholders. However, these three agencies had not identified the key local and regional agency transition officials responsible for disseminating information about the transition to employees and working with the vendor to facilitate transition activities. Use established project, configuration, and change management processes in the agency s transition planning efforts. One agency had fully implemented this activity by demonstrating the use of all established management processes called for in the activity. The four remaining agencies had partially implemented this activity by demonstrating the use of project management processes for their transitions, such as tracking transition costs and developing schedules and risk logs. However, one of these four agencies did not demonstrate that it was applying approved cost and schedule management processes to its transition. The three remaining agencies did not demonstrate that they were applying established configuration management processes to their transitions, and two of the three also did not demonstrate that they had implemented change management processes for their transitions. Officials from the selected agencies generally attributed their lack of full implementation of this practice to the fact that, at the time of our review, the agencies were early in their transition planning processes. For example, officials from one agency stated that they had not defined a role or responsibilities related to human capital management because their human capital needs for the transition will depend on the vendors selected (at the time of our review, the agency had not yet selected all of the vendors for its EIS task orders). Officials from another agency also explained that they planned to work with their selected EIS vendors to implement all of the key management processes for the transition. While the selected agencies were early in their transition planning processes at the time of our review, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information that is available. Agencies that do not define all key roles and related responsibilities for their transition management teams risk extending their transition period as they attempt to assign appropriate personnel and update them on transition progress and issues. Further, without identifying all of the key officials that need to be involved with the transition, including the local and regional agency points of contact, agencies may lack the information that is necessary for comprehensive understanding, accountability, and shared expectations among all those with transition responsibilities. <3.4. All of the Selected Agencies Had at Least Partially Identified Their Transition Resource Needs, but None Had Fully Determined These Needs> All of the selected agencies had partially implemented the fourth established transition planning practice to identify their transition resource needs. In particular, all of the agencies had partially implemented three of the four activities associated with this practice. For the remaining activity, four of the agencies had partially implemented it and one agency had fully implemented it. Table 5 summarizes the extent to which the selected agencies had identified their transition resource needs. Identify the level of funding needed to support transition planning. One of the selected agencies had fully implemented this activity by identifying the costs needed to support its transition management team and all years of its transition planning efforts. The four other agencies partially implemented this activity by developing partial cost estimates for the transition, but none of these estimates were complete. Identify the organizational need for investments and justify resource requests. The five selected agencies had all partially implemented this activity by identifying the need for investments, including funding to obtain GSA transition assistance; however, none of the agencies had fully justified their resource requests for the transition. For example, four agencies had not justified their resource requests related to transition program management staff and one agency lacked justification for its requests for hardware and software upgrades. Identify human capital needs for the entire transition effort. All of the selected agencies had partially implemented this activity by identifying the need for certain staff to work on the transition, including government and contractor staff. However, none of the agencies had conducted and documented analyses of their human capital needs, to determine the total number of staff required to support their entire transition efforts. Identify and require training for the transition. All of the agencies had partially implemented this activity by identifying training needed by certain transition management staff. However, four agencies had not conducted and documented analyses to identify all of the training needed for their transitions, including training for staff carrying out the transition or operating and maintaining new equipment or services. The final agency had developed a draft analysis to identify training needed by staff carrying out the transition, but it had not finalized this analysis. Officials from the selected agencies generally explained that they were too early in their transition efforts to identify all of the funding, human capital, and training needed for their transitions. However, there is limited time remaining to complete the transition before the current telecommunications contracts expire. If the agencies do not conduct early planning to identify and justify all of their resources needed for the transition, they may underestimate the complexity and demands of their transition efforts. In addition, without using a rigorous management approach to analyze and document the total number of staff required to support the transition and to identify all of the required training for transition staff, agencies risk having insufficient staff available or may experience gaps in staff competencies. Such gaps may lead to delays and unexpected costs as the agencies try to quickly address the lack of resources during the transition s limited time frame. <3.5. All of the Selected Agencies Had Begun to Develop Transition Plans, but These Plans Were Not Complete> All of the selected agencies had partially implemented the fifth established transition planning practice to develop transition plans. Specifically, all of the agencies had fully implemented one of the three activities associated with this practice and partially implemented another of the activities. For the remaining activity, three agencies had fully implemented it and two had partially implemented it. Table 6 summarizes the extent to which the selected agencies had developed transition plans. Identify agency-specific transition objectives and measures of success. Three agencies had fully implemented this activity by identifying transition objectives and associated measures of success that were based on the transition objectives. The remaining two agencies had partially implemented this activity by identifying transition objectives and measures of success. However, their measures were unable to be used to assess transition progress. In particular, the identified measures could be used to determine success at the completion of the transition (e.g., all planned services have been transitioned to EIS). However, the measures did not enable the agencies to compare expected performance with actual results in order to track progress during the course of the transition (e.g., identifying the expected number of services that would be moved to EIS during each year of the transition). Identify risks that could affect transition success, including information security risks, and evaluate the importance of these risks relative to the agency s mission critical systems and continuity of operations plans. All of the selected agencies had fully implemented this activity. Specifically, each of the agencies had identified transition risks and evaluated the importance of those risks relative to the agencies mission critical priorities. Clearly define transition preparation tasks and develop a time line that takes into account the agency s mission critical systems, contingency plans, and identified risks. All of the selected agencies partially implemented this activity by developing time lines with clearly defined transition preparation tasks. However, none of these time lines accounted for all key priorities identified in the activity. Officials from all of the selected agencies generally said that they had not yet developed complete transition time lines because they were focused on activities associated with the acquisition planning phase of the transition, including developing their EIS solicitations. Officials from all of the agencies said that they planned to develop complete transition time lines after they issue their EIS task orders. While agencies lack of issued EIS task orders contributed to delays in developing complete transition plans, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information that is available. In summary, although the 19 selected agencies reported that they plan to fully transition to EIS before the current telecommunications contracts expire in May 2023, over half of the agencies do not plan to complete the transition by GSA s September 30, 2022, milestone to do so. By waiting until close to the end of the current contracts to finish the transition, these agencies are at risk of experiencing disruptions in service if any issues arise that result in transition delays, such as inadequate human capital resources or the need to transition previously unidentified services. Agencies also face a financial risk. During the last transition, significant delays in moving to Networx which offered generally lower rates than its predecessor led to hundreds of millions of dollars in missed savings. Should agencies experience similar delays in the current transition, the missed savings could also be significant. In addition, five agencies we reviewed had taken steps to prepare for the transition of their telecommunications services to EIS contracts. However, these agencies lack of full implementation of established planning practices increases the risk that they will experience adverse effects such as schedule delays or cost increases while transitioning to the new contracts. Several agencies stated that they intend to implement the planning practices after they have issued their EIS task orders. However, limited time remains to complete the transition before the current telecommunications contracts expire. Further, inadequate project planning was a key factor that contributed to delays during the prior transition to Networx. Thus, it is critical for agencies to apply a rigorous management approach from the start of the current transition using the information that is currently available, even though changes may be necessary as conditions evolve. Agencies that do not fully adopt the comprehensive approach captured in these planning practices may not make the most of the opportunity for change, and the potential to save costs, that such a major telecommunications transition provides. Accordingly, our draft report contains 25 planned recommendations to the five selected agencies. By implementing our recommendations, the agencies should be better positioned to reduce their risk of experiencing the types of delays that occurred during previous transition efforts. Because of the generally lower rates available on EIS, significant delays would lead to agencies being unable to take advantage of readily available cost savings. Chairman Connolly, Ranking Member Meadows, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have. <4. Contact and Acknowledgments> If you have any questions concerning this statement, please contact Carol C. Harris, Director, Information Technology Acquisition Management Issues, at (202) 512-4456 or [email protected]. Other individuals who made key contributions include James R. Sweetman, Jr. (Assistant Director); Emily Kuhn (Analyst-in-Charge); Christopher Businsky; Rebecca Eyler; and Javier Irizarry. 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.

Why GAO Did This Study GSA is responsible for contracts that provide telecommunications services for federal agencies. In preparation for the expiration of current telecommunications programs, GSA has developed a successor program, called EIS. GSA and agencies now must carry out the task of successfully transitioning to EIS. Previous contract transitions experienced significant delays. Those delays during the last transition resulted in hundreds of millions of dollars in missed savings. GAO was asked to summarize its draft report currently out for comment at selected agencies. The draft discusses (1) selected agencies' plans for, and status in, transitioning to EIS; and (2) the extent to which selected agencies were implementing established transition planning practices. In preparing the report on which this testimony is based, GAO administered a survey to 19 selected agencies that spent at least $10 million on telecommunications in fiscal year 2018 regarding their plans for and status in transitioning to EIS. GAO also selected five of these agencies for further review based on, among other things, agency size and structure. For these agencies, GAO evaluated documentation to determine the extent to which they had implemented five planning practices identified in a previous GAO report. What GAO Found GAO's preliminary results show that, as of October 2019, the 19 selected agencies reviewed were in different stages of transitioning from their soon-to-be-expiring telecommunications contracts to the new Enterprise Infrastructure Solutions (EIS) program, which has generally lower rates for services. All of these agencies reported that they plan to fully transition to EIS program contracts before the current contracts expire in May 2023. However, 11 agencies did not plan to fully transition by the General Services Administration's (GSA) September 30, 2022, milestone. The majority of the selected agencies also did not meet GSA's milestones for completing critical contracting actions in 2019 (see table). While transitioning to EIS is a complex undertaking, delays in making this transition will cause agencies to miss out on potential cost savings that would result from the generally lower rates for services on the EIS program contracts. Dates GAO's preliminary results indicate that five of the 19 agencies that were selected for further review had partially implemented established planning practices that can help agencies successfully transition their telecommunications services to new contracts. These practices are to: (1) develop an accurate inventory of telecommunications services, (2) perform a strategic analysis of telecommunications requirements, (3) develop a structured transition management approach, (4) identify the resources needed for the transition, and (5) develop a transition plan. The agencies provided several reasons for partially implementing the practices. For example, transition officials at three agencies said that they were not responsible for tracking all of the telecommunications services in use at their agencies; as such, they were unable to provide complete telecommunications inventories. The agencies also planned to implement certain practices after they issue their EIS task orders. However, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information available and fully implement these transition planning practices to reduce the risk that the agencies experience the types of delays and missed savings that occurred in previous transitions. What GAO Recommends GAO's draft report contains 25 recommendations to the five agencies to fully implement the transition planning practices.

gao_GAO-20-301

gao_GAO-20-301_0

<1. Background> In 1992, the Prescription Drug User Fee Act (PDUFA) was enacted, in part, to provide additional funds for FDA to support the process of reviewing NDAs. PDUFA authorized FDA to collect user fees from drug sponsors to supplement its annual appropriation for salaries and expenses. PDUFA has been reauthorized every 5 years since 1992; most recently PDUFA VI reauthorized the prescription drug user fee program from fiscal year 2018 through fiscal year 2022. As part of each reauthorization process, FDA identifies goals in a commitment letter to Congress. In general, these goals identify a percentage of certain types of applications that FDA is expected to review within specified time frames, including goals for the time the agency takes to complete reviews of different types of NDAs upon initial submission and resubmission. For example, in its commitment letters for PDUFA V and VI, FDA committed to completing its initial review of 90 percent of priority NDAs that involve previously marketed or approved active ingredients within 6 months of receipt. As previously noted, four key features of NDAs are linked to drug development and review processes. For initial NDA reviews, the time frames for FDA s review that would meet its PDUFA V and VI commitments its PDUFA goals vary and are linked to three key features of the NDA. (See table 1.) The target time frame for the initial review of any specific NDA under these user fee commitments reflects the goals associated with all three of the key features. The fourth key feature of NDAs is whether they qualify for one of FDA s expedited programs. Whether designated as priority or standard, FDA may determine that NDAs for drugs intended to treat serious or life- threatening conditions qualify for development and review under one or more expedited programs. These programs confer specific benefits with the potential to help reduce the development or review time needed to bring a drug to market. For example, some expedited programs provide for more intensive drug development guidance from FDA officials or allow the applicant to submit completed sections of the NDA for review before submitting the entire application. FDA s expedited programs include accelerated approval, breakthrough therapy designation, and fast track designation. (See table 2.) NDAs must include substantial evidence of a drug s effectiveness, which is typically drawn from clinical trials. In traditional clinical trials, patients receiving a new drug are often compared with patients receiving a placebo or a different drug. To maximize data quality, these clinical trials are usually randomized (patients are randomly assigned to either the group receiving the new drug or a comparison group) and double-blinded (neither the patients nor the investigators know who is receiving a particular treatment). According to FDA, although this type of study design is often the most powerful tool for evaluating the safety and effectiveness of new drugs, many traditional clinical trials are becoming more costly and complex to administer. Additionally, according to FDA, many new drugs are not easily evaluated using traditional approaches. For example, drugs intended for patients with rare diseases are difficult to evaluate due to the limited number of patients affected by the disease and available for study. The Cures Act was enacted on December 13, 2016, to accelerate the discovery, development and delivery of new treatments including drugs for patients. Among other things, the Cures Act includes provisions for FDA to evaluate and facilitate the use of evidence from sources other than traditional clinical trials to support safety and effectiveness determinations for new drugs. For example, FDA was directed to evaluate the potential use of evidence based on data that is routinely collected outside of traditional clinical trials from sources such as electronic health records, medical claims data, and disease registries; evidence from such data sources is referred to as real-world evidence. In the commitment letter associated with PDUFA VI, which was enacted on August 18, 2017, the agency agreed to certain goals relating to the use of real-world evidence in regulatory decision-making and also agreed to certain activities intended to facilitate the development and application of an additional source of evidence known as model-informed drug development. Although these nontraditional sources of evidence were included in NDAs prior to the enactment of the Cures Act and PDUFA VI, at the time this legislation was enacted, most of them were not widely used. For example, according to FDA officials, the NDAs that included real-world evidence were generally for drugs to treat oncology diseases or rare diseases. <2. FDA Divisions Differ in Proportions of NDAs Reviewed with One or More Key Features> Our analysis of the 637 original NDAs submitted from fiscal years 2014 through 2018 indicates that divisions differed in the proportions of NDAs they reviewed that had any one of three key features that are linked to time frames for initial review under FDA s PDUFA goals. As examples: 6 percent of the NDAs reviewed by the dermatology and dental division had a priority review designation, while 56 percent of the NDAs reviewed by the anti-infective division had a priority review designation; 4 percent of the NDAs reviewed by the anesthesia, analgesia, and addiction division involved a new molecular entity, while 52 percent of the NDAs reviewed by the neurology division involved one; and None of the NDAs reviewed by the transplant and ophthalmology division involved a major amendment, while 36 percent of the applications reviewed by the gastroenterology and inborn errors division involved one. (See fig. 1. App. IV provides more detailed information about differences between divisions in the number and proportion of NDAs with these key features.) We also found differences between divisions in the proportion of NDAs that they reviewed under an expedited program the fourth key feature of NDAs. For example, none of the NDAs reviewed by the metabolism and endocrinology division qualified for one or more expedited programs, while 52 percent of the NDAs reviewed by the antiviral division qualified for one or more expedited programs. (See fig. 2. App. V provides more detailed information about differences between divisions in the number and proportion of NDAs that qualified for one or more expedited programs.) It is not unexpected that divisions differ in the proportion of their applications with key features linked to FDA s time frames for review or qualification for expedited programs because the divisions are responsible for different products. For example, some divisions, such as the oncology divisions, regulate products for conditions that are more likely to be serious or life-threatening, and therefore the NDAs reviewed by these divisions are more likely to qualify for priority review designation and expedited programs, compared with other divisions, such as the dermatology and dental division. <3. FDA Divisions Vary in Their Initial Review Times for NDAs, Largely Due to PDUFA Goals> Our analysis of review times for the 637 original NDAs submitted from fiscal years 2014 through 2018 shows that FDA divisions differed in the number of days they took to complete their initial reviews. For example, the median time taken to complete an initial review of an NDA by the anti- infective division was about 2 months faster than the median time taken by the gastroenterology and inborn errors division. (For more information about initial review times, see app. VI.) We found, however, that these differences in initial review times largely reflected key features of the NDAs reviewed by the divisions, particularly those features linked to FDA s time frames for review under its PDUFA goals. We analyzed initial review times using a statistical regression with two variables reflecting key features of the NDAs target time frame for review of the application under FDA s PDUFA goals (in days, from FDA s receipt of the NDA to FDA s targeted date for completion of the initial review) and number of expedited programs (0, 1, or 2 or more) along with division as independent variables. We found that each of these variables was a significant determinant of initial review times. Specifically, our regression analysis shows that on average The shorter the target time frame for initial review of the NDA under FDA s PDUFA goals, the shorter the initial review, and this target time frame was responsible for the majority of variation in initial review times. The greater the number of expedited programs for which the NDA qualified, the shorter the time FDA took to complete the initial review. Controlling for the effects of these key NDA features, however, we found that most of the divisions average review times were similar to (within 2 weeks of) each other. In contrast, the hematology and oncology divisions reviewed applications a bit more rapidly about 2 or 3 weeks faster than other divisions. Figure 3 illustrates the results of our analyses. The panel on the left shows the variation in the divisions actual average review times. The panel on the right shows the estimated average review times, after accounting for key application features, that is, what the review times would have been if each division had reviewed equal numbers of applications with these key features. We asked FDA officials what might contribute to somewhat faster review times by the hematology and oncology divisions, and FDA officials told us that a number of variables could have contributed to these differences. For example, the officials told us that applicants differ in their level of experience, which can affect the quality of the NDA or the speed of response to FDA s requests for information; applications differ in complexity; and the oncology and hematology divisions could differ from others in their risk/benefit considerations. As previously noted, some divisions, such as the oncology divisions, regulate products for conditions that are more likely to be serious or life-threatening compared with other divisions, such as the dermatology and dental division, and risk/benefit considerations can differ across conditions that vary in how serious or life- threatening they are. For example, the potential benefits of drugs that carry substantial risks for dangerous side effects would likely be weighed differently if the drug is intended to address a life-threatening illness for which there is no other treatment than if the drug is intended to address an illness that is not life-threatening or for which there is an alternative treatment. <4. FDA Is Implementing Initiatives to Evaluate and Facilitate the Use of Different Evidence Sources to Support NDAs> FDA has several initiatives underway to evaluate and facilitate FDA review divisions and drug sponsors use of evidence derived from sources other than traditional clinical trials to support NDAs. (See table 3 for a description of these different evidence sources and each initiative.) According to FDA officials, implementing these initiatives can help ensure that when drug sponsors utilize these sources of evidence in NDAs, the evidence is of sufficient quality to be used in regulatory decision-making and that there is consistency across FDA review divisions in their evaluation of the evidence. FDA officials also said that although complex innovative trial designs might replace traditional clinical trials as evidence in NDAs, real-world evidence is more likely to be used to supplement clinical trial data. Although the initiatives are not restricted to any particular type of disease or patient population, according to FDA officials, some initiatives may be more relevant for certain types of diseases or patient populations than others. For example, according to FDA officials: real-world evidence may be most relevant for diseases that have outcomes that are consistently collected in the health care system. clinical outcome assessments (one aspect of patient-focused drug development) may be most relevant for diseases that are chronic, symptomatic, or affect functioning and activities of daily living. complex innovative trial designs may be most relevant for situations in which the population size is small or limited, such as pediatric populations, or where there is an unmet medical need, such as rare diseases. Our review of FDA documentation and interviews with FDA officials show that FDA has taken steps to implement each of these five initiatives. These steps include conducting public workshops with key stakeholders, issuing guidance for industry and FDA staff, initiating pilot programs, and developing FDA staff capacity, including by providing training and other educational resources. (See table 4 for examples of key activities by initiative.) These and future planned activities including issuing additional guidance and revising relevant FDA policies and procedures are intended to address deliverables for FDA to accomplish through 2021 that are outlined in the Cures Act and the PDUFA VI commitment letter. According to FDA officials, the agency intends to meet these deliverables, though, according to these officials, some of the activities implemented under the initiatives, such as certain pilot programs, will likely extend beyond 2021. Although implementation is still in progress for all of the initiatives, FDA officials reported some outcomes. For example, since the launch of the model-informed drug development pilot program, the agency has received two NDA supplements that incorporated model-informed drug development concepts discussed during pilot program meetings. Additionally, officials told us there has been a recent increase in investigational new drug submissions utilizing complex innovative trial designs. FDA officials also reported an increase in biomarker submissions under the drug development tool qualification program, and continued growth of the clinical outcome assessment qualification program. FDA expects that fully implementing the initiatives will lead to further increases in the use of evidence from sources other than traditional clinical trials. <5. Agency Comments> We provided a draft of this report to the Department of Health and Human Services for review and comment. The department provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of the Department of Health and Human Services, 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 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 VII. Appendix I: Methodology for Data Analyses To determine (1) how Food and Drug Administration (FDA) divisions differ in the proportion of new drug applications (NDA) they review with key features linked to review time goals and expedited programs and (2) how FDA review divisions differ in the time taken to complete initial reviews and the extent to which key features of NDAs contribute to those differences, we analyzed data from FDA. We also interviewed FDA officials about the data and their review processes. <6. Data> We obtained data regarding all NDAs submitted to FDA s Center for Drug Evaluation and Research (CDER) from fiscal years 2014 through 2018. These data included information about features that distinguish NDAs from one another, including which division was responsible for the review. The data also included information through March 31, 2019, about the dates when FDA received and completed a review of each NDA, along with the target dates for completion of review under FDA s goals in commitment letters associated with the Prescription Drug User Fee Act (PDUFA) reauthorizations for fiscal years 2013 through 2017 (PDUFA V) and fiscal years 2018 through 2022 (PDUFA VI). To ensure meaningful analysis of review times, we excluded NDAs for which FDA had not completed an initial cycle of review. Of 686 NDAs submitted in fiscal years 2014 through 2018, the applicant withdrew 10 NDAs prior to completion of FDA s initial review and 39 NDAs were still under FDA review as of March 31, 2019, leaving 637 NDAs for which FDA had completed an initial review. To assess the reliability of these data, we conducted a series of electronic and logic tests to identify missing data or other anomalies. These analyses were informed by our review of relevant documentation and interviews with knowledgeable FDA officials. As part of our assessment of reliability, we worked with FDA to identify and correct information about certain NDAs in a small number of instances in which we identified discrepancies. Using these methods, we determined that the remaining data were sufficiently reliable for our purposes. Unless otherwise specified, the results we present are statistically significant at the 0.05 level. <7. Proportions of NDAs with Key Features> To determine how FDA divisions differ in the proportion of NDAs they review with key features linked to FDA s time frames for initial reviews and expedited programs, we conducted a series of chi-square tests comparing the distributions of the 637 NDAs with and without specific features across divisions. These key features included: whether the NDA had a priority review designation (a designation applied by FDA if the product would provide a significant therapeutic improvement in the safety and effectiveness of the prevention, diagnosis, or treatment of a serious condition when compared to available drugs) or instead had a standard designation; whether the NDA did or did not involve a new molecular entity an active ingredient that had not previously been marketed or approved for use as a drug in the United States, whether the NDA did or did not involve a major amendment (a submission, while a pending NDA is under FDA review, of additional information that may include a major new clinical safety or efficacy study report or major new analyses of studies, among other things); and whether the NDA did or did not qualify for an expedited program (accelerated approval, breakthrough therapy designation, or fast track designation), programs intended to help reduce the time involved in developing or reviewing certain drugs that have the potential to treat serious or life-threatening conditions. (See table 5 for relevant statistics from these chi-square tests.) <8. Initial Review Times> To determine how FDA review divisions differ in the time taken to complete initial reviews, we conducted a preliminary regression analysis of 637 NDAs with the number of days an FDA division took to complete its initial review as the dependent variable and division as a single independent variable. We defined the time to complete a review as the number of days from FDA s receipt of the NDA to the agency s completion of the initial review by taking regulatory action. To determine the extent to which key NDA features contributed to differences between divisions in the time taken to complete initial reviews, we conducted a multiple regression analysis of the number of days FDA took to complete its initial review with division as an independent variable, along with two other independent variables to control for the key NDA features: Target time frame for initial review of the NDA under FDA s PDUFA goals. Three key NDA features are linked to time frames for FDA s initial review under its PDUFA goals whether the NDA was priority or standard, did or did not involve a new molecular entity, and did or did not involve a major amendment. To control for these three features simultaneously, we counted the number of days from FDA s receipt of the NDA until FDA s target date for completion of the initial review under FDA s PDUFA goals, and used that variable the target time frame for review under FDA s PDUFA goals as an independent variable. We identified five NDAs for which FDA s review time was exceptionally long in comparison to the target time frame for review under its PDUFA goals, and we asked FDA officials about them. FDA officials stated that these reviews were substantially delayed because of complicated manufacturing site issues, complicated legal and regulatory issues, or emerging public health issues requiring last minute advisory committee meetings conditions that we deemed sufficiently unusual to exclude these five NDAs from further statistical analyses of review times. Number of expedited programs for which the NDA qualified. Another key NDA feature is whether it qualified for one or more expedited programs, programs with the potential to help reduce the development or review time needed to bring a drug to market. We controlled for this feature by including number of expedited programs (0, 1, or 2 or more) as an independent variable in our multiple regression analysis. Thus, we tested the effect of division on initial review times for 632 NDAs while controlling for the target time frame for review under FDA s PDUFA goals and qualification for expedited programs. (See tables 6 and 7 for relevant statistics from this multiple regression analysis.) Our multiple regression analysis allowed us to test a specific hypothesis about the effect of division on review times, namely, whether divisions differed in their review times after controlling for the key features of NDAs. This regression analysis did not test a model of review times that is, we did not attempt to identify all variables that affect review times, nor did we seek to identify the specific set or combination of variables within our data that had maximum explanatory power. Our analyses indicated that variation remained in initial review times, even after we controlled for these variables. It is important to note that an array of factors might be expected to influence review times, including not just those factors that were captured in our analysis, but also factors such as state of the science and quality of the application. With data from 632 NDAs distributed unevenly across 15 divisions, meaningful tests of additional variables or their interactions were not possible. Nonetheless, we conducted exploratory analyses that included other potentially relevant variables in addition to the target time frame for review under FDA s PDUFA goals, number of expedited programs, and division. In separate regression analyses, we examined (a) the fiscal year in which FDA received the NDA and (b) whether the application was a BLA, an NDA based on information from studies conducted by the applicant, or an NDA based on at least some information from studies not conducted by or for the applicant. We did not find evidence of a consistent effect of either of these additional factors on review times, but in light of the number of NDAs, we cannot exclude the possibility that one or more of these factors affects review times. In a third exploratory analysis, we examined the outcome of the initial review (a) approval; (b) tentative approval, which FDA grants if the NDA meets requirements for approval, but cannot be approved due to a patent or exclusivity period for a listed drug; or (c) issuance of a letter to the applicant called a complete response letter, in which FDA describes the specific deficiencies the agency identified and recommends ways to make the application viable for approval. This analysis suggested that NDAs that were approved for marketing at the end of the initial cycle of review were reviewed slightly faster on average than other NDAs, but this result should be viewed with caution because a small number of NDAs with certain initial review outcomes were distributed unequally. For example, very few of the NDAs (11) reviewed through one or more expedited programs resulted in tentative approval. Appendix II: Total Times Taken by FDA Divisions to Review New Drug Applications Received in Fiscal Years 2014 through 2018 The Food and Drug Administration s (FDA) Center for Drug Evaluation and Research (CDER) divisions differed in the total number of days they took to complete reviews of 637 new drug applications (NDA) submitted from fiscal years 2014 through 2018 and completed by March 31, 2019. (See fig. 4.) Importantly, these times reflect differences associated with the number of completed review cycles, FDA s target time frames for review under its goals in commitment letters associated with the Prescription Drug User Fee Act (PDUFA) reauthorizations for fiscal years 2013 through 2017 (PDUFA V) and fiscal years 2018 through 2022 (PDUFA VI), and number of expedited programs. Number of review cycles. The number of cycles of review to which the NDAs we examined were subject was largely dependent on factors that were not under FDA s control, namely, the applicant s actions and timing. When a cycle of review ends with an FDA action, that action can be (a) approval, which allows the applicant to market the drug, (b) tentative approval, which FDA grants if the NDA meets requirements for approval, but cannot be approved due to a patent or exclusivity period for a listed drug, or (c) issuance of a letter to the applicant called a complete response letter, in which FDA describes the specific deficiencies the agency identified and recommends ways to make the application viable for approval. The applicant may respond to either tentative approval or a complete response letter by resubmitting a revised application, triggering a new cycle of review; it is up to the applicant to decide whether to resubmit the application. In addition, NDAs that were submitted earlier in time would have a greater chance of being resubmitted and reviewed by March 31, 2019, than applications submitted later in time. The number of completed review cycles ranged from one to four cycles: 637 NDAs went through a completed first (initial) cycle review; 99 of those 637 NDAs went through a completed second cycle review; 20 of those 99 NDAs went through a completed third cycle review; 3 of those 20 NDAs went through a completed fourth cycle review. Target time frames for review. Review times reflect differences in time frames for review under FDA s PDUFA goals. The target time frames for review ranged from less than 6 months to 15 months for the first cycle and from less than 2 months to 9 months for later cycles of review. Number of expedited programs. These review times also reflect differences associated with the number of FDA s expedited programs for which NDAs qualified. In general, these expedited programs are designed to help reduce the development or review time needed for drugs intended to treat serious or life-threatening conditions. Appendix III: Requests for Breakthrough Therapy and Fast Track Designations, Fiscal Years 2013 through 2018 Two of the Food and Drug Administration s (FDA) expedited programs for new drugs intended to treat serious or life-threatening conditions breakthrough therapy designation and fast track designation must be requested by the drug sponsor. These programs are intended to help reduce the development or review time needed to bring a drug to market by offering benefits such as more intensive drug development guidance from FDA officials or by allowing the applicant to submit completed sections of the NDA for review before submitting the entire application. The request is normally made while the drug sponsor is conducting clinical trials or when seeking FDA s permission to collect clinical trial data, although the request may also be made when submitting a new drug application (NDA) or while the NDA is under review. FDA s Center for Drug Evaluation and Research (CDER) divisions are responsible for determining whether requests qualify for these expedited programs based on evidence the drug sponsors provide in support of the requests. To qualify for breakthrough therapy designation, the drug sponsor must present preliminary clinical evidence involving one or more clinically significant endpoints that indicate that the drug may demonstrate substantial improvement over available therapies. To qualify for fast track designation, the drug sponsor must either provide evidence demonstrating the drug s potential to address unmet need or document that the drug is designated as a qualified infectious disease product. FDA may grant or deny the request, or the drug sponsor may withdraw the request before FDA renders a decision. If FDA grants the designation, the drug sponsor may subsequently withdraw from the designation, or FDA may rescind either designation if the drug no longer meets the qualifying criteria. We obtained data regarding all requests for breakthrough therapy and fast track designations submitted to CDER from fiscal years 2013 through 2018. These data included information about which division was responsible for the review and the outcome of the request whether it was granted or denied or whether the drug sponsor withdrew the request before FDA reached a decision. To assess the reliability of these data, we conducted a series of electronic and logic tests to identify missing data or other anomalies. These analyses were informed by our review of relevant documentation and interviews with knowledgeable FDA officials. Using these methods, we determined that the data were sufficiently reliable for our purposes. We examined these data to determine whether there were any material differences between divisions in the frequency of possible outcomes. Our analyses focused on the outcomes and did not allow us to determine whether divisions differed in their application of the stated criteria. Breakthrough therapy designation. We found few differences across divisions in the frequency of the possible outcomes of requests for breakthrough therapy designation: Of 634 requests for breakthrough therapy designation (including nine requests submitted with or after the NDA submission), 39 percent were granted, 48 percent were denied, and 13 percent were withdrawn by the drug sponsor before FDA reached a decision. Divisions differed widely in the number of requests for breakthrough therapy designation they received, from 0 for the nonprescription drug division to 102 for one of FDA s two oncology divisions. With two exceptions, the numbers of these requests that were granted, denied, or withdrawn for each division were similar to what would be expected based on the overall frequency of the possible outcomes. Requests to the hematology division were withdrawn more frequently than requests to other divisions (32 percent) and that division denied requests less frequently (17 percent) than other divisions. The neurology division denied more (81 percent), and granted fewer (13 percent), requests for breakthrough therapy designation than other divisions. Within the time period we studied, the drug sponsor withdrew from breakthrough therapy designation after it was granted in six cases and FDA rescinded the designation in 14 cases. Fast track designation. Similarly, we found few differences across divisions in the frequency of the possible outcomes of requests for fast track designation: Of 965 requests for fast track designation (including 35 requests submitted with or after the NDA submission), 71 percent were granted, 24 percent were denied, and 5 percent were withdrawn by the drug sponsor before FDA reached a decision. Again, divisions differed widely in the number of requests for fast track designation they received, from 2 for the nonprescription drug division to 133 for the neurology division. The numbers of these requests that were granted, denied, or withdrawn for each division were generally similar to what would be expected based on the overall frequency of the possible outcomes, although the anti-infective division granted more (91 percent), and denied fewer (6 percent), requests for fast track designation than other divisions. Within the time period we studied, no drug sponsor withdrew from fast track designation after it was granted, nor did FDA rescind any such designation. Appendix IV: New Drug Applications with Key Features Linked to Time Frames for Review, Fiscal Years 2014 through 2018 Pursuant to the Prescription Drug User Fee Act (PDUFA) and its subsequent reauthorizations, the Food and Drug Administration (FDA) collects user fees from drug sponsors to supplement its annual appropriation for salaries and expenses. As part of each reauthorization process, FDA identifies goals in a commitment letter to Congress, including goals for the time the agency takes to complete reviews of different types of drug applications upon initial submission and resubmission. In general, these goals identify a percentage of certain types applications that FDA is expected to review within specified target time frames. For initial NDA reviews reviews of the NDA as originally submitted FDA s target time frames for review that would meet its PDUFA goals vary and are linked to three key NDA features that reflect the drug or the applicant s action: (1) whether or not the application receives priority review designation, which indicates that the drug could provide significant therapeutic improvements in the safety and effectiveness of the prevention, diagnosis, or treatment of a serious condition when compared to available drugs; (2) whether or not the application involves a new molecular entity an active ingredient that has not been previously marketed or approved for use in the United States; and (3) whether or not the applicant submitted a major amendment while the NDA was pending, that is, while under FDA s review. The target time frame for review for any specific NDA reflects all three of these features. Reviews are conducted by one of the agency s Center for Drug Evaluation and Research (CDER) divisions, each of which specialize in a specific group of drug products, such as hematology or neurology. As shown in table 8, divisions differed in the numbers and proportions of NDAs they reviewed that had the features linked to time frames for review under FDA s PDUFA goals. Appendix V: New Drug Applications That Qualified for Expedited Programs, Fiscal Years 2014 through 2018 The Food and Drug Administration (FDA) may determine that NDAs for drugs intended to treat serious or life-threatening conditions qualify for one or more expedited programs. These programs confer specific benefits with the potential to help reduce the development or review time needed to bring a drug to market, for example, some expedited programs provide for more intensive drug development guidance from FDA officials or allow the applicant to submit completed sections of the NDA for review before submitting the entire application. FDA s expedited programs include accelerated approval, breakthrough therapy designation, and fast track designation. Reviews are conducted by one of the agency s Center for Drug Evaluation and Research (CDER) divisions, each of which specialize in a specific group of drug products, such as hematology or neurology. As shown in table 9, divisions differed in the proportions of NDAs they reviewed that qualified for expedited programs. Appendix VI: Times Taken to Complete Initial Reviews of New Drug Applications Received from Fiscal Year 2014 through 2018 The Food and Drug Administration s (FDA) Center for Drug Evaluation and Research (CDER) divisions differed in the total number of days they took to complete initial reviews of new drug applications (NDA) received from fiscal years 2014 through 2018 and completed by March 31, 2019. (See fig. 5.) These review times reflect differences associated with FDA s target time frames for initial review under its goals in commitment letters associated with the Prescription Drug User Fee Act (PDUFA) reauthorizations for fiscal years 2013 through 2017 (PDUFA V) and fiscal years 2018 through 2022 (PDUFA VI). These target time frames for review are linked to specific features of the NDA and ranged from less than 6 months to 15 months for the initial review. These review times also reflect differences associated with the number of expedited programs for which NDAs qualified. Appendix VII: GAO Contact and Staff Acknowledgments <9. GAO Contact Staff Acknowledgments> John E. Dicken, (202) 512-7114 or [email protected]. In addition to the contact named above, William Hadley (Assistant Director), Geri Redican-Bigott (Assistant Director), Aubrey Naffis (Analyst- in-Charge), and Kristen Joan Anderson made key contributions to this report. Also contributing were Sam Amrhein, Todd D. Anderson, Leia Dickerson, Kaitlin Farquharson, Rich Lipinski, and Ethiene Salgado- Rodriguez.

Why GAO Did This Study Before a drug can be marketed in the United States, FDA must determine that the drug is safe and effective for its intended use through a review of evidence that a drug sponsor—the entity seeking to market the drug—submits in an NDA. The review is conducted by one of FDA's divisions (17, at the time of GAO's review) that each specialize in a specific group of drug products, such as hematology products. NDA reviews are complex, and may involve not only an initial review, but also reviews of resubmissions if the initial review does not result in approval. Under FDA's PDUFA commitments, FDA's goal is to complete reviews of 90 percent of NDAs within specific time frames linked to key features of the NDAs. GAO was asked to examine NDA review times across FDA's divisions. In this report, GAO examines (among other things) differences between FDA divisions in the key features of the NDAs they review and initial review times, as well as the extent to which key NDA features contribute to these differences. GAO analyzed data from FDA's Center for Drug Evaluation and Research regarding 637 NDAs submitted from fiscal years 2014 through 2018. These data also included biologic license applications submitted to the center. GAO excluded NDAs that were withdrawn by the applicant before FDA completed a review, as well as NDAs for which FDA had not completed a review by March 31, 2019. GAO also interviewed FDA officials about the agency's review process and these review times. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate. What GAO Found Four key features of new drug applications (NDA) are linked to the time the Food and Drug Administration (FDA) takes to complete initial reviews of NDAs. Three key NDA features determine the time frames for initial review that would meet FDA's goals under the Prescription Drug User Fee Act (PDUFA) and its reauthorizations, which authorize FDA to collect user fees from drug sponsors: Whether or not the NDA qualifies for the priority review program, which is generally an expedited program for drugs that provide significant therapeutic improvements in the prevention, diagnosis, or treatment of a serious condition when compared to available drugs. The PDUFA goal for review of a priority NDA is 4 months less than for an otherwise similar standard NDA, for which the goal is to complete the review in 10 months. Whether or not the NDA involves a new molecular entity (an active ingredient that has not been previously marketed or approved in the United States). The PDUFA goal for review of an NDA with a new molecular entity is 2 months longer than for an NDA without one. Whether or not the applicant submits a major amendment (additional or new information, such as a major new clinical study) while the NDA is under review. The PDUFA goal for a review of an NDA may be extended by 3 months if the applicant submits a major amendment. The fourth key NDA feature is whether or not it qualified for one or more of three other expedited programs for drugs intended to treat serious or life-threatening conditions. GAO's analysis of 637 NDAs submitted from fiscal years 2014 through 2018 indicated that the proportion of NDAs with these key features differed among FDA review divisions. For example, 6 percent of the NDAs reviewed by the dermatology and dental division had a priority designation, compared to 56 percent for the anti-infective division. FDA has reported that some divisions, such as the oncology divisions, generally regulate products for conditions that are more likely to be serious or life-threatening, and, therefore, those products may be more likely to qualify for priority designation and other expedited programs. GAO found that FDA's divisions differed in the average number of days they took to complete an initial review of NDAs, and these differences largely reflected the key features of the NDAs they reviewed. GAO's analysis shows that the time FDA took to complete an initial review of NDAs was affected by (1) the target time frame for completion of the review under the agency's PDUFA goals, (2) the number of expedited programs for which the NDA qualified, and (3) the division performing the review. GAO also found that the target time frame for review was largely responsible for differences in initial review times. Specifically, NDAs with key features that resulted in shorter target time frames for review under FDA's PDUFA goals had shorter initial review times. Controlling for the effects of these target time frames and the number of expedited programs for which the NDA qualified, GAO found that most of the divisions' average review times were similar to (within 2 weeks of) each other.

gao_GAO-20-94

gao_GAO-20-94_0

<1. Background> FDA approves reference listed drugs and generic drugs that meet safety and efficacy standards for marketing in the United States. Generic drug companies must show that their drug is (1) the same as the reference listed drug with respect to the active ingredient(s), conditions of use, route of administration, dosage form, strength, and labeling (with certain permissible differences, as approved by FDA); and (2) bioequivalent to the reference listed drug, meaning it generally delivers the same amount of active ingredient(s) in the same amount of time as the reference listed drug. When the reference listed drug is available, it is also designated as the reference standard drug, which is the product generic drug companies must use to conduct bioequivalence testing. When the reference listed drug is not available, FDA will select an approved generic of the reference listed drug to serve as the reference standard drug. All drugs pose some level of safety risk to patients. According to FDA, for most drugs, routine, risk-minimization measures, such as FDA-approved professional labeling, are sufficient to protect the public from the drug s risks. However, in some cases, FDA may require a drug company to take additional actions to ensure that the benefits of the drug outweigh its risks and to help mitigate or prevent serious risks of adverse side effects. Specifically, FDA may require the drug company to establish a REMS that includes one or more risk-mitigation strategies beyond the drug s professional labeling. According to FDA, most REMS are designed to reinforce patients and health care providers behaviors and actions that support the safe use of the particular drug they cover. For example, FDA may require drug companies to give patients and health care providers additional information to reinforce certain safe use conditions or specific risks described in the approved labeling of a certain drug. FDA may require a REMS either before a drug is approved or after approval if FDA becomes aware of new safety information. When determining whether a REMS is necessary, FDA considers several factors, including, for example, the estimated size of the population likely to use the drug and the seriousness of the disease or condition being treated. FDA may require a REMS to include one or more components. For example, FDA may require drug companies to provide patients with certain information in the form of medication guides. Generally, medication guides include information on serious side effects, including those that might require emergency medical care or involve life- threatening conditions. Similarly, FDA may require drug companies to develop communication plans for how the drug company will disseminate information to health care providers. Communication plans can include, for example, information on any serious risks of the drug and any safety protocols to ensure its safe use. Thus, for one REMS, FDA could require a drug company to provide a medication guide. For a second REMS, FDA could require a drug company to provide both a medication guide and a communication plan. Table 1 below includes a list of selected REMS components. Additionally, if a reference listed drug is subject to a REMS, an approved generic drug is also subject to some of the same REMS requirements. FDA can also require drug companies to implement another REMS component, called elements to assure safe use (ETASU), if a drug has been shown to be effective, but is associated with a specific serious risk. Depending on the risk, FDA may require any or all of the following ETASU measures: Prescribers have specific training or special certifications; Pharmacies or health care settings where the drug is dispensed have Drugs are dispensed only in certain health care settings, such as hospitals; Drugs are dispensed with evidence of safe-use by the patient, such as requiring a patient s acknowledgement that she has been counseled on a drug s risks and understands and accepts these risks; Patients are monitored, for example, while taking the drug for specific adverse events or outcomes; or Patients are enrolled in a registry for collection of certain information, such as patient outcomes and adverse reactions associated with the drug. According to FDA, these measures are for drugs that can be marketed only if there are requirements in place to mitigate a specific serious risk listed in the drug s labeling. If FDA requires certain ETASU measures, it may also require a drug company to develop an implementation system to enable the drug company to monitor and evaluate implementation of the ETASU measures by health care providers, pharmacists, and other responsible parties. Also, if a reference listed drug is subject to a REMS with ETASU and a generic version is being developed, the reference drug company and the generic drug company are required to develop a shared system a system that is used by participating companies to coordinate their REMS activities and information about a drug s risks. Under a required shared system, the generic drug company and the reference drug company use the same REMS documentation and other materials on the drug s risks and generally share in the implementation and maintenance of any database and infrastructure (e.g., call center). According to FDA, shared systems can be beneficial in reducing the burden for patients and health care providers, such as prescribers and pharmacies, when accessing REMS informational materials or completing administrative requirements, including any required training or certifications for providers. Generic drug companies must submit REMS documentation and materials as part of their generic drug application. Generally, before FDA can approve generic drugs that are subject to REMS with ETASU, reference drug companies and generic companies must reach agreement on a required shared system. According to FDA, generic drug companies that are developing a required shared system should submit their proposed REMS materials to FDA by the midpoint of the application review process or another time as specified by the agency. Any delays in the development of a required shared system can affect FDA s ability to approve a generic drug application. A generic company may request a waiver from FDA, which if granted, would allow the generic company to develop a separate system that includes the same ETASU measures required for the reference listed drug. For example, if the reference listed drug s ETASU measures require prescriber certification and the dispensing of the drug in certain health care settings, then the generic drug company s separate system must also include the same ETASU measures. <1.1. Practices Identified by FDA and FTC that May Hinder Generic Drug Development and Marketing> In recent years, FDA and FTC have identified two practices that can hinder competition by preventing or delaying the development and marketing of generic drugs. The first practice the agencies identified involves limiting access to samples of reference standard drugs, which generic companies generally need to conduct bioequivalence testing. This practice can apply both to reference standard drugs subject to REMS, specifically those subject to certain ETASU measures, and those not subject to REMS. For example, some drug companies might limit access to samples of reference standard drugs subject to REMS, citing ETASU measures that limit distribution, such as the measure that limits distribution of drugs subject to REMS to only certain health care settings. Additionally, drug companies may limit access to samples of reference standard drugs that are not subject to REMS. Typically, generic companies obtain samples through normal distribution channels such as wholesale distributors. However, drug companies could, for example, limit the sale of their reference standard drugs to certain pharmacies, such as specialty pharmacies. FDA and FTC have testified before Congress that these distribution limits for reference standard drugs with and without ETASU-related distribution measures can hinder generic companies ability to develop generic drugs and to submit a generic drug application to FDA for review. The second practice involves circumstances when a reference drug company delays its negotiations with generic drug companies on a required shared system. The negotiations to develop a required shared system can be complex because all parties must agree on the implementation of the REMS as well as issues related to cost-sharing, confidentiality, and product liability concerns. As part of their generic drug application, generic companies must include an adequate REMS program in order to be approved. Therefore, delays in the development of a required shared system can affect FDA s ability to approve a generic drug application. <2. Drugs Subject to REMS Vary in the Risks They Pose, Treat a Variety of Conditions, and About Half of Approved REMS Place Limits on Distribution> <2.1. Drugs Subject to REMS Vary in Risks, Treat a Variety of Conditions, and Accounted for at Least $11 Billion in Federal Spending> Our analysis of FDA data shows that as of March 18, 2019, there were 74 approved active REMS that apply to 523 drugs. These drugs pose a variety of risks to users, treat a variety of conditions, and some are generics. A REMS can apply to one drug, more than one drug, or to a large number of drugs. Specifically, the approved REMS apply to: 136 drugs because they pose a high risk of serious medical side effects, 384 drugs because they pose a high risk of serious medical side effects from misuse and abuse, and Three drugs because they have the risk of medical side effects from both the use of the drug and from misuse and abuse. These drugs also treat at least 15 different types of medical conditions such as cancer, cardiovascular, and respiratory conditions. Twenty-two are orphan drugs, which are drugs intended to treat rare diseases. One hundred forty-three of these drugs are reference standard drugs, and 64 of these reference standard drugs have one or more approved generics that are also subject to REMS. (See Table 2) For example, FDA approved a generic of the drug Clozaril, which is used to treat mental and mood disorders. Both Clozaril and its generic, Clozapine, are subject to a REMS to prevent adverse medical side effects. Medicare and Medicaid paid at least $11.8 billion in 2017 for reference standard drugs subject to REMS. Specifically, in 2017 Medicare paid at least $8.5 billion for 83 of 139 reference standard drugs subject to REMS. This amount accounted for at least 8 percent of all Medicare drug spending in 2017. In the same year, Medicaid paid at least $3.3 billion or at least 15 percent of all Medicaid drug spending for 83 of the 139 reference standard drugs subject to REMS. Appendix I provides information from available data on Medicare and Medicaid spending on reference standard drugs subject to REMS. <2.2. Almost Half of FDA s 74 Active REMS Include Limits on How Drugs Are Distributed, and 10 Established a Shared System> Of the 74 active REMS in our analysis, 51 have at least one required ETASU measure, and 35 specifically limit how drugs are distributed. Thirty-one of the 74 active REMS also require medication guides explaining the risks of the drug to be given to patients, and 12 require a communication plan for how the company will disseminate information to health care providers. Similar to how the 74 active REMS can have more than one REMS component, the 51 active REMS with ETASU measures can have more than one required measure. For example, 19 active REMS have an ETASU measure requiring patients to be enrolled in a registry and an ETASU measure requiring drug companies to provide training to prescribers of the drugs. Over half of the 51 active REMS with ETASU include measures that may limit how drugs are distributed. Specifically, 35 active REMS with ETASU measures include a requirement for drug companies to ensure drug dispensing settings are specially certified before they distribute the drugs. The certification process may require dispensing pharmacies to enroll in education programs provided by the drug companies. For example, to mitigate the risk of accidental overdoses from the misuse and abuse of fentanyl products, dispensing pharmacies are required to complete an education program that addresses among other things the risks of fentanyl products, patient selection, drug dosage, and patient counseling. In addition, for 10 of the 74 active REMS, companies have entered into a shared system. In three of the 10 shared systems, generic companies received a waiver from the shared system requirement after they were not successful in negotiating a shared system with the reference drug companies. In these three cases, the generic drug companies entered into shared systems that are separate from the reference drug company systems. For example, after developing generics of Lotronex, which is subject to REMS with ETASU and intended to treat gastrointestinal conditions, the generic companies were required to enter into a shared system with the reference drug company. When these companies were not successful in negotiating a required shared system, FDA determined the burden of developing a required shared system with the reference drug company outweighed the benefits of having one and waived the requirement. Once FDA granted the waiver, multiple generic companies were allowed to share REMS materials and administrative requirements with heath care providers via one shared system that is separate from Lotronex s REMS system. <3. FDA and FTC Have Taken Actions to Address Practices They Identified; Drug Companies and Stakeholders Disagreed on the Usefulness of the Actions> <3.1. FDA and FTC Have Taken Actions to Facilitate Access to Samples of Reference Standard Drugs and Required Shared Systems Negotiations> FDA and FTC have taken four actions to address circumstances when generic drug companies cannot access samples of reference standard drugs or experience delays in negotiating required shared systems. According to FDA and FTC, both circumstances can hinder generic drug companies ability to develop and market generic drugs. Three of the actions focus on making samples of reference standard drugs accessible and the fourth focuses on facilitating the development of a required shared system. While all four of the actions pertain to drugs subject to REMS, only two of the actions pertain to drugs both subject to REMS and not subject to REMS. According to FDA officials, the agency is even more limited in what actions it can take when drugs not subject to REMS are involved. Drug Companies Perspectives on Limited Access to Samples of Reference Standard Drugs with Elements to Assure Safe Use (ETASU) that Limit Distribution Officials from all four of the generic drug companies we interviewed told us that their inability to access samples of reference standard drugs with ETASU measures that limit distribution either delayed or discouraged them from developing generic drugs. Officials from two of the five reference drug companies we interviewed told us they were unaware of specific instances when generic companies had difficulty obtaining samples or that generic companies had requested samples of reference standard drugs with ETASU measures that limit distribution. Also, officials from two reference drug companies cited safety concerns as the reason for limiting the distribution of their drug. FDA issued draft guidance on how to obtain a safety determination letter. One of FDA s actions focused on facilitating generic drug companies access to reference standard drugs with ETASU-related limited distribution measures. (See sidebar for drug companies perspectives on this practice.) In 2014, FDA issued draft guidance describing how a generic drug company could ask the agency to send what is known as a safety determination letter to the reference drug company on the generic drug company s behalf. The draft guidance explains how FDA could send a letter stating that the agency had reviewed the generic company s plans for its bioequivalence testing and determined that these plans included safety measures that were comparable to those in the ETASU measures for the reference standard drug. For example, if the reference standard drug s ETASU required protections to prevent fetal exposure to the drug, the generic company s plans should include the same protections. The safety letter would also note that FDA would not consider it a REMS violation to provide reference standard drug samples to the generic company requesting the safety determination letter. According to FDA, some reference drug companies were concerned that providing samples to the generic drug company would violate REMS requirements. From 2016 to 2018, FDA issued 12 safety determination letters to reference drug companies on behalf of generic companies, according to agency data. However, FDA did not issue a safety determination letter for all of the requests it received. According to FDA officials, there are various reasons why they might not issue a safety determination letter to the reference drug company. For example, a generic company must sign a disclosure form in order for FDA to send the letter to the reference drug company, but the generic company does not always choose to do this. Additionally, the generic company might have withdrawn its request for a safety determination letter, or FDA might be waiting for additional information from the generic company in order to complete its review. According to FDA officials, there is no need for a safety determination letter (which assures the reference drug company that providing samples to the generic drug company will not be considered a violation of their REMS) when there is no REMS for the product in the first place. Drug Companies Perspectives on Limited Access to Samples of Reference Standard Drugs Not Subject to Risk Evaluation and Mitigation Strategies (REMS) Officials from three of the four generic companies in our review told us they had experience with drug companies imposed distribution limits on reference standard drugs not subject to REMS. Of the four generic companies in our review, officials from one company said they were not able to obtain the samples they needed and chose not to pursue developing a particular drug. Officials from one of the five reference drug companies said they have limited distribution for reference standard drugs not subject to REMS. They said their companies do so to ensure that their products are efficiently distributed, in part by using certain pharmacies. FDA published a web page with information about inquiries that included drugs both subject to and not subject REMS. In February 2019, FDA published a web page with information on inquiries made to FDA by generic companies seeking to obtain samples of reference standard drugs in order to develop generic drugs. (See sidebar for drug companies perspectives on this practice.) FDA officials said they published this list to increase transparency about continuing issues related to accessing samples and to raise awareness about the potential effect these issues might have on reducing competition in the drug market. This list included drugs subject to and not subject to REMS, the names of reference drug companies, and the number of inquiries made. According to the web page as of February 2019, inquiries were made for 54 reference standard drugs, including 25 drugs with ETASU-related limited distribution measures and 29 drugs without such measures. According to FDA data, the number of inquiries had been generally decreasing in the years prior to when the list was published. FTC officials reviewed inquiries the agency received from FDA and generic companies and filed two briefs. FTC told us it reviewed inquiries the agency had received from generic companies and FDA, including those related to information on FDA s published web page. However, FTC officials said, to date, they have not brought a case charging a reference drug company with violating federal antitrust law for refusing to provide samples to a generic drug company. In order to take enforcement action, FTC needs to find sufficient evidence of activity that violates the Federal Trade Commission Act or the Sherman Act. For example, FTC would need to find that a reference drug company s practice constituted monopolization in violation of the Sherman Act. According to FTC officials, they have not brought any antitrust cases to the courts, but have filed two amicus briefs related to cases involving drugs subject to REMS. In both of these briefs, FTC noted that the generic companies respective allegations, if true, established an antitrust violation and that the generic companies lawsuits should be allowed to continue. Drug Companies Perspectives on Negotiating Required Shared Systems Officials from one generic company said that the respective reference drug companies would not meet with them to negotiate the development of a required shared system REMS. Officials from another generic company said the negotiation process with the reference drug company lasted almost 2 years. Officials from four of the five reference drug companies we interviewed had experience negotiating required shared systems. Officials from three of these four companies told us that developing a shared system is a difficult, challenging, and complex process. Officials from one reference drug company said that the level of complexity can increase based on the number of companies and the different people involved. FDA issued waivers that allowed generic drug companies to develop a separate system from the REMS of the reference listed drug and issued draft guidance on how to obtain such a waiver. According to FDA, since 2007, the agency has received 13 requests for a waiver from the shared system requirement, and at the time of our data collection and analysis, FDA had approved three, the first in 2013. (See sidebar for drug companies perspective on required shared systems.) These waivers allowed the generic drug company to develop a separate system that includes the same ETASU measures required for the reference listed drug. According to officials, FDA was unable to grant the remaining waivers for different reasons. For example, the agency may still be reviewing the generic drug application submitted by the company that requested a waiver. Officials explained that the waiver request is part of the overall generic drug application and the agency cannot approve a waiver without approving the application as well. To further facilitate the process, in 2018, FDA issued draft guidance describing what factors the agency considers when granting waivers. The statute authorizes FDA to grant a waiver (1) if the burden of creating a required shared system outweighs the benefit of having it, taking into account the impact on the health care providers, patients, and drug companies involved or (2) if an aspect of the ETASU is covered by an unexpired patent or entitled to trade secret protection, and the generic company was unsuccessful in obtaining a license for use. FDA s guidance describes examples of the potential benefits of having a shared system and the burdens of forming a shared system on health care providers, patients and drug companies that FDA will consider. For example, having a shared system could benefit drug companies by making a REMS for multiple products more efficient. In contrast, the drug companies negotiating a required shared system could be market competitors and involved in patent litigation related to the drug product. <3.2. Selected Drug Companies Had Differing Views on the Usefulness of FDA s and FTC s Efforts> In general, the four generic drug companies and five reference drug companies we interviewed disagreed on the usefulness of FDA s and FTC s efforts to address the practices that may affect the development of generic drugs. FDA s safety determination letters. Officials from three of the generic companies in our review said that the safety determination letters were not useful because they were not enforceable and did not require a reference drug company to provide a generic company with samples of a reference standard drug. In its comments on FDA s draft guidance on obtaining a safety determination letter, one stakeholder representing generic companies expressed concern that reference drug companies now use safety determination letters as another requirement to obtain samples. In contrast, officials from three reference drug companies we interviewed told us that FDA s safety determination letters addressed their safety concerns regarding sharing samples of reference standard drugs with generic companies. Further, officials from two of these three reference drug companies said they request these letters from generic companies that request samples of reference standard drugs. Officials from the remaining two reference drug companies we interviewed said they were not aware of FDA s safety determination letters or did not have concerns or a position on the issue. FDA s publication of its web page. Officials from one of the four generic companies we interviewed told us they thought the inquiries web page published by FDA was helpful. However, this same company said it had not noticed a significant effect in being able to access samples of reference standard drugs because of the web page. Officials from another generic company said it was too early to tell about the usefulness of FDA s web page. Of the remaining two generic companies, officials from one company were unaware of the web page and officials from the second company noted that they were uncertain why a generic company would be included in the list of companies on FDA s web page. Officials from two of the five reference drug companies we interviewed, and whose companies appeared on the web page, said they were unaware of any inquiries made to their companies requesting samples of reference standard drugs. Additionally, officials from one company told us they did not know why they were on FDA s published web page because the company had sold the reference standard drug to another company and had informed FDA that this had occurred. According to FDA, the web page reflects the owner of the reference standard drug at the time the agency received an inquiry, regardless of whether the drug was later sold. Additionally, some generic companies might contact FDA directly without contacting the reference drug company because they anticipate having difficulties accessing samples of the reference standard drug. FDA notes on its web page that the agency did not independently investigate or confirm the access limitations described in the inquiries it received. FTC s filing of amicus briefs. Officials from two of the generic companies in our review said FTC s filing of amicus briefs was generally a positive step. Officials from two companies said the amicus briefs helped negotiations with reference drug companies. A third generic company said the amicus briefs helped raise awareness about issues generic companies are having. Officials from a fourth generic company said FTC s actions could impact the company s efforts to develop generic versions of reference listed drugs in the future. Officials from the five reference drug companies we interviewed did not have any comments on FTC s specific amicus briefs. Waivers for a required shared system. Officials from three of the four generic companies we spoke with had experience with waivers. Officials from one of these three companies said the waiver guidance was helpful. However, officials from this generic company and a second company said it took FDA almost a year to grant their waivers. According to officials from a third company, they obtained their waiver within a month, in part, because negotiations had been ongoing for more than a year. According to FDA officials, the review of a waiver request is part of the generic drug company s drug application. FDA will not grant a waiver unless the generic drug company meets the waiver requirements and its generic drug application is approved. Reference drug companies and other stakeholders expressed concerns about these waivers. Officials from three of the five reference drug companies we spoke with said the burden on health care providers or patients should be considered when granting waivers. Officials from one company specifically expressed concerns that as FDA grants additional waivers, it could place an additional burden on the health care system. For example, health care providers could be required to use multiple systems to access REMS information on the drug s risks or to complete administrative requirements, such as required certification. The remaining reference drug companies did not have comments on the topic. In comments we reviewed on FDA s draft guidance on these waivers, stakeholders noted concerns similar to those raised by the reference drug companies. For example, two groups representing pharmacists and pharmacies said that if FDA grants additional waivers, it could place a burden on the health care system. Historically, FDA has attempted to limit the number of required shared systems created under waivers. If a generic drug company is granted a waiver, it is allowed to create a separate system that includes the same ETASU measures required of the reference listed drug. However, to date, FDA has only granted waivers to generic drug companies that agree to share their systems with other drug companies that concurrently or subsequently develop generic or brand versions of the same reference listed drugs. <4. Agency Comments> We provided a draft of this product to FDA and FTC for their review and comment. Both agencies provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of HHS, 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: 2017 Medicare and Medicaid Spending on Reference Standard Drugs Subject to REMS In order to estimate Medicare and Medicaid spending on reference standard drugs subject to risk evaluation and mitigation strategies (REMS), we compared data from the Food and Drug Administration (FDA) on drugs subject to REMS as of March 18, 2019, to publicly available 2017 data on the Medicare Part D Drug Spending Dashboard and the Medicaid Drug Spending Dashboard, maintained by the Centers for Medicare & Medicaid Services (CMS). These data covered drug spending and utilization for both of these programs for calendar year 2017, the most current data available. However, not all spending and utilization data for reference standard drugs subject to REMS were available. Since we analyzed data as of March 18, 2019, we were able to identify 139 reference standard drugs subject to REMS with corresponding cost data. To assess the reliability of these data, we interviewed knowledgeable agency officials. We determined that the data were sufficiently reliable for the purposes of our report. Medicare and Medicaid paid at least $11.8 billion in 2017 for reference standard drugs subject to REMS, according to cost data available from the CMS s drug pricing dashboard. Specifically, Medicare Part D paid at least $8.5 billion for reference standard drugs subject to REMS. This amount which includes Medicare Part D plan sponsors and beneficiaries Part D payments such as copays, but not price concessions, such as manufacturers rebates accounted for at least 8 percent of all Medicare drug spending in 2017. Similarly, Medicaid paid at least $3.3 billion for reference standard drugs subject to REMS, or at least 15 percent of all Medicaid drug spending in 2017. Of the 139 reference standard drugs in our analysis, the greatest share of these programs spending, across medical conditions, was on reference standard drugs subject to REMS for cancer, based on our analysis of available data. Specifically, Medicare and Medicaid spent at least $4.6 billion on 8 reference standard drugs that treat cancer. See table 3 below for Medicare and Medicaid spending for reference standard drugs subject to REMS by medical condition treated. Further, our analysis of available data showed that Medicare and Medicaid spent the most on Revlimid, a drug used to treat cancer, totaling $3.6 billion with Medicare accounting for $3.3 billion of this total. More than 37,000 Medicare beneficiaries used this drug, at an average cost per dosage unit of $626.94. (See table 4.) In contrast, Medicaid spent the most on Suboxone, a drug used to treat opioid dependence, totaling $0.7 billion, based on available data. More than 3 million Medicaid claims were filed for this drug in 2017, at an average cost per dosage unit of $7.89. Vivitrol was the third most utilized drug under Medicaid. (See table 5.) Based on our analysis of available data, the selected examples of reference standard drugs subject to REMS had higher average cost per dosage unit compared to the generic. For example, Medicare spent an average cost per unit of $12.20 for Clozaril, a drug used to treat mental health conditions, compared to $0.99 for clozapine, a generic version of Clozaril. Table 6 below shows selected examples comparing Medicare spending for reference standard drugs to Medicare spending for a generic version, based on our analysis of available data. Our analysis of available Medicaid data showed similar results to our analysis of Medicare data. For example, Medicaid spent an average cost of $11.71 for Clozaril, a drug used to treat mental health conditions, compared to $0.97 for clozapine, a generic version Clozaril. Table 7 below shows selected examples comparing Medicaid spending for reference standard drugs to Medicaid spending for a generic version, based on our analysis of available data. Appendix II: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, Geri Redican-Bigott and Tom Conahan, Assistant Directors; Carolyn Garvey, Analyst-in-Charge; Zhi Boon, Gay Hee Lee, and McKenna Storey made key contributions to this report. Also contributing were Sam Amrhein, Kaitlin Farquharson, Cathy Hamann, and Diona Martyn.

Why GAO Did This Study To manage the risks posed by some drugs, FDA requires drug companies to establish risk evaluation and mitigation strategies. Companies developing generic drugs generally need samples of the reference standard drug to conduct bioequivalence testing. Generic companies may also have to negotiate a shared system with the reference drug company, when that company's drug is subject to certain REMS requirements. FDA and FTC officials acknowledge that some drug companies have used certain practices that prevent or delay the development of generic drugs. The practices include limiting access to samples of reference standard drugs with and without REMS and delaying negotiations for creating required shared systems. GAO was asked to review drugs subject to REMS and drug companies' experience with these practices. This report describes (1) the drugs subject to REMS, and (2) FDA and FTC's efforts to address these practices, and stakeholders' views on agencies' efforts. GAO analyzed FDA data on the conditions these drugs treat and the REMS requirements that apply to the drugs. GAO also interviewed FDA and FTC officials and representatives from five reference drug companies and four generic drug companies, which GAO selected based on a variety of factors, including the companies' experiences with drugs subject to REMS . GAO also reviewed public comments and related documents from FDA and FTC. HHS and FTC provided technical comments on a draft of this report, which GAO incorporated as appropriate. What GAO Found The Food and Drug Administration (FDA) can require drug companies to establish risk evaluation and mitgation strategies (REMS) for drugs with serious safety concerns to ensure that a drug's benefits outweigh its risks. As of March 18, 2019, FDA approved 74 active REMS that cover 523 drugs that treat various conditions. One hundred forty-three of the drugs are reference standard drugs, which are drugs generic drug companies must use to conduct bioequivalence testing. Of these 143, 64 have at least one approved generic that is also subject to REMS. Ten of the REMS are shared systems that allow health care providers to obtain information from multiple companies on a drug's risks and satisfy other administrative requirements through one REMS system. According to FDA and the Federal Trade Commission (FTC), drugs with and without REMS have been the subject of practices that can delay or prevent generic drug development and marketing. FDA and FTC have taken actions designed to address some of these practices. According to FDA officials, they are more limited in what actions they can take when drugs without REMS are involved. Drug company officials that GAO interviewed had different views on these actions. To address practices that may limit access to samples of reference standard drugs and keep generic drugs from the market: FDA issued draft guidance in 2014 on how generic companies could obtain a letter stating that the agency would not consider it a REMS violation to provide reference standard drug samples to the generic company requesting the letter. Three of the four generic companies GAO interviewed said these letters were not useful because they do not require drug companies to share samples. In contrast, officials from three of five reference drug companies said the letters addressed their safety concerns about providing samples to generic companies. FDA does not issue such letters for drugs without REMS. In February 2019, FDA published a list of drug companies whose reference standard drugs were the subject of access inquires made to FDA by generic drug companies. One of the four generic companies GAO spoke with said FDA's list was helpful, and one reference drug company said it was uncertain why it was included on the list. FTC has reviewed inquiries it received from FDA and generic companies, and has filed amicus briefs in two cases involving drugs with REMS. According to FTC, to date, the agency has not brought a case charging a drug company with violating federal antitrust law for refusing to provide samples to a generic drug company. To address practices that may delay negotiations between reference drug and generic drug companies for creating required shared systems, FDA issued waivers and related guidance that allowed generic companies to develop a separate, but comparable, REMS shared system. One generic drug company said the guidance on waivers was helpful; however, one drug company said the waivers put added burden on health care providers who have to use multiple REMS systems.

gao_GAO-19-589

gao_GAO-19-589_0

<1. Background> <1.1. Overview of the FHLBanks> The FHLBank System comprises 11 federally chartered banks. The FHLBanks represent 11 districts and are headquartered in Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York City, Pittsburgh, San Francisco, and Topeka (see fig. 1). Each FHLBank is cooperatively owned by its members such as commercial and community banks, thrifts, credit unions, and insurance companies. As previously noted, the FHLBank System also includes the Office of Finance, which is the fiscal agent for the 11 banks. As of December 31, 2018, the total amount of assets each FHLBank held varied widely, as did the number of member institutions in each district (see table 1). <1.2. FHLBanks Capital Markets Activities> FHLBanks primarily obtain funding to provide loans to their member institutions by issuing debt. The Office of Finance (also regulated by FHFA) issues the debt on behalf of the FHLBanks. FHLBanks debt products include discount notes (short-term debts) and bonds (short- to long-term debts). The debt transactions can vary in size and be conducted by one or more broker-dealers. Additionally, FHLBanks individually invest in permissible securities, including mortgage-backed securities, which generate additional income for the banks. Broker- dealers are compensated in fees for certain transactions they conduct. Generally, the fees a broker-dealer can earn for capital markets transactions depend on the type of the transactions or the broker-dealer s role in transactions. The Office of Finance identifies and approves broker-dealers for the banks debt issuance transactions, including diverse broker-dealers that are minority-, women-, disabled-, and veteran-owned. As part of its approval process, the Office of Finance assesses the broker-dealers based on their track record in conducting certain debt transactions, and reviews documents including broker-dealers audited financial statements, documentation on capital sustainability, legal or regulatory issues, diversity certification, procedures, and any other issues that may affect their eligibility or performance. For investment transactions, the banks approve broker-dealers for their own investment needs according to their own qualification requirements. Similar to the Office of Finance s requirements, the banks qualification requirements can include financial performance and capital requirements. <1.3. FHFA s Diversity-Related Requirements and Oversight of FHLBanks> To implement requirements in HERA, in December 2010, FHFA issued the Minority and Women Inclusion rule to set forth minimum requirements for FHLBank diversity programs and reporting, as previously noted. Among other things, the 2010 rule required each bank to create its own OMWI or designate an office to perform duties related to the bank s diversity efforts, and establish policies related to diversity and inclusion, including workforce and business activities (which can include suppliers and broker-dealers used for capital markets activities). The 2010 rule also requires FHLBanks to submit an annual report to FHFA that describes the gender and racial/ethnic composition of the bank s workforce and of the suppliers and broker-dealers used in business activities and past and future diversity and inclusion efforts in these areas. The 2010 rule also requires the banks to report on businesses owned by individuals with disabilities that enter into contracts with the FHLBank and the number of individuals with a disability or disabilities for certain workforce data, including the number of individuals who separated from the bank and the number of employees promoted. In 2017, FHFA added the requirement for each FHLBank to develop a standalone strategic plan on diversity and inclusion or incorporate a diversity and inclusion plan into their general strategic plan. FHFA conducts annual examinations and off-site monitoring of FHLBanks. FHFA s examination includes reviewing the banks diversity and inclusion efforts, financial reporting, and corporate governance by bank board directors. <1.4. Our Previous Work on Diversity in the Financial Services Sector> We previously reported on diversity in the financial services sector, including FHLBank board governance and board diversity. In 2017, we reported that representation of women and minorities at the management level in the financial services sector showed marginal or no increase during 2007 2015. In a 2015 report on FHLBank board governance, we found that FHFA and FHLBanks had taken steps to increase board diversity, including creating regulations that encouraged the banks to consider diversity in board candidate selection and developing processes to identify and nominate independent directors. In a 2019 report on FHLBank board diversity, we found that since 2015, FHLBanks increased the share of women and minority directors on FHLBank boards, but the banks continued to face challenges in increasing diversity among directors elected from member institutions. We recommended that FHFA, in consultation with FHLBanks, review the banks data collection processes for board demographic information and communicate effective practices to banks. FHFA agreed with our recommendation. The agency stated that it planned to engage with FHLBank leadership in 2019 to discuss board data collection issues and explore the feasibility and practicability for FHLBanks to adopt processes that could lead to more complete data on board director demographics. <2. FHLBanks Increased Gender Diversity in Senior Management in 2011 2017 and Reported Taking Steps to Promote Workforce Diversity> Across the 11 FHLBanks, the share of women in senior-management positions increased from 2011 to 2017, while the share of minorities remained about the same. In the FHLBank workforce overall, the share of female and minority employees was similar in 2011 and 2017. Individual FHLBanks reported a number of challenges in recruiting and retaining a diverse workforce, including limited hiring opportunities due to low employee turnover and a small workforce and competition for diverse talent from larger and better-known companies. Despite these challenges, banks have been taking steps to help maintain or increase a diverse workforce. <2.1. Share of Women in Senior Management Increased and Minorities Remained about the Same across the FHLBank System, but Varied by Bank> Female representation. The share of women in senior management across all 11 FHLBanks increased by about 7 percentage points from 2011 to 2017 based on the most recently available EEOC data. As shown in figure 2, the percentage of women across 11 banks was about 21 percent in 2011 (35 individuals) and 28 percent in 2017 (47 individuals). While female representation in senior management collectively increased for the 11 FHLBanks from 2011 to 2017, there was substantial variation among the individual banks. We discuss representation at individual banks in more detail later in this section. Six banks increased the share of women in senior management during this time period (ranging from about 10 to 20 percentage points); three banks decreased (from about 6 to 13 percentage points); and the share for two banks did not change. One FHLBank decreased its number of senior-management positions between 2011 and 2017 by reclassifying those positions, while another bank increased the number of senior-management positions through reclassification, according to staff from each bank respectively. Bank staff noted some banks have fewer senior-management positions because they interpret EEOC s definition of senior management more narrowly, while others have more senior-management positions because they interpret the definition more broadly. These differences could have affected the comparability of the share of women and minorities in senior management among individual banks in the period we reviewed. Also, because of the relatively small number of senior managers at the FHLBanks, a small change in the number of such managers can result in a larger change in the associated percentage. Minority representation. The share of minority senior management across all 11 FHLBanks was approximately 14 percent (23 individuals) in both 2011 and 2017. Five banks increased the share of minority senior management (from about 1 to 23 percentage points); three banks decreased (from about 6 to 13 percentage points); and three banks did not change. Four banks did not have any minorities in senior management in 2017 (see fig. 3). The largest racial/ethnic group among senior management in 2017 was Asian (about 5 percent) followed by African-American and Hispanic (both at about 4 percent). See figure 4. Female and minority representation combined. The combined share of female and minority senior management across 11 banks increased 7 percentage points from about 32 percent (54 employees) in 2011 to 39 percent (65 employees) in 2017. At individual FHLBanks, the percentage of female and minority senior management increased at seven banks by a range of about 3 to 29 percentage points, decreased at three FHLBanks by about 11 to 13 percentage points, and stayed the same at one bank. While combined female and minority representation increased overall, eight of the 11 banks did not have any female minorities in senior- management positions in 2017 (see fig. 5). <2.2. Share of Women and Minorities in FHLBank Senior Management Was Similar to That of Financial Services Industry> Using EEOC data, we also examined the composition of the senior- management workforce in the financial services industry to determine how FHLBank senior management compares with the broader financial services industry. The percentage of women, minorities, and women and minorities combined in senior management in FHLBanks overall was similar to the corresponding share of senior management in the financial services industry in 2017. Specifically, the respective percentages for the FHLBanks and the financial services industry in 2017 were approximately 28 percent and 30 percent for female senior management; 14 percent and 13 percent for minority senior management; and 39 percent and 38 percent for female and minority senior management. Shares of women and minorities in senior management for individual FHLBanks varied more in comparison with the financial services industry in their districts. Four banks had a higher share of women in senior management than the financial services industry in their respective bank districts (from about 1 to 14 percentage points higher); and seven banks had a lower share (from about 3 to 15 percentage points lower). Five FHLBanks had a higher share of minorities in senior management than the financial services industry in their respective districts (from about 2 to 27 percentage points higher); the other six had a similar or lower share (from about 1 to 8 percentage points lower). Four banks had a higher percentage of women and minorities combined in senior management than the financial service industry in their respective bank districts (from about 7 to 27 percentage points higher), two banks had a modestly lower share (no more than 3 percentage points), and the remaining five banks had a share that was lower by more than 8 percentage points. <2.3. Share of Female and Minority Employees Overall Did Not Change Significantly in 2011 2017> We also reviewed the representation of women and minorities in the overall FHLBank workforce and for each FHLBank. Although the difference in the share of female and minority employees across 11 FHLBanks in 2011 2017 was not large, both women and minorities were better represented in first- and mid-level management and professional positions than in senior management. Female representation. Across the 11 FHLBanks, the overall share of female employees in 2017 (about 45 percent) was somewhat lower than the share in 2011 (about 47 percent), although the total number of female employees increased from 1,317 in 2011 to 1,355 in 2017 (see fig. 6). In 2017, the share of women in job categories below the senior- management level was higher than the share of women in senior management. Specifically, the share of women in first- and mid-level management positions was about 41 percent and in professional positions about 44 percent, both higher than the percentage of women in senior management (about 28 percent). Employees in these positions can be potential candidates for the banks management. Minority representation. The share of racial/ethnic minority employees in the overall FHLBank workforce in 2017 (about 33 percent) was slightly higher than the share in 2011 (about 31 percent), and the number of racial/ethnic minorities increased during this period from 864 employees in 2011 to 1,007 employees in 2017. During this time period, the share of minorities in first- and mid-level management positions increased by approximately 6 percentage points (from about 21 percent in 2011 to 27 percent in 2017); the share of professionals increased by about 3 percentage points (from about 34 percent in 2011 to 37 percent in 2017), and the share of minorities in other job categories, such as administrative, decreased by about 3 percentage points (from about 41 percent in 2011 to 38 percent in 2017). Similar to the share of female employees, the share of minority employees in first- and mid-level management (about 27 percent) and professional positions (about 37 percent) was higher than that for senior management (about 14 percent) in 2017. Among these employees in 2017, Asians accounted for the largest share (about 16 percent), followed by African-Americans (about 11 percent) and Hispanics (about 5 percent), as shown in figure 7. Female and minority representation. When looking at the combined representation of women and minorities in the overall FHLBank workforce, the share of women and minorities was similar in 2011 and 2017 at about 61 percent (1,704 employees in 2011 and 1,847 employees in 2017). The number of female and minority employees increased by 143 (about 8 percent) during this period. Similarly, the number of total employees increased by about 200 (about 8 percent) from 2011 to 2017. At the individual bank level, the share of female and minority employees increased at six banks (from about 1 to 6 percentage points) and decreased at the remaining five banks (from about 2 to 4 percentage points) from 2011 to 2017. In 2017, the percentage of female and minority employees across the 11 banks ranged from about 48 to 77 percent of the workforce at the individual banks (see fig. 8). <2.4. Share of Women Was Lower among FHLBank Employees Than in the Financial Services Industry and General Population but Share of Minorities Was Similar> Women generally were less represented among FHLBank employees than in the financial services industry (overall and by FHLBank district) and in college-educated populations in selected metropolitan areas. Minorities were similarly represented across the categories. First, we compared the representation of women and minorities among FHLBank employees (overall and by bank) with such representation in the financial services industry (overall and by FHLBank district) in 2017 to help determine how similar the FHLBank workforce was to that of other financial institutions. The workforce in the financial service industry can represent a pool of potential employees for the FHLBanks. The share of female employees in FHLBanks overall was about 14 percentage points lower than the corresponding share in the financial services industry (about 45 percent in FHLBanks and 59 percent in the financial services industry) in 2017. Each of the FHLBanks had a lower share of female employees than the financial services industry in the bank s district (by about 2 to 27 percentage points). The share of racial/ethnic minority employees was about 33 percent across the FHLBanks and the financial services industry in 2017. Six FHLBanks had a similar or higher share of minority employees than the financial services industry in their respective districts (by about 1 to 21 percentage points); the other five had a lower share (by less than 1 percentage point to about 11 percentage points). The combined percentage of female and minority employees across the FHLBanks was about 10 percentage points lower than the corresponding percentage in the financial services industry in 2017 (about 61 percent and 71 percent, respectively). All FHLBanks except one had a lower share in this combined category than the financial services industry in their districts. Second, we compared the share of women and minorities among each FHLBank s employees in 2017 with the population with at least a bachelor s degree in the metropolitan statistical areas associated with each bank s headquarters city in 2018 (see table 2). This population can provide potential employees for the banks workforce. The percentage of female employees in seven banks was lower than the estimated share of females with at least a bachelor s degree in their respective metropolitan areas (smaller than the lower end of the range of the estimated percentage for each area). For the remaining four banks, the share of female employees was similar to that of the estimated share for their respective metropolitan areas (within the range of the estimated percentage for each area). The percentage of minority employees in nine banks was similar to the estimated share of minorities in the population in the respective metropolitan areas around each bank s headquarters. In two banks, the share of minority employees exceeded the corresponding estimated percentage for this population (larger than the upper end of the range of the estimated percentage for each area). To provide additional context on the demographic composition of the population served by the FHLBanks, we compared the share of female and minority employees at each FHLBank in 2017 with the share of the female and minority population in each bank district (all of which are multistate areas). All FHLBanks except two had a lower share of female employees than the female share of the population in their respective bank districts (by at least 5 percentage points). The percentage of minority employees at one bank was higher than the share of the minority population in its bank district (by about 11 percentage points); the individual percentages at five banks were similar (no more than 3 percentage points difference); and the individual percentages at the remaining five banks were lower by at least 4 percentage points. <2.5. FHLBanks Reported Some Challenges and Have Been Taking Steps to Help Maintain and Increase a Diverse Workforce> <2.5.1. FHLBanks Reported Ongoing Challenges to Recruiting and Retaining a Diverse Workforce> FHLBanks reported continuing challenges to recruiting and retaining a diverse workforce, including the following: Low turnover rates and small workforce. Staff of four banks said that low turnover rates have limited opportunities for hiring or promoting diverse candidates. For example, the percentage of employees leaving individual banks in 2017 ranged from about 5 to 12 percent. In comparison, the average estimated separation rate for the financial services industry as a whole was about 25 percent in 2017. Additionally, staff of four banks noted that the size of their workforce is relatively small, which also limits opportunities for hiring and promotion. The number of employees in individual FHLBanks ranged from 202 to 462 in 2017 (see table 3). Population in geographic location not diverse. Staff of four banks stated that their geographic location makes it challenging to recruit diverse talent because the population in the area is relatively undiverse. Two banks indicated it can be difficult to attract potential candidates to work in their geographic location. Despite these stated challenges, as we previously noted, the 2017 share of minorities in each bank was similar to or exceeded the 2018 share of minorities with at least a bachelor s degree in their respective metropolitan areas. Competition for women and minority candidates. Staff of five banks said that competition for diverse talent is high because banks compete with other companies in their districts that are larger or have better brand recognition, such as large investment banks and technology companies. For example, staff of four banks noted that the FHLBanks are not well known compared with these larger organizations. Staff from one bank noted that the compensation the bank offered was lower than that of larger firms including for internships which can make it difficult to attract diverse candidates. Staff of two banks also noted that relatively low unemployment rates in their areas mean that diverse candidates have other employment options, making it more challenging to attract such candidates. Difficulty aligning bank needs and requirements with skillsets of diverse candidates. Staff of six banks said that there may be few women or minority candidates who meet specific skill or job requirements. For example, staff of five of these banks noted that it can be challenging to find diverse candidates in certain technical fields, such as information technology. Staff of three banks also noted that diversity in the financial services industry overall is limited, which contributes to a limited pool of diverse candidates. <2.5.2. FHLBanks Described Practices They Use to Help Maintain and Increase Workforce Diversity> We found that FHLBanks implemented and continue to implement a variety of practices to maintain and increase diversity in their workforces, based on our review of the FHLBanks annual Office of Minority and Women Inclusion (OMWI) reports, FHFA examination documents, FHLBank diversity and inclusion strategic plans, and interviews with FHLBank staff from all 11 banks. These practices align with leading practices we previously identified on diversity management. The leading practices can help the banks address some of the challenges described previously and recruit and retain a diverse workforce, which also can contribute to a more diverse pipeline for management positions. Bank leadership commitment to diversity and inclusion. All 11 FHLBanks have implemented practices intended to demonstrate leadership s commitment to diversity and inclusion, which included the following examples. All 11 FHLBanks include workforce diversity objectives in their diversity and inclusion strategic plans and generally established goals that were quantitative, qualitative, or both related to their workforce diversity programs, based on our review of the banks annual reports. Examples of such goals included increasing employee awareness of diversity and inclusion and percentage targets for workforce diversity composition and recruitment. The FHLBanks also incorporate diversity and inclusion into their incentive compensation goals or performance competencies. An example of such goals relates to participation in diversity and inclusion training and other events. All 11 FHLBanks track data on the diversity composition of their workforce; external and internal applicants for open positions, new hires, promotions, and separated employees; and progress in meeting diversity and inclusion goals and objectives. The OMWI officers at all 11 banks report directly to the bank s chief executive officer/president or the equivalent of the chief operating officer. The board of each bank also receives periodic updates on the bank s diversity and inclusion efforts. Staff of eight banks said that senior leaders, such as the chief executive officer, express their commitment to diversity and inclusion through participation in internal diversity and inclusion events, in written materials, and by sponsoring employee groups that represent diverse employees. Targeted recruitment. All 11 banks reported several targeted diversity recruitment efforts to increase recognition and build a potential pipeline of diverse employees. For example, all banks conducted outreach to colleges that have diverse student populations, according to banks annual reports and staff, and FHFA examination documents. All banks also conducted outreach to local and national professional and other organizations that represent diverse communities. Seven banks indicated that they engage with their communities, such as by participating in community events and volunteer activities, and partnering with community organizations. They noted that these efforts can help enhance their bank s brand recognition and in turn can help recruit and retain diverse employees. To build a pipeline of diverse employees, all 11 banks offered a college internship program and six banks offered a high school internship or work study program for which they try to recruit diverse candidates. The banks also engaged in efforts to build the potential pipeline of diverse employees in the long term, such as by participating in programs or activities to increase skillsets among young women and minorities in technical or financial services fields. Employee involvement/feedback. All 11 banks described efforts to create a more inclusive environment for employees, according to banks annual reports and bank staff. For example, nine banks have an employee resource group or other organization representing employees, and can engage in diversity and inclusion activities, such as professional development and cultural events, according to the banks annual reports. Nine banks reported that they conducted employee surveys or meetings to obtain feedback from employees on diversity and inclusion efforts, according to the banks annual reports and staff. Staff from one bank told us that when conducting interviews with employees leaving their organization, they include a question specifically on diversity and inclusion to identify potential employee retention practices. Training on diversity and inclusion topics. Ten banks offered training courses on diversity and inclusion topics for all employees, according to the banks annual reports and FHFA examination documents. Ten banks hosted events or informal training related to diversity and inclusion, including events sponsored by employee groups, according to bank documents and staff. Development of succession plans that address diversity and inclusion. All 11 banks engaged in succession planning, but FHFA s 2018 diversity and inclusion examination found that the banks addressed diversity and inclusion in their succession planning to varying degrees. FHFA staff explained that banks should evaluate potential successors on their demonstrated ability to manage diversity and inclusion using performance competencies. Examples of such competencies include assessing candidates on their ability to include diverse groups when making team decisions and supporting the bank s diversity and inclusion efforts. <3. FHLBanks Use of Diverse Suppliers and Broker-Dealers Varied among Banks in 2018, and FHLBanks Implemented Key Diversity Practices FHLBanks Used a New Format for More Consistent Reporting in 2018 and Varied in Their Use of Diverse Suppliers and Broker-Dealers> FHFA worked with FHLBanks and developed instructions and templates for more consistent reporting of 2018 data on the banks use of diverse suppliers and broker-dealers, including those that are minority- and women-owned. FHLBanks use of minority- and women-owned suppliers and broker-dealers in 2018 varied among the banks. Banks also told us there are challenges that may slow or limit their use of diverse suppliers and broker-dealers. They generally implemented key practices to help ensure they consider diverse suppliers and broker-dealers in searches for business partners. Data reporting. Before 2018, FHFA had not issued a standardized data reporting template for FHLBank data on use of diverse suppliers and broker-dealers; therefore, data were not comparable across banks or years. As part of the requirements of FHFA s 2010 Minority and Women Inclusion regulation, in 2012 the banks and the Office of Finance began reporting data on their business activities with diverse businesses (minority-, women-, and disabled-owned) in the preceding year. However, the data prior to 2018 were not comparable across years and banks because the banks did not use consistent methods or definitions in their data reporting. To develop a common understanding and make the data more consistent, FHFA and the banks began working together in 2017 to develop a data dictionary and data templates. FHLBanks used the new templates to report their 2018 data. Minority- and women-owned suppliers. In 2018, FHLBanks varied in their use of minority- and women-owned suppliers (see fig. 9). The 11 banks entered into more than 2,900 supplier contracts overall in 2018 (ranging from 60 to 477 per bank). Of the total number of contracts, about 10 percent (279 contracts) were with minority-owned suppliers and about 12 percent (340 contracts) were with women-owned suppliers. Among the individual banks, the share of contracts entered into with minority- owned suppliers in 2018 ranged from about 1 percent to 38 percent and from about 4 percent to 25 percent for contracts with women-owned suppliers. In 2018, FHLBanks total supplier expenditure was about $453 million, of which about 8 percent and 13 percent, respectively, went to minority- and women-owned suppliers. Among the individual banks, the percentage of the total annual 2018 expenditure that went to minority-owned businesses varied from about 3 percent to 15 percent, and to women-owned businesses from about 2 percent to 31 percent (see fig. 10). According to FHFA staff, annual expenditure paid to suppliers can vary from year to year. More specifically, an increase in a bank s annual supplier expenditure in any one year is usually related to long-term, large investments made during that year, such as construction costs or investment in technology products and services. FHFA staff noted that these one-time increases in expenditures can provide opportunities to increase the use of diverse suppliers. FHFA staff said bank data showed that for example, in 2018, three FHLBanks each had large one time investments in construction or building maintenance. Diverse broker-dealers in debt transactions. FHLBanks conduct capital markets transactions with broker-dealers that meet certain qualifications (such as capital sustainability and financial performance), including those that have been approved as diverse broker-dealers. As previously mentioned, these transactions include debt issuance and investments. The Office of Finance acts as an agent to the banks and primarily functions to issue and service all debt transactions. In addition, it identifies and approves broker-dealers for the banks debt issuance transactions, including dealers that are minority-, women-, disabled-, and veteran-owned. As of December 31, 2018, the Office of Finance had 64 approved broker- dealers, 16 of which were diverse broker-dealers, including seven minority-owned and five women-owned firms. In 2019, the Office of Finance added two additional diverse broker-dealers, one minority-owned and one disabled veteran-owned, bringing the total to 18. This represents an increase in the number of approved diverse broker-dealers from 10 in 2014 (see table 4). A total of 69 broker-dealers conducted at least one debt transaction with the Office of Finance in 2018. Ten percent of these broker-dealers were minority-owned and 7 percent were women-owned. In 2018, FHLBanks issued about $8 trillion in debt transactions. Of this total volume, approximately 3 percent of transactions were conducted with minority-owned broker-dealers and less than 1 percent with women- owned broker-dealers. Similarly, minority-owned broker-dealers received approximately 5 percent of the fees paid to broker-dealers overall on these transactions, and women-owned broker-dealers received approximately 0.5 percent. While the Office of Finance reports debt volume data and other data, such as number of transactions conducted by diverse broker-dealers, to FHFA, staff noted that they also use two other performance goals to measure their capital markets diversity efforts. These two goals are the utilization of diverse broker-dealers in debt issuance programs and the number of outreach engagements with diverse broker-dealers (such as marketing and investor meetings). According to Office of Finance staff, as of June 2019, diverse broker- dealers had the opportunity to participate in all FHLBank debt issuance programs. However, as discussed later, some practices that the Office of Finance implements to control risk may limit diverse broker-dealers from taking a more substantial role in certain types of transactions. Diverse broker-dealers in investment transactions. FHLBanks make investments based on their investment needs and identify and approve broker-dealers for their investment needs according to their own qualification requirements. As shown in figure 11, the number of minority- owned broker-dealers approved by the FHLBanks ranged from five to 12, and the number of approved women-owned broker-dealers ranged from one to seven as of December 2018. Of the total number of broker-dealers that conducted at least one investment transaction with FHLBanks in 2018, the share of minority- or women-owned broker-dealers varied among banks (see fig. 12). Of the 10 banks that made investment transactions in 2018, shares for individual banks ranged from 0 percent to about 22 percent for minority-owned broker-dealers and from 0 percent to 10 percent for women-owned broker-dealers. In 2018, FHLBanks conducted about $12 trillion in investment transactions, less than 1 percent of which was conducted with minority- owned broker-dealers or with women-owned broker-dealers. Of the total number of transactions conducted by the banks, minority-owned dealers and women-owned dealers each accounted for less than 1 percent. <3.1. FHLBanks Described Challenges That May Slow or Limit Their Use of Diverse Suppliers and Broker-Dealers> FHLBank staff reported some challenges that may slow or limit their use of diverse suppliers and broker-dealers, such as those owned by minorities, women, and individuals with a disability. For example, staff from seven banks said that the bank s needs for goods and services are small or can fluctuate from year to year. Staff from two banks added that this can make it difficult to consistently increase or maintain the use of diverse suppliers. For example, staff from one bank described a building construction project that increased the use of diverse suppliers during the year in which the construction took place, but had no effect in the subsequent year because construction had been completed. In addition, staff from five banks said some bank procurement needs are fulfilled by continuing contracts with existing vendors. For example, staff from two banks said that some bank needs, such as existing information system support, are offered by continuing suppliers that may not be diverse suppliers. Additionally, staff from five banks said that there are not always diverse suppliers that can meet the bank s needs. For instance, staff from one bank said it can be difficult to find diverse suppliers to fill some contracting needs that require specific skills or expertise, such as the vendors used to review technical risk-assessment models. FHLBank staff also reported challenges that may slow or limit their use of diverse broker-dealers. For example, staff from six banks and the Office of Finance said that diverse broker-dealers often do not have the level of capital required by the banks to make the capital markets transactions the banks need. Staff from five banks said this is because diverse broker- dealers generally are smaller firms. In addition, staff from seven banks said that diverse broker-dealers may be limited in the services and products they can offer the banks. For example, staff from one bank told us that some diverse broker-dealers have fewer financial resources, which limits them to basic transactions as opposed to more complex transactions. Staff from six banks also said that their capital markets transactions are dependent on membership needs or market conditions for funding, which can lead to year-by-year fluctuations in transaction levels. Staff from four banks said that the fluctuations affect the bank s need for broker-dealers overall, and make it challenging for the bank to maintain or increase use of diverse broker-dealers. Office of Finance staff also noted this challenge, adding that many factors, such as underwriting capacity and experience, may affect a broker-dealer s ability and desire to participate in the FHLBanks debt issuance programs. Staff further said that individual broker-dealers are responsible for identifying investors to be able to participate in debt transactions; the Office of Finance cannot control whether a broker-dealer can identify an investor. <3.2. FHLBanks Generally Implemented Key Practices That Can Help Ensure They Consider Qualified Diverse Businesses> We previously identified key practices for increasing opportunities for minority- and women-owned asset managers. We found these practices can be applied to diverse suppliers and broker-dealers and used by organizations, such as FHLBanks, to help ensure they consider qualified diverse suppliers and broker-dealers in their selection process. Diverse suppliers and broker-dealers include businesses owned by minorities, women, and individuals with a disability. The key practices are Demonstrate top leadership commitment: Demonstrate commitment to increasing opportunities for diverse businesses. Conduct outreach: Conduct outreach to inform diverse businesses about opportunities and the selection processes. Communicate priorities and expectations: Explicitly communicate priorities and expectations about inclusive practices to staff and ensure those expectations are met. Remove potential barriers: Review policies and practices to remove barriers that limit the participation of diverse businesses. <3.2.1. FHLBanks Implemented Key Practices for Supplier Diversity> We found that FHLBanks generally implemented the four key practices in their supplier management programs, based on our review of the FHLBanks 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, and with bank staff with responsibility for vendor management. Demonstrate top leadership commitment. The FHLBanks demonstrated top leadership commitment to supplier diversity through strategic plans, goals, and reporting. All 11 FHLBanks include supplier diversity as a component of their diversity and inclusion strategic plans. In addition, the banks generally established quantitative or qualitative goals related to their supplier diversity programs; for example, the percentage of total expenditure with diverse suppliers. FHFA told us that they have been working with the banks to assess these goals and ensure they are outcome-based. Furthermore, the 11 banks track their progress in meeting diversity and inclusion objectives and goals. Each FHLBank s OMWI director reports to the bank s chief executive officer/president or the equivalent of the chief operating officer. The FHLBank boards also receive periodic updates on the bank s diversity and inclusion efforts. Conduct outreach. FHLBanks use a variety of methods to reach potential diverse suppliers. All 11 banks work with local or national industry organizations, such as the National Minority Supplier Development Council and Women s Business Enterprise National Council, to identify potential suppliers. Nine banks described attending events hosted by these organizations, such as matchmaking sessions or business fairs, and at least two banks reported using their databases to search for diverse suppliers. Staff from seven banks said that they proactively meet with potential vendors to educate them on bank needs and processes. Staff from one bank said they have invited a number of diverse vendors to the bank to meet bank managers and discuss their goods and services. This has resulted in contract proposals from five different diverse vendors. Staff from five banks also described using advertising and social media to reach a broad base of potential diverse suppliers; for example, one bank described placing advertisements in publications that target diverse businesses. Communicate priorities and expectations. FHLBanks communicated priorities and expectations on supplier diversity to bank staff through policies and training. All 11 banks have a written policy that outlines the requirements for bank staff to include a diverse supplier in their search whenever the need for a new contract is identified. In addition, all 11 banks conducted staff training on supplier diversity or on their vendor management policy. Remove potential barriers. According to our interviews with external stakeholders knowledgeable about working with diverse suppliers, diverse businesses may face barriers as they seek to obtain contracts. FHLBanks took steps that could ameliorate these barriers. Supplier contracts are often made through existing relationships and networks. Diverse suppliers may not have access to these networks and therefore miss opportunities to apply for contracts. As previously mentioned, FHLBanks conducted targeted recruitment of diverse suppliers. By actively seeking to build relationships with these suppliers, the FHLBanks have been working to address this barrier. The procurement process itself can be complicated and difficult to understand. Smaller diverse businesses may have limited staff and skill to navigate the process. Staff from seven banks have addressed this barrier by conducting one-on-one meetings with potential vendors to walk them through the bank s procurement processes. Third- Party Certification of Supplier Diversity Status According to the Federal Housing Finance Agency s (FHFA) 2010 Minority and Women Inclusion regulation, a firm qualifies as a minority- or women-owned business when it is more than 50 percent owned and controlled by one or more minority individuals or women and more than 50 percent of net profit or loss accrues to a member of those groups. Businesses can submit documentation to approved third-party certifiers to obtain a certification of their diversity status. Certifiers then review the documentation and sometimes conduct site visits to confirm the diversity status of the business. The process to certify as a diverse business with a third party can be confusing or costly, according to two external stakeholders we interviewed. The preambles to the 2010 Minority and Women Inclusion rule and its 2017 amendments state that while FHFA prefers reliance on certifications from qualified, independent third parties, FHFA also allows for reliance on self-certifications by the businesses. The FHLBanks each confirmed that they allow businesses to self- certify their diversity status. A small diverse supplier may not be able to fulfill a large contract requiring multiple services. An external stakeholder we interviewed told us that this barrier can be overcome when diverse suppliers join forces to fulfill multipart contracts. For example, a supplier that provides pens can join with a supplier that provides paper to fulfill a single office supplies contract. To do this, suppliers need advance notice of bank needs to create a business plan. Three banks told us that before meeting with potential suppliers, they work with various business departments in the bank to identify upcoming purchasing needs and share those with the suppliers. All 11 banks have a representative on the systemwide OMWI Council Procurement Sub-Working Group, which meets monthly. The subgroup spent the majority of 2017 addressing the challenge of FHFA data reporting. An OMWI Council representative told us that the members use the subgroup as forum to discuss key issues. In addition, the representative said the subgroup plans to focus on improving its outreach efforts in 2019. Two banks reported that they hold internal meetings to discuss trends and potential barriers and make updates to their supplier diversity program. <3.3. FHLBanks Implemented Key Practices for Broker- Dealer Diversity> We found that the FHLBanks and the Office of Finance generally implemented the four key practices for their capital markets programs, based on our review of the FHLBanks 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, the Office of Finance, and with bank staff with responsibility for capital market activities. Demonstrate top leadership commitment. Similar to the banks supplier management programs, FHLBanks demonstrated top leadership commitment to capital markets diversity through strategic plans, goals, and reporting. All 11 FHLBanks and the Office of Finance include capital markets diversity as a component of their diversity and inclusion strategic plans. They also generally established quantitative or qualitative goals related to their capital markets diversity programs, such as the percentage of transactions conducted with diverse broker-dealers. The 11 banks and the Office of Finance track their progress in meeting diversity and inclusion objectives and goals. In addition, the OMWI director reports to the chief executive officer/president or the equivalent of the chief operating officer. The FHLBank and the Office of Finance boards also receive periodic updates on the bank s and the Office of Finance s diversity and inclusion efforts, respectively. Conduct outreach. FHLBanks and the Office of Finance interacted with diverse broker-dealers through regular communication and face-to-face meetings. Staff from all 11 banks and the Office of Finance reported some form of regular communication with diverse broker-dealers to keep the broker-dealers informed on bank capital markets activities and needs. In addition, all 11 banks and the Office of Finance reported attending events to interact with diverse broker-dealers. For example, on behalf of the OMWI Council Capital Markets Subgroup, the FHLBank of New York hosts an annual Diverse Dealer Reception at which the banks and the Office of Finance can interact with current approved diverse broker- dealers and those in the pipeline for potential approval. At the 2017 reception, diverse broker-dealers were provided with contact information for all capital market staff in the FHLBank System and a brochure listing examples of ways diverse broker-dealers could engage with the system. Staff from all 11 banks and the Office of Finance also told us they hold one-on-one meetings with diverse broker-dealers to explain bank processes and needs. In addition, Office of Finance staff told us they help diverse broker-dealers build relationships with investors by accompanying them to one-on-one meetings with investors to introduce FHLBank securities products. Communicate priorities and expectations. FHLBanks communicate priorities and expectations on capital markets diversity to bank staff through policies and by sharing practices systemwide. Ten of the banks and the Office of Finance have a written policy or procedure related to the use of diverse broker-dealers, which outlines the importance of engagement with diverse broker-dealers or how bank staff should interact with them. The OMWI Council Capital Markets Subgroup also developed a list of aspirational practices for the 11 banks. These practices include many activities related to the four key practices we identified, such as engaging in regular communication and periodically examining capital market operations to identify potential obstacles to increasing business with diverse broker-dealers. Staff from one bank told us that having the practices codified in a document helps ensure consistent expectations across the system. Remove potential barriers. FHLBanks and the Office of Finance made changes to their capital markets practices and certain features of their debt products to increase access for diverse broker-dealers. For example, the Office of Finance, with input from the OMWI Council Capital Markets Subgroup, reduced the capital requirements on some types of debt transactions to bring in more diverse broker-dealers. The Office of Finance also told us that in the case of a new type of debt product created in November 2018, they allow multiple broker-dealers to participate in various roles, including diverse broker-dealers. However, FHFA staff told us that although the FHLBanks and the Office of Finance made changes to debt and investment products offered to diverse dealers, the banks and the Office of Finance have not always used a systematic process to review and evaluate debt and investment policies and procedures for potential changes that may expand participation by diverse broker-dealers. In 2017 and 2018, FHFA asked the banks and the Office of Finance, respectively, to develop such a process to facilitate opportunities for diverse broker-dealers. FHFA determined that 10 banks had addressed this request. FHFA staff noted that they will review the remaining entities progress in addressing this request in 2019 examinations. In addition, each bank and the Office of Finance has a representative on the systemwide OMWI Council Capital Markets Subgroup. According to staff from four banks, the subgroup s monthly meetings provide them with an opportunity to discuss barriers and practices. In 2018, the subgroup administered a survey to the approved diverse broker-dealers to solicit suggestions and feedback on their interactions with the banks. Bank staff told us the survey did not result in any program changes, but provided information on how they could communicate more effectively. However, diverse broker-dealers still may face barriers in some areas, according to three diverse broker-dealers and two industry stakeholders, with whom we spoke. The Office of Finance has been taking steps to address these barriers where possible. Some practices that the Office of Finance implements to control risk can limit diverse broker-dealers from taking a more substantial role in transactions associated with certain debt products. For example, according to Office of Finance staff, only the top eight broker-dealers (ranked by the Office of Finance based on performance) can lead transactions for certain longer-term and larger-size debt products. Two diverse broker-dealers told us this requirement limits their ability to participate in these transactions. For example, one broker-dealer told us that because diverse broker-dealers generally are newer firms with less capacity relative to the top eight broker-dealers, it would be unlikely that they would ever be one of the top eight. Office of Finance staff told us these products accounted for less than 1 percent of the FHLBank s total debt issuance in 2018 based on net proceeds received. According to the Office of Finance, they rely on these top eight broker-dealers because they can better cover any risk posed by the transactions. The Office of Finance allows diverse broker-dealers to serve as co-managers on these larger transactions, but diverse broker-dealers told us that acting as a co-manager did not noticeably increase the share of transactions they could execute or their own fee revenue. Staff from the Office of Finance said the office does not implement quotas as a way to maintain or increase the use of diverse broker- dealers, but rather focuses on providing diverse broker-dealers with opportunities and on implementing outreach opportunities. According to these staff, the percentage of transactions conducted and fees received by diverse broker-dealers as a whole has increased over time. The Office of Finance told us they recently met with diverse broker- dealers about another risk-management practice that may limit the participation of diverse broker-dealers. According to Office of Finance staff, this practice requires broker-dealers to have at least $100 million in capital to conduct certain complex debt transactions. According to external stakeholders, a higher capital requirement may limit the participation of diverse broker-dealers, who generally have less capital, in these transactions. Staff from the Office of Finance said that they have been evaluating whether it is appropriate to modify the requirement. Their evaluation is part of the office s continual process to evaluate debt issuance programs. Three diverse broker-dealers and one industry stakeholder we interviewed said that increased transparency by FHLBanks and the Office of Finance in information provided to broker-dealers could help diverse broker-dealers identify opportunities and better understand the banks needs. For example, one diverse broker-dealer and one industry stakeholder said that access to information on the fees paid to broker-dealers on different types of capital markets transactions could help them take advantage of areas of greater opportunity. This information is reported by the Office of Finance and FHLBanks to FHFA, but generally is not released publicly. The preamble of FHFA s Minority and Women Inclusion rule notes that FHFA treats this information as confidential because it can affect the agency s oversight of the banks. However, FHFA does not prohibit FHLBanks and the Office of Finance from publishing their diversity information if they so choose. Office of Finance staff told us that they do not publish data on fees or broker-dealer transactions for certain debt product because they consider this proprietary and competitive information. They said publishing the data could increase the leverage of broker- dealers and also could lead to an adverse impact on investor participation and support. <4. FHFA Oversight of FHLBanks Diversity and Inclusion Efforts Includes Conducting Examinations and Reviewing Bank Data> FHFA s oversight of FHLBanks includes annual examinations, development of instructions and templates to improve data quality, incorporation of bank data in oversight, and communication of agency expectations for diversity and inclusion efforts to the banks through various mechanisms. Began examining FHLBanks diversity and inclusion efforts in 2017. In 2017, FHFA started reviewing FHLBanks diversity and inclusion efforts in its annual examinations of the banks. FHFA developed a separate examination module (to add to its examination manual) in 2016 for reviewing the banks diversity and inclusion efforts and the banks oversight of these efforts. The areas that FHFA reviews include strategic planning and associated goals for diversity and inclusion, board oversight, organizational structure of diversity and inclusion programs, workforce, suppliers (which encompasses broker-dealers in the capital markets program), reporting structure and processes, and internal audit and compliance. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote and maintain diversity and inclusion in their workforce and use of diverse suppliers and broker-dealers. FHFA also identified some areas for improvement. Specifically, in the 2017 examinations, FHFA recommended that all 11 banks improve their reporting and program goals on workforce diversity and use of diverse suppliers and broker-dealers. For example, FHFA specifically found that six banks needed to improve performance measurement of their supplier diversity goals. In the 2018 examinations, FHFA recommended that seven banks enhance their succession planning to ensure that potential successors are assessed on how well they manage and implement diversity and inclusion. As previously discussed, FHFA also asked FHLBanks and the Office of Finance to develop a more systematic process to review and determine potential changes to their debt and investment policies that could expand participation by diverse broker-dealers. Based on our review of FHFA s examination documentation, FHFA followed its processes to document, communicate, and resolve examination findings related to diversity and inclusion in its 2017 and 2018 examinations. For example, FHFA examiners prepared memorandums to document the assessment and findings of each individual bank s diversity and inclusion efforts and communicated findings to bank management and boards. Consistent with the examination manual, FHFA followed up on 2017 examination findings and banks remediation actions during the 2018 examinations. As of March 2019, FHFA determined that 10 banks satisfactorily remediated findings from the 2017 examination related to goals and reporting issues, among other things. For the remaining bank, management has not completed all remediation steps to address FHFA s examination findings, according to FHFA staff. FHFA staff added that they will review the bank s actions again in the 2019 examination and assess the banks progress in addressing the 2018 examination findings. According to FHFA staff, they plan to make some changes to the diversity and inclusion examination module. For example, in the module FHFA plans to more explicitly separate the information on the review of diversity efforts related to use of diverse broker-dealers from use of diverse suppliers (they are currently under one examination component). Developed instructions and templates to improve data quality. To enhance the quality of the data and information submitted by FHLBanks on their workforce diversity and use of diverse suppliers and broker- dealers, FHFA worked with FHLBanks and developed instructions and templates to help FHLBanks submit more consistent data on a quarterly basis. During 2018, FHFA requested that banks submit quarterly diversity data on their workforce and the use of diverse suppliers and broker- dealers. FHFA also developed a data reporting manual that includes a data dictionary, and templates for the quarterly and annual data and for the annual report to help FHLBanks more consistently report diversity data for their workforces and use of diverse suppliers and broker-dealers. FHFA staff told us that they reviewed the banks 2018 data to identify any discrepancies, and they worked with the banks to clarify data definitions and correct the discrepancies. For example, some banks had used an incorrect definition to account for their diverse supplier expenditures. Because 2018 was the first year in which the banks used the new templates, FHFA staff said they had expected some discrepancies in the data as the banks became familiar with the data definitions. Staff said FHFA plans to continue to work with the banks to help them achieve a common understanding of the data definitions. Incorporated bank data in oversight. According to FHFA staff, in 2018 they began to use the banks quarterly data for ongoing monitoring of the banks diversity and inclusion efforts in workforce, procurement, and capital markets. For example, the FHFA OMWI office assesses each bank s diversity performance in these three areas using the quarterly data, and has been considering developing benchmarks. FHFA staff said the quarterly data provide more detailed information on the banks use of diverse businesses; for example, the types of goods or services for which the banks contract with diverse businesses. FHFA staff noted that the additional data not only inform FHFA s oversight but also can help the banks internal reporting on diversity and inclusion efforts. Additionally, FHFA plans to review the banks data reporting systems as part of its annual examinations to help ensure banks have the appropriate controls for data reporting. FHFA staff said that the agency expects the banks to establish the appropriate data system to ensure the quality of data reported to FHFA and for internal reporting. Communicated with FHLBanks, including on data templates and expectations. FHFA provided clarification on the roles and duties of the banks OMWI officers and the scope of diversity regulations. FHFA collected the banks feedback and responded to questions on the new quarterly data reporting and the new data instructions and templates. Subsequently, FHFA modified the data templates in 2019 to allow the banks to more efficiently report their diversity data on a quarterly and annual basis. For example, FHFA consolidated data fields common to quarterly and annual reporting, among other things. Additionally, FHFA provided responses to the banks on their questions on the data and annual report templates when the templates were first introduced in 2018 and revised in 2019. FHFA staff said the annual report template helped clarify FHFA s expectation on annual report content. In addition, FHFA staff noted that since 2015, FHFA s OMWI director has met with the bank presidents and board of directors of most of the FHLBanks, and began in 2018 to have at least one visit for each bank every other year. The FHFA OMWI director also generally attends the semi-annual conferences of the banks OMWI officers, during which she has the opportunity to meet with the banks presidents individually. During these meetings, the OMWI director or staff discussed diversity issues such as strategic planning, results of the banks annual reports, and examinations. <5. Agency Comments> We provided a draft of this report to FHFA, each of the 11 FHLBanks, and the Office of Finance for review and comment. FHFA, six FHLBanks, and the Office of Finance provided technical comments, which we incorporated as appropriate. The other five FHLBanks did not have any comments. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Director of FHFA, 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 have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments <6. GAO Contact> Anna Maria Ortiz, (202) 512-8678, [email protected]. <7. Staff Acknowledgments> In additional to the individual named above, Kay Kuhlman (Assistant Director), Anna Chung (Analyst in Charge), Meghana Acharya, Laurie Chin, Kaitlan Doying, Jill Lacey, Moon Parks, Barbara Roesmann, Jessica Sandler, and Jena Sinkfield made key contributions to this report.

Why GAO Did This Study The FHLBank System consists of 11 regionally based banks that are cooperatively owned by member institutions (such as community banks and credit unions) and of the Office of Finance. The banks, which are regulated by FHFA, provide liquidity for their member institutions to use in support of housing finance and community lending. GAO was asked to review FHLBanks' implementation of diversity and inclusion matters in workforce and business activities (including the use of suppliers and broker-dealers). This report examines (1) trends in gender, race, and ethnicity in FHLBank workforces, and challenges faced and practices used to maintain and increase a diverse workforce; (2) use of minority- and women-owned suppliers and broker-dealers in 2018, and challenges faced and practices used to increase and maintain their use; and (3) FHFA oversight of FHLBank diversity and inclusion efforts. GAO analyzed FHLBank and Equal Employment Opportunity Commission data on the banks' workforce, suppliers, and broker-dealers. GAO also reviewed FHFA and FHLBank policies and regulations and previous GAO work on these issues. GAO interviewed FHFA and FHLBank staff and a nongeneralizable sample of external stakeholders knowledgeable about supplier and broker-dealer diversity. What GAO Found From 2011 to 2017, the share of women in senior management in Federal Home Loan Banks (FHLBank) increased from about 21 percent (35 individuals) to 28 percent (47 individuals). The share of minority senior management remained the same at about 14 percent (23 individuals). The overall share of women employees slightly decreased and minority employees slightly increased during this period, but gender and minority representation varied by individual bank. FHLBanks identified challenges to maintaining and increasing workforce diversity, such as limited hiring opportunities due to low turnover. FHLBanks have been taking steps to promote workforce diversity, such as outreach to organizations that represent women or minorities and incorporation of diversity and inclusion in incentive compensation goals or performance competencies. In 2018, use of minority- and women-owned suppliers (for goods and services) and broker-dealers varied among individual FHLBanks. Overall, minority- and women-owned suppliers accounted for 8 percent and 13 percent of procurement expenditures, respectively. Minority- and women-owned broker-dealers accounted for about 3 percent and less than 1 percent of the debt issuance amount, respectively. FHLBanks and the Office of Finance (which issues debts on behalf of the banks) have been taking steps to increase diversity in these business activities, such as conducting outreach to diverse entities. However, external stakeholders said such suppliers and broker-dealers may continue to face some barriers—for example, capital requirements that limit participation by diverse broker-dealers, which generally have fewer resources. In 2017, the Federal Housing Finance Agency (FHFA) started reviewing the diversity and inclusion efforts of FHLBanks in its annual bank examinations. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote diversity and inclusion but also identified areas for improvement, such as improving goals for workforce and supplier diversity. In 2018, FHFA issued a manual and templates for reporting of quarterly and annual diversity data to help ensure consistent reporting of the data. FHFA also began using the quarterly data for ongoing monitoring of the banks' diversity and inclusion efforts.

gao_GAO-20-26

gao_GAO-20-26_0

<1. Background> <1.1. Disability Compensation> VA pays monthly disability compensation to veterans with disabling conditions caused or aggravated by their military service. The benefit is based on an average reduction in earning capacity across a group of individuals with similar physical or mental impairments. Disability compensation is generally paid according to the severity of the service- connected condition and is awarded in 10 percent increments, based on criteria in the VA Schedule for Rating Disabilities (VASRD or rating schedule). Veterans may claim more than one medical condition, and VBA assigns a rating percentage for each condition determined to be connected to the veteran s service. For veterans with multiple service-connected conditions, VA calculates a rating (combined disability rating) using a table that applies a formula for combining multiple ratings into a single rating. The rating affects the amount of monthly compensation received by a veteran. Unlike some private-sector disability programs, the employment status, earnings, and ability to work generally are not factored into the disability rating and subsequent base payment. Moreover, unlike typical workers compensation programs for permanent impairments, no limits are generally placed on the length of time veterans can receive payments. Obligations for disability compensation have increased by 45 percent in the last 5 years, from about $54 billion in fiscal year 2013 to about $78 billion in fiscal year 2018. According to VA, this increase is due to several factors, including more beneficiaries (for example, as veterans of more recent conflicts leave military service and seek compensation), as well as rising average disability ratings that lead to higher average payments. VA reported that growth in the number of veterans with a service-connected condition is concentrated among those rated 50 percent or higher. VBA s Compensation Service sets policy and oversees the process for determining eligibility for disability compensation. VBA staff in the regional offices process disability compensation claims. These claims processors include Rating Veterans Service Representatives (RVSR or rater), who decide on benefit entitlement and the rating percentage, and Veterans Service Representatives (VSR), who gather evidence needed for the raters to make their decisions and later authorize payment, if any. Claims processors use the Veterans Benefits Management System (VBMS) an electronic, paperless system to maintain, review, and make rating decisions for veterans claims. <1.2. VBA s Disability Reevaluation Process> VBA s reevaluation process determines whether veterans service- connected conditions may have changed, due to treatment or other factors, in the years following an initial evaluation for disability compensation. This process helps ensure that veterans service- connected conditions are being rated and compensated correctly. A first step in the process is deciding whether a condition may need to be reevaluated at a future date. As part of an evaluation for disability compensation, claims processors review medical evidence and consider whether to schedule a future review date (see fig.1). When the scheduled review date arrives, VBA revisits the case to determine whether a reevaluation of the disabling condition is still appropriate. This pre-exam review involves reviewing the veteran s records to determine if the veteran is still experiencing similar symptoms. After this review, VBA may conduct, postpone, or cancel a reevaluation. If the reevaluation is conducted, a medical exam may be ordered, after which the rater will rate the condition based on exam results and other medical evidence. VBA regulations specify certain conditions that require reevaluation. In other instances, VA has discretion in whether to conduct reevaluations, determined upon review of a veteran s medical record. For example, the medical record may suggest that a veteran with limited range of motion will be continuing physical rehabilitation and is expected to improve. Whether the reevaluation is required or discretionary, VBA s regulations outline several exclusions that place limits on when VBA conducts reevaluations, such as if the veteran s combined disability rating would not change as a result of a reduced evaluation for one or more conditions. <1.3. VHA and Other Health Care for Veterans> Veterans may generally obtain health care through (1) VA medical facilities, (2) non-VA health care providers in the community for which VA pays (called community care), or (3) providers paid through veterans own health insurance. For VA medical facilities, VHA determines eligibility and priority for VA health care, enrolls veterans, and oversees 172 VA medical centers and over 1,000 outpatient facilities. In response to the Veterans Health Care Eligibility Reform Act of 1996, VHA developed a priority system to balance demand for health care with available resources. The system has eight priority groups, and first priority is generally given to veterans with service-connected conditions rated 50 percent or more and to veterans deemed unemployable because of service-connected conditions. Priority groups 2 and 3 include veterans with service-connected conditions rated 30 or 40 percent, or 10 or 20 percent, respectively, according to VHA. Veterans may be eligible for community care if, for example, VA does not offer the care or service the veteran requires, or when a VA medical facility is unable to provide the care or services consistent with the agency s access standards. Before receiving health care through VA community care programs, veterans must generally obtain authorization from VA. The total number of veterans enrolled in VA s health care system rose from 7.9 million to over 9 million from fiscal years 2006 through 2017. During that period, VHA s budget more than doubled, from $37.8 billion to $92.3 billion, as health care costs were rising and its community care programs were expanding. In fiscal year 2017, VA obligated $13.6 billion of its budget for community care, and in fiscal year 2018, this increased to $14.9 billion. For health care services delivered outside of VHA medical facilities that are not funded by VA, veterans may use private health insurance. A 2018 VA survey of veterans enrolled in VA s health care system found that about 28 percent reported being covered by private insurance. <1.4. VBA Regional Office Performance Information for Disability Compensation Claims Processing> VBA tracks its performance in providing timely and accurate disability compensation decisions to veterans. VBA considers a decision to be timely if a veteran s claim is processed within 125 days. As part of its quality assurance efforts, VBA conducts national and individual reviews of the accuracy of claims decisions, and periodic consistency studies to assess claims processors knowledge of regulations and guidance on specific claims processing issues, such as when to conduct reevaluations. At the VBA central office level, procedures call for VA to assess the accuracy of a random sample of completed claims from each regional office using its Systematic Technical Accuracy Review (STAR) method. STAR reviewers use a standardized checklist to review all actions taken in processing a claim and record any errors they find. VA reports national and regional office performance data for claim- based accuracy (based on the entirety of the claim) and issue-based accuracy (based on each of the individual medical conditions rated). In fiscal year 2018, VBA reported claim-based rating accuracy of about 90 percent and issue-based accuracy of about 95 percent. At the VBA regional office level, quality review teams conduct Individual Quality Reviews of individual claims processors work. For example, VA s procedures call for reviews to be performed on five claims for every rater per month. The reviews are used to help assess individual claims processors performance. In addition to accuracy reviews, VBA s national quality assurance efforts include periodic consistency studies on specific claims processing issues. These studies are intended to assess how consistently claims processors are making decisions across all regional offices by testing select claims processors on their knowledge of VBA s regulations and procedures. <1.5. Differences between Improvements in Service- Connected Conditions and Health Outcomes> Improvements in a veteran s service-connected conditions and improvements in a veteran s health outcomes have important differences. Federal law requires disability compensation to be based upon an average reduction in earning capacity across a group of individuals with a similar physical or mental impairment. In addition, for certain service- connected conditions such as amputations, VA evaluates the condition based on loss or loss of function of a body part or system, without considering assistive devices or prosthetics. As such, some service- connected conditions, such as hearing loss, are generally not expected to improve for purposes of disability compensation. In contrast, according to VHA research, a veteran s use of a hearing aid is an example of a successful health outcome because this assistive technology can treat the symptoms of hearing loss and increase the functioning of a person. <2. Many Veterans Use VA Health Care for Service-Connected Conditions, but Outcomes of This Care Are Not Well Understood> <2.1. More Than Half of Veterans Receiving Disability Compensation Use VA Health Care for Service-Connected Conditions> For health care delivered at VA medical facilities, our analysis of fiscal year 2018 VA data shows that more than half of veterans receiving disability compensation used VA health care for a service-connected condition. Specifically, we determined that about 54 percent of veterans, or about 2.6 million, who received disability compensation had at least one VA outpatient visit related to a service-connected condition. Veterans with higher combined disability ratings had more outpatient visits related to their service-connected conditions, on average. (See fig. 2.) Veterans using VA health care for service-connected conditions had an average of four such conditions, and the median age was 63. For veterans with the most prevalent service-connected conditions, in fiscal year 2018 the average number of visits ranged from about 6 to 11 (see table 1). The highest average number of visits was for veterans with service-connected post traumatic stress disorder (PTSD) and diabetes. For the same year, veterans receiving disability compensation had an average of nearly eight outpatient health care visits for service-connected conditions. In fiscal year 2018, about 13 percent of VA inpatient hospital stays for veterans receiving disability compensation were to treat a service- connected condition; about 87 percent of the stays for this population were to treat non-service-connected conditions. Nearly 2.1 million, or about 44 percent of veterans receiving disability compensation, had no VA outpatient visits or inpatient stays for their service-connected conditions. These veterans may have received treatment paid for through private insurance, from community care, or received no treatment for their service-connected conditions in fiscal year 2018. Veterans who did not use VA health care had an average of about four service-connected conditions, and the median age was 57. For community care (VA-funded health care delivered by non-VA providers), we could not determine the extent to which veterans receiving VA disability compensation used these health providers for their service- connected conditions because this area is not a focus of analysis for the program, according to VHA Office of Community Care officials. These officials told us that, other than for emergency care claims, information on service-connected conditions is not used to process authorizations and payments for the program because program eligibility is based on other factors, such as the availability of needed services. Veterans also receive health care outside of VHA facilities that is not funded by VA, such as through their private health insurance, and the number and types of these services for service-connected conditions are largely unknown. According to a statutorily mandated study of the use of VA s health care system, these data are limited. The authors of this study recommended that VA consider expanding data collection efforts. VA has since worked with the Department of Health and Human Services Agency for Healthcare Research and Quality to expand its data collection regarding veterans, including veterans receiving disability compensation, specifically regarding veterans use of non-VA care and coordinating such care with VA providers. Data from this effort will be available beginning in fiscal year 2020, according to Agency for Healthcare Research and Quality researchers conducting the study. <2.2. Health Outcomes of Veterans Receiving VA Disability Compensation Are Not Well Understood> Health outcomes of veterans with service-connected conditions who receive VA health care services are not well understood, as they have not been specifically studied outside of veterans receiving disability compensation for PTSD. Based on a review of peer-reviewed literature and interviews with VA health research officials, we identified two studies on the health outcomes of veterans, both of which specifically focused on health outcomes for veterans receiving disability compensation for PTSD. One study published in 2011 found that receiving disability compensation benefits for PTSD was associated with clinically meaningful reductions in PTSD symptoms and reductions in poverty and homelessness. Another study published in 2017 found that 10 percent of men and 20 percent of women who applied for disability compensation for PTSD had a persistent serious mental illness, and over time, consistently reported more severe PTSD symptoms and poorer functioning in comparison to other study participants without severe mental illness. The study authors noted that serious mental illness was more prevalent in this population than in the VA health care system overall. They concluded that more information is needed about the characteristics of those receiving disability compensation to better understand their challenges and long-term outcomes. VA s Health Services Research and Development office sponsors research on health conditions common in the veteran population, such as traumatic brain injury and Gulf War Illness, among others. According to an official from this office, data used for these studies generally do not include veterans receipt of disability compensation or their specific service-connected conditions. <2.3. VA Data on Service- Connected Conditions and Health Care Are Not Easily Used to Study Health Outcomes of this Population> Several health care researchers within VA and a VA official we spoke with cited various reasons for limited research on health outcomes for veterans with service-connected conditions. According to these officials, a key challenge is that VBA and VHA data do not use the same identifiers for medical conditions that are needed to link the two information sources. VA health care researchers acknowledged benefits to including veterans VBA disability codes in their studies to analyze health information for veterans with service-connected conditions. A 2007 report on the options for improving the disability program also noted that the use of common diagnostic categories would allow VA program managers and researchers to compare populations and trends that would help in program planning and in epidemiological and health services research. However, VBA s diagnostic codes are unique and do not allow comparisons of trends in disabilities in populations served by VHA or the Department of Defense. According to a VA health care researcher and a VHA official, also contributing to these challenges are the lack of data use agreements, which could better facilitate linking VBA and VHA administrative data for VA to further study health outcomes for this population. For example, according to a VA researcher, linking these data sources could allow researchers to investigate causal relationships between disability compensation and veterans health outcomes. We previously reported that such agreements can specify which data can be accessed and for what purpose, the duration of access, and requirements for safeguarding the data and ensuring confidentiality. VBA officials said that while they routinely share data with VHA for operational purposes, obtaining access to VBA data for research purposes has special requirements and is more cumbersome. Agency health care data are stored in VHA s Corporate Data Warehouse, while benefits data are stored in VBA s data warehouse. Both VHA and VBA officials noted that their data contain sensitive information and that access is carefully monitored. VA s fiscal year 2018-2024 Strategic Plan includes goals and objectives for data-driven decision making, which include having comprehensive data to identify and meet veterans needs, as well as to understand the outcomes VA provides veterans and focus VA s improvement efforts. In addition, we have previously reported that agencies can enhance and sustain their collaborative efforts by defining common outcomes, leveraging resources, and establishing compatible policies, among others. These practices include articulating agreements in formal documents, which can strengthen the commitment to working collaboratively, as well as establishing compatible policies and other means (including compatible standards and data systems) to operate across agency boundaries. VA has begun to consider ways to analyze health care services received by veterans with service-connected conditions. VA s Office of Enterprise Integration (OEI) is tasked with providing analysis to inform VA decision- making, as well as to align planning and implementation across VA programs and initiatives. According to an OEI official, it plans to convene subject matter experts from VBA and VHA to determine options and pilot strategies to link available data, but has not yet determined the scope, specific activities, or timeframes for this effort. Until VA develops and implements a plan to address challenges that have hindered analysis thus far and enhance collaboration between VBA and VHA with regard to such analysis, VA will not be positioned to understand the characteristics, needs, and health outcomes of veterans with service-connected conditions, which available research suggests may be different from other veterans. <3. VBA Does Not Fully Use Information on Reevaluations to Manage the Disability Compensation Program> <3.1. VBA Does Not Fully Use Trend and Outcome Information on Completed Reevaluations to Aid Future Decision Making About Which Conditions to Reevaluate> VBA uses some information on conditions identified as potentially needing reevaluations; however, it is not analyzing and using trend and outcome information from completed reevaluations to inform which service-connected conditions to reevaluate in the future. Reevaluations of veterans service-connected conditions can serve as a proxy to gauge change, including improvement, in health. VBA assesses changes in veterans disabling conditions from reevaluations it conducts for various reasons, including evidence of potential improvement or when required by the rating schedule. A reevaluation showing a change in a given condition may result in one of three possible outcomes: an increase, decrease, or no change in the veteran s associated disability rating. VBA developed a report to help identify unnecessary reevaluations, which included information on veterans conditions that are initially flagged by raters for potentially needing reevaluations in the future. Developed in 2017, VBA s report identified potential reevaluations deemed unnecessary per VA s regulations. For example, regulations state that veterans older than 55 are generally exempt from reevaluation, according to the VA Office of Inspector General (OIG). As part of this process, potential reevaluations identified as unwarranted by VBA s report would be cancelled before their scheduled review dates arrived. This report also includes information on specific conditions identified for potential reevaluation, including the subset of conditions required by regulation to be reevaluated. For example, according to the data generated by the report in June 2019, PTSD was the most common condition identified for potential reevaluation, and of the conditions requiring reevaluation, prostate cancer was most common. However, VBA officials explained that if the report were to find that any of the cases were for veterans older than 55, the reevaluation would be deemed unwarranted and the scheduled review date for considering reevaluation would be cancelled. According to VBA officials, using this report helped VBA identify and cancel about 70,000 potential reevaluations deemed unnecessary, saving about $29 million. VBA plans to run similar reports as needed to identify more reevaluations that could be cancelled, according to officials. Additionally, VBA officials said that they have data on the specific conditions for which medical exams are ordered as part of the reevaluation process. Ordering exams for reevaluations occurs after a condition identified for potential reevaluation has been reviewed and a decision has been made to proceed with a reevaluation. In particular, VBA s Exam Management System tracks exams ordered, including exams for reevaluations, and provides information about the associated conditions. However, this system does not provide information on the outcome of a reevaluation decision based on the information from these exams. While VBA has some insight into conditions set to be reevaluated, management lacks information on completed reevaluations, including (1) trends and comparisons of certain reevaluated conditions and (2) rating outcomes of reevaluation decisions for individual service-connected conditions. Reevaluation trends. VBA officials told us that they analyze trends on the numbers of veterans who have had reevaluations. However, they said they do not analyze reevaluation data to identify trends on whether certain conditions are frequently or infrequently reevaluated, including for conditions requiring reevaluation under VBA regulation. Further, although VBA has a mechanism to identify potential reevaluations for veterans with conditions requiring them, it is not analyzing the broader universe of veterans with these conditions, according to VBA officials. Such information could determine the extent to which conditions are being identified for reevaluation as required as well as the outcomes or results of these reevaluations. This trend information could also help VBA determine whether claims processors are conducting reevaluations as needed or required. Reevaluation outcomes. VBA officials said that they do not analyze information on the outcomes of reevaluation decisions for individual conditions (i.e., whether a reevaluation resulted in an increase, decrease, or no change to the rating of a particular condition). According to our analysis of VBA data, reevaluations rarely result in changes to veterans combined ratings. Specifically, from fiscal years 2013 through 2018, about 95 percent of reevaluations resulted in no changes to combined ratings for veterans, with about 3 percent resulting in an increase and less than 1 percent resulting in a decrease. Combined ratings alone do not offer insight into what impact reevaluations may have on ratings for individual conditions, including which ones are improving as a result of treatment. Most veterans have multiple conditions that contribute to a combined disability rating. VA reported that in 2018 veterans receiving disability compensation had an average of about five service-connected conditions. For those receiving reevaluations, this circumstance means that although the rating of one condition may decrease as a result of a reevaluation, the rating of another condition may increase based on the claims processor s review of the medical evidence. As a result, the combined rating may not decrease despite a decrease in the rating of an individual condition. A recent report examining reevaluations for veterans with PTSD had similar findings. In its review of a sample of veterans, the study found that these veterans rarely saw a reduction in their individual rating for PTSD. In cases where an individual rating was reduced, most saw no reduction in their overall combined rating due to the fact that they had other conditions whose ratings increased and thereby offset any reduction. According to VBA officials, the agency does not analyze data on trends in reevaluated conditions or the outcomes of reevaluation decisions for specific conditions because management has not expressed interest in doing so. Further, officials said that these data are not stored together in the database. Although analyzing these data and developing a report on types of conditions reevaluated and their outcomes is feasible, according to officials, doing so would require additional steps, including analyzing the text of rating decisions. According to VA regulation, reevaluations are intended to verify the continued existence or the current severity of a disability. Federal standards for internal control state that management should establish and operate monitoring activities to evaluate the results of activities and ensure that objectives are met with minimum wasted resources. Moreover, they state that management should design a process that uses the entity s objectives and related risks to identify the information requirements needed to achieve the objectives and address risks. These standards also state that management should use quality information to achieve the entity s objectives. Identifying the extent to which VBA is meeting these program objectives and effectively managing resources is difficult without analyzing information about the outcomes of reevaluations for specific conditions. Such analysis could also identify trends indicating conditions with little or no potential for a rating change or missed opportunities to target other conditions likely to change as a result of reevaluations. In recent years, VBA has focused its procedures on reducing the number of unnecessary reevaluations and generally limiting the number of reevaluations conducted overall. Using outcome information could allow the agency to better target the agency s resources and avoid the risk of unnecessary reevaluations and burdening veterans. Analyzing reevaluation trends and outcomes could also inform existing VBA policy. For example, VA is updating the rating schedule with current medical and earnings loss information, including adding conditions requiring reevaluations. Analyzing information on which conditions are reevaluated and identifying any trends in conditions that improve could help inform future updates to the rating schedule or improve the policies or practices for how the reevaluation process is implemented. <3.2. VBA Does Not Fully Use Performance Information to Help Improve the Reevaluation Process> VBA uses information to help gauge the timeliness and quality of reevaluation decisions, but has not fully used information related to the consistency of raters decisions to address potential training needs, among other issues. VBA tracks its performance in providing veterans with timely and accurate decisions on their disability compensation benefits, and uses such information including information on reevaluations to manage the claims process. VBA holds its claims processing staff accountable for their timeliness and accuracy through performance standards for regional office managers and individual claims processors. Timeliness. VBA measures and reports to Congress and the public its total number of claims awaiting completion, including those that have been backlogged (awaiting completion for more than 125 days). According to VA, at of the end of fiscal year 2018 it had about 364,000 disability compensation rating claims awaiting completion. Of this total, about 19,000 were reevaluations, of which fewer than 5 percent were in the backlog. VBA uses additional timeliness measures to hold regional offices accountable by tracking the timeliness of their work in each of five steps or cycles in the claims process, as managed under the National Work Queue (VBA s system for distributing the claims workload). For example, in fiscal year 2018, preparing a rating decision for a reevaluation took an average of 1.76 days. Quality. VA uses national, regional office, and individual-level data from its accuracy reviews to oversee the quality of rating claims decisions, including reevaluations. Each regional office is to meet the national STAR issue-based target of 96 percent accuracy for the year. For reevaluations, VBA reported both claim-based and issue-based accuracy of about 95 percent for fiscal year 2018. According to VBA officials, in response to a recommendation in the VA OIG s report on unwarranted reevaluations, in October 2018 VBA updated the STAR national quality review checklist with additional questions on (1) the need for a reevaluation, and (2) the timeframe for future reevaluation. At the individual claims processor level, VA measures accuracy using the results of Individual Quality Reviews as part of claims processors performance evaluations. For example, a rater is considered fully successful by achieving 92 to 96 percent accuracy on Individual Quality Reviews for a month, depending on the rater s experience. In fiscal year 2018, VBA reported that for Individual Quality Reviews, claims processors had a 98.4 percent accuracy rate for reevaluations. Overall, few reevaluations are reviewed because reevaluations are a small proportion of VA s claims workload. Specifically, of about 102,000 reevaluations completed in fiscal year 2018, about 1,500 were reviewed under STAR and about 10,000 were reviewed in Individual Quality Reviews. In addition to using accuracy information to measure regional office and individual performance, VBA holds regional offices and individual claims processors responsible for correcting their errors. According to VBA officials, the agency uses information from its quality reviews to provide additional guidance and training to regional offices. VBA discusses quality review information, including trends in claims processing errors, through newsletters and periodic conference calls with regional office managers and quality review teams. For example, VBA officials noted that they discussed reevaluation policies and guidance with regional office staff on three occasions between May 2017 and May 2018. Officials at the four regional offices we visited indicated that they disseminated information on reevaluations to claims processors. For example, one office s quality review team provided additional training on reevaluations to members of the claims processing teams. Quality review team officials in each of the regional offices we visited told us that they disseminate and reinforce guidance to claims processors through periodic meetings, newsletters, or other mechanisms. VBA, however, has not fully used available information about quality to oversee and improve the reevaluation process. Specifically, VBA did not use the results of a study it conducted to further identify and correct gaps in raters knowledge of reevaluation processing guidance. This May 2018 study part of VBA s quality assurance efforts that include periodic consistency reviews of specific claims processing issues assessed how consistently raters across regional offices understood VBA s policies on ordering reevaluations (see table 2). The study team recommended VBA take two actions: 1. Consider having experienced quality review team staff at regional offices provide additional training on reevaluation guidance to raters. 2. Consider reviewing reevaluation decisions at the seven lowest-scoring offices because they were at high risk of inaccuracies. While VBA provided regional offices with results of the May 2018 consistency study, the agency did not implement either recommendation. VBA officials told us that they did not direct regional offices to provide additional training because the agency expected the offices to use the results of the consistency study to plan training on reevaluations for their staff. However, VBA officials told us that not all regional offices provided additional training on reevaluations. Quality review officials at the four offices we visited which included two of the seven offices the study team identified for further review told us that they did not provide additional training. Officials at two offices said they had previously provided guidance and training to claims processors on reevaluations. VA s goals are to ensure timely and accurate claims decisions for veterans. Federal standards for internal control state that management should establish monitoring activities, evaluate the results, and remediate any deficiencies on a timely basis. Consistent with these standards, GAO has previously reported that a key use of performance information is to identify problems and take corrective actions, for example, by changing agency guidance or by providing training. By not implementing the study s recommendations, VBA is missing an opportunity to identify problems and their root causes as a guide to corrective actions, including training or the improvement of training. Many raters who are trained to make these decisions did not perform well on the consistency study s initial test. Exploring deficiencies associated with this poor performance could position VA to better manage the reevaluation process. In addition, resources spent in developing the study and analyzing its results were not used as effectively as they could have been. <4. VBA Has Not Clearly Defined Skill Sets and Training Needed to Determine When to Reevaluate Veterans Conditions> <4.1. VBA Has Not Clearly Defined Knowledge, Skills, and Abilities for Staff Conducting Pre-Exam Reviews in the Reevaluation Process> VBA has recently updated its procedures manual to clarify who can determine whether a reevaluation is needed, but has not outlined guidance for the knowledge, skills, and abilities needed to perform these tasks. As part of the reevaluation process to assess veterans conditions, VBA procedures require claims processors in regional offices to conduct a pre-exam review to determine whether a reevaluation is still appropriate when its scheduled review date arrives (see fig. 3). For the reevaluation process to work effectively, proper procedures must be in place to ensure that claims processors can make informed decisions on whether to reevaluate these conditions. Until its recent update, VBA s procedures manual stated that staff deemed part of the rating activity (defined in the manual as staff including raters who specialize in rating claims) were the only claims processors who were permitted to conduct a pre-exam review to determine whether a reevaluation is warranted. In February 2019, VBA updated its procedures manual to clarify that raters or locally designated claims processors may conduct this review. Officials said that Veterans Service Representatives (VSR) may fill this role in some offices. Although VBA s procedures permit VSRs to conduct pre-exam reviews, VSRs may not be qualified to do so, according to the OIG s July 2018 report and VBA regional staff we interviewed in 2019. The OIG found that VSRs were ordering exams without raters pre-exam reviews, resulting in an estimated 15,500 unwarranted exams (about 29 percent of the cases from the study s review period). These exams were determined to be unwarranted based primarily on exclusions identified in VA s procedures that exempt certain veterans from reevaluation (see text box). The report found that, rather than sending claims to raters for pre-exam review, VSRs were ordering exams despite not having the proper training and experience to decide on whether a reevaluation was warranted, such as the specialized knowledge needed to review medical evidence. Officials in regional offices we visited expressed concern about VSRs performing this role. Specifically, staff in three of the four regional offices we spoke with including raters, supervisors, quality assurance staff, and managers told us that raters do the pre-exam review in their respective offices because they are the only staff qualified to perform this duty. For example, raters have more experience and training than VSRs in reviewing medical evidence to determine the need for a reevaluation, according to officials from one office. In contrast, supervisors we spoke with at another regional office told us they have opted to have VSRs do the pre-exam review as a way to manage the claims workload and enable raters to focus exclusively on rating claims. However, these supervisors expressed concern that VSR reviews could have a negative impact on quality. VBA officials said they have not outlined guidance for the skills needed to perform the pre-exam review. Rather, VBA officials said that they believe it is most effective to allow the regional offices, which vary widely in size and scope, to have discretion to identify staff to fill this role. Further, VBA officials told us that the recent update to the agency s procedures did not reflect a policy change broadening which staff can do pre-exam reviews, but rather clarified existing practice under which VSRs were already permitted to perform this task. However, given the OIG findings that VSRs performing this task resulted in many unwarranted exams, defining the knowledge, skills, and abilities needed for the pre-exam review could provide assurance that staff who do so are qualified. Federal standards for internal control call for management to clearly assign responsibilities and document internal controls, including who should carry out which roles. Identifying the knowledge, skills and abilities needed by qualified staff to carry out their responsibilities can also help management ensure the entity s objectives are met. Providing flexibility for regional offices can ease implementation and management of workloads, especially for offices with varied situations. However, providing flexibility does not preclude VBA from outlining the basic knowledge, skills, and abilities required to perform the pre-exam review. Further, in our prior work we found that VBA has faced challenges in defining roles for its staff, which has led to inconsistencies in the way regional offices operate. We have also found that ambiguous policies provided by other VA programs can pose risks to the quality of the process. Without clarifying in VBA s procedures manual which knowledge, skills, and abilities are needed to fill roles in the reevaluation process, VBA may be at risk of having unqualified staff continue to order unwarranted reevaluations. This risk, in turn, could result in wasted resources and an undue burden on veterans. <4.2. VBA Has Not Ensured Proper Training for Staff Conducting Pre-Exam Reviews> Despite recent changes to its procedures manual, VBA has not ensured that its training program reflects the knowledge, skills, and abilities needed for relevant staff to conduct pre-exam reviews. VBA oversees national training requirements, including training related to reevaluations, but defers to regional offices to manage other training needs. As entry- level staff, claims processors receive national training from VBA related to their job duties. For raters, this initial training covers reevaluations, including instruction on when and when not to schedule reevaluations, and case studies exploring how to make reevaluation decisions based on medical and other evidence, among other topics. VSRs may also receive general training on reviewing and evaluating evidence and are introduced to reevaluations as they learn about general claim development and ordering exams. In addition to initial training, claims processors must complete 40 hours of training per year consisting of 15 hours of training mandated by VBA and 25 hours determined by each regional office. VBA officials told us that regional offices vary in what training and when delivered to their staff. In addition to this general training, VBA officials told us that VA added controls to the Veterans Benefits Management System (VBMS) system to restrict claims processors ability to schedule potential reevaluations, which could reduce the possibility of unqualified staff ordering unwarranted exams during the pre-exam review. Specifically, these controls prevent claims processors from scheduling review dates for potential reevaluations when certain exclusions apply (such as that outlined in VA regulation exempting from reevaluation veterans with the minimum rating for a given condition). Further, claims processors have the ability to request to override the restrictions when they believe a reevaluation is warranted based on the circumstances of the case. These override requests are reviewed by quality assurance staff, who may approve or deny the requests. Although these controls may impose some limits on ordering unwarranted exams, they may not affect the ability of claims processors to order reevaluations in circumstances where these exclusions do not apply and for which they must use their discretion. For example, for veterans who have migraine headaches and who do not fit any of the exclusion criteria, no VBMS controls would restrict claims processors from ordering a reevaluation even if it is not appropriate based on the medical evidence or other circumstances of the case. For these controls and VBA s procedures to be effective, providing proper training to claims processors making these decisions remains important. VBA officials told us that they did not update training requirements as a result of the recent update to procedures because this update did not constitute a policy change. Rather, they said they revised the procedures to align with the existing practice before the update, in which VSRs were permitted to do pre-exam reviews. Further, officials said that each regional office can designate qualified claims processors to perform the pre-exam review and provide training as necessary. VBA officials also said that they do not believe additional training is necessary for VSRs who may be performing this role because the procedure for ordering exams a skill for which they have been trained is the same for all types of exams, including those for reevaluations. Although VSRs receive training on the process of ordering an exam, VBA officials confirmed that VSR coursework does not specifically cover the pre-exam review in the reevaluation process. In contrast, raters receive training on the process of deciding whether a reevaluation is warranted, including reviewing medical evidence and applying exclusions in VBA s procedures. Further, staff in three of the four regional offices we spoke with, including supervisors, quality assurance staff, and managers, said that VSRs do not have the proper training for this task. For example, they are not trained to review medical evidence to make an informed decision about whether a reevaluation is still warranted, according to officials. Similarly, the OIG found in its 2018 report, which reviewed a sample of claims from March through August 2017, that VSRs were unfamiliar with criteria used to determine whether or not an exam is necessary. Federal standards for internal control highlight the importance of training to develop the relevant knowledge, skills, and abilities needed for key roles. We also have previously identified key practices for training and development that suggest that agencies should have a strategy that includes tracking and other control mechanisms to ensure that the relevant employees receive training in line with their responsibilities. Without ensuring that training reflects the relevant knowledge, skills, and abilities needed by claims processors in VBA regional offices, VBA may find these staff continue to make uninformed and incorrect reevaluation decisions that are not aligned with VBA policy, guidance, and procedures. <5. Conclusions> VA spends substantial time, effort, and billions of dollars per year providing disability compensation, health care, and other forms of assistance that promote the wellness of veterans with service-connected conditions. However, VA does not know whether these efforts improve the health of these veterans on several fronts. While we are encouraged by VA s interest in considering ways to analyze health outcomes, VA has not yet established a plan for addressing the identified research challenges. Without a plan, VA will not be positioned to understand the characteristics, needs, and health outcomes of veterans with service- connected conditions or how disability compensation and health care work together to help them. Disability reevaluations can shed light on whether veterans service- connected conditions have changed. However, the agency could take additional steps to analyze outcome and other data on completed reevaluations. Importantly, tracking and analyzing trends and outcomes could shed light on an apparent contradiction: why the majority of recent reevaluations resulted in no change in veterans combined ratings when the regulations state that reevaluations generally should not be conducted in these cases. Without these analyses, VA may be unaware of any reevaluation trends, possible explanations for them, or need to recalibrate guidance or resources to address these issues. Reevaluations represent an investment of resources for VA and the veterans who undergo them. Insights into the effectiveness of the reevaluation process are thus critical for managing VBA s workload and informing agency policy. Specifically, while VBA tested raters knowledge of reevaluation policies in its May 2018 consistency study, it missed opportunities to review reevaluation decisions in the offices at greatest risk of making incorrect decisions, as recommended in the consistency study report. Following up on the report s findings could also provide insights into root causes of errors in reevaluation decisions, which could inform decisions about additional targeted training or improved guidance. For veterans who show health improvements, VBA s reevaluation process can ensure they have the correct disability rating and associated benefit payment. However, VBA could better mitigate the risks of making unwarranted reevaluation decisions by clarifying guidance in its procedures manual about the knowledge, skills, and abilities regional office staff need to determine whether a reevaluation should be conducted. Moreover, defining training requirements would help ensure that claims processors who conduct reevaluations have the needed skill sets and that their decisions are aligned with VBA policy and guidance. Ultimately, by enhancing and linking existing information about service- connected conditions and health care and from the results of reevaluations, VA could better understand the health outcomes of veterans who have incurred or aggravated disabling conditions during military service. <6. Recommendations for Executive Action> We are making the following five recommendations to VA: The Secretary of Veterans Affairs should ensure that the Office of Enterprise Integration develops a plan including milestones and roles and responsibilities for OEI, VBA, and VHA to address identified challenges that have hindered research on the health care outcomes for service-connected conditions of veterans receiving disability compensation. To align VA s efforts with the goals of its 2018-2024 Strategic Plan, VA s development of this plan should be completed and ready for implementation by June 1, 2020. (Recommendation 1) The Under Secretary for Benefits should develop and implement a periodic analysis of program management data for trends in the individual service-connected conditions being reevaluated as well as data on the outcomes of reevaluations. (Recommendation 2) The Under Secretary for Benefits should implement the two recommendations in VBA s May 2018 consistency study to provide training on how to determine when a reevaluation is needed and review reevaluation decisions for accuracy at the lowest-scoring offices and take corrective action as needed. (Recommendation 3) The Under Secretary for Benefits should clarify guidance in its procedures manual regarding the knowledge, skills, and abilities needed to make decisions on whether to reevaluate veterans for changes in their service- connected conditions. (Recommendation 4) The Under Secretary for Benefits should align training requirements with the knowledge, skills, and abilities needed for reviewing claims to decide whether to conduct a reevaluation. (Recommendation 5) <7. Agency Comments and Our Evaluation> We provided a draft of this report to the Department of Veterans Affairs (VA) for review and comment. VA provided written comments that are reproduced in appendix I. VA agreed with recommendations 1 and 2, and concurred in principle with our other three recommendations. The comment letter described steps the Veterans Benefits Administration (VBA) plans to take, or is in the process of taking, to address the recommendations. However, except for recommendations 1 and 2, VA s proposed actions would not fully address the underlying issues we identified. With regard to recommendation 1 to develop a plan to address challenges to studying health outcomes, VA stated that the Office of Enterprise Integration (OEI) will coordinate with VBA and the Veterans Health Administration (VHA) to create an operational plan that addresses challenges that have hindered research on health care outcomes for service-connected conditions of veterans receiving disability compensation. VA anticipates completing this plan by June 2020. With regard to recommendation 2 to use information on reevaluations to improve program management, VA stated that VBA plans to expand its review of existing data and reports to analyze trends regarding which service-connected conditions are identified for reevaluation, and review the outcomes or results of these reevaluations. VBA plans to develop and implement this effort by the end of June 2020. With regard to recommendation 3 to implement the recommendations from the 2018 consistency study, VA stated that VBA provided a reminder to all regional offices about the availability of training resources on how to determine when a reevaluation is needed. VA also stated that VBA conducted another consistency study on this issue in August 2019 and plans to inspect claims at the two lowest-scoring regional offices identified in that study by January 15, 2020. We are encouraged by VBA s plans to use the results of the 2019 study by inspecting claims at the lowest- scoring offices. However, using the results of both the 2018 and 2019 studies would allow VBA to more fully identify and correct root causes of any deficiencies, such as through additional training or the improvement of training. With regard to recommendation 4 to clarify guidance regarding the specific knowledge, skills, and abilities staff need to determine when to reevaluate disability claims, VA recognized the importance of having appropriately skilled and trained employees to process reevaluations and other claims. VA stated that each regional office identifies which employees complete these reviews based on their staff expertise. Further, VA stated that its Systematic Technical Accuracy Review (STAR) results of 95 percent for reevaluations indicate that further action is not needed. We continue to believe that flexibility for regional offices can be balanced with assurance that staff with the appropriate knowledge, skills, and abilities are conducting this work across regional offices. In addition, the STAR accuracy rate provides limited information about the accuracy of decisions to reevaluate claims, as discussed below. As noted in the report, identifying the knowledge, skills and abilities needed by qualified staff to carry out their responsibilities can help management ensure the program s objectives are met. With regard to recommendation 5 to improve training for reevaluations, VA stated that additional training on reevaluations is not needed because its STAR accuracy rate for reevaluations is 95 percent. As noted in the report, VBA s STAR reviews a small percentage of all completed reevaluations, and errors related to improperly ordered reevaluations are not reflected in STAR accuracy scores. We believe that additional action is needed to address our recommendation by ensuring staff are trained appropriately on these procedures to correctly determine whether reevaluations are needed. This additional training or guidance is particularly needed given the results of VBA s May 2018 and August 2019 consistency studies, the views of regional staff we talked with, and the large volume of unwarranted exams. We are sending copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, 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 [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: Comments from the Department of Veterans Affairs Appendix II: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, James Whitcomb (Assistant Director), Dana Hopings (Analyst-in-Charge), Rachel Pittenger, and Greg Whitney made key contributions to this report. Also contributing to this report were Steven Campbell, Debra Draper, Alex Galuten, Sarah Gilliland, Alison Grantham, Amber Gray, Gina Hoover, Aaron Karty, Diona Martyn, Mimi Nguyen, Jessica Orr, Claudine Pauselli, Almeta Spencer, Srinidhi Vijaykumar, and Erin Wurtemberger.

Why GAO Did This Study VA receives billions of dollars per year to provide health care and disability compensation to promote the wellness of veterans with service-connected conditions. VA studies veterans' health through research and assesses changes in service-connected conditions through its reevaluation process. GAO was asked to review VA's efforts to study and gauge the health outcomes of veterans with service-connected conditions. This report examines the extent to which (1) veterans used VA health care services to treat service-connected conditions, and what is known about their health outcomes; (2) VA uses information on reevaluations to help manage the program; and (3) VA's procedures position it to determine when to conduct a reevaluation. GAO reviewed fiscal year 2018 VA health care data; selected studies; VA data on completed reevaluations from fiscal years 2013-2018; and relevant federal laws, regulations, and program guidance. GAO also interviewed staff at four VA regional offices (selected for variation in claims workload and location) and VA officials at the agency's central office. What GAO Found In fiscal year 2018, about 54 percent of veterans receiving Department of Veterans Affairs (VA) disability compensation had at least one VA outpatient visit to treat an injury or illness that VA deemed was incurred or aggravated during military service (i.e., a service-connected condition). However, the health outcomes of veterans with service-connected conditions, such as changes in the severity of symptoms or the incidence of mortality, are not well understood. Information about health outcomes is central to ensuring veterans' wellness and assessing improvement in their disability status. According to VA researchers GAO spoke with and academic studies GAO reviewed, various challenges have limited research on this population. For example, data reside in different VA systems and use different identifiers for medical conditions, hindering use of the data. While VA has begun to consider ways to analyze health outcomes, it has not yet established a plan for this effort, including the scope, specific activities, and timeframes for addressing the identified research challenges. VA does not glean information from the results of reevaluations to help manage its disability compensation program. Disability reevaluations help VA gauge whether veterans' service-connected conditions have changed, and whether disability compensation should be modified to reflect those changes (see figure). However, VA does not fully use key management information, such as: trends in how frequently certain conditions are reevaluated, including those required by VA regulations to be reevaluated; and outcomes of reevaluation decisions for individual conditions (i.e., whether conditions worsened or improved). Both trend and outcome information could help VA better target its resources toward reevaluating conditions more likely to change. VA recently updated its procedures manual to specify which staff may determine whether a veteran's condition should be reevaluated, but has not clearly defined skill sets and training needed to consistently implement these procedures. Specifically, the updated procedures do not indicate the knowledge, skills, and abilities staff need to determine when to conduct reevaluations. Further, VA has not ensured that training aligns with these needed skillsets. Without improving procedures and training, VA is at risk of conducting unnecessary reevaluations and burdening veterans. What GAO Recommends GAO is making five recommendations, including that VA develop a plan to address challenges to studying health outcomes, use information on reevaluations to improve program management, and improve procedures and training for reevaluations. VA agreed with two recommendations and agreed in principle with the other three, but its proposed actions do not fully address GAO's concerns.

gao_GAO-20-191

gao_GAO-20-191_0

<1. Background> Airlines commonly overbook their flights to avoid revenue losses associated with passenger no-shows as part of their revenue management strategies. Successfully overbooking requires that airlines accurately predict the number of passengers who will not show up for a given flight. In deciding how much to overbook flights, airlines use historical data to identify factors that make passengers more or less likely to show up for their flights; these factors can be passenger or flight specific. For example, according to representatives from an airline industry association, leisure passengers are less likely than business passengers to change their flights at the last minute, because their tickets typically have more restrictions and higher change fees. As a result, according to these representatives, airlines generally oversell fewer seats on flights heavily traveled by leisure passengers, such as flights during the holiday season or flights to common vacation destinations (e.g., Disney World). Similarly, these same representatives said that airlines are less likely to overbook the last flight of the day on a given route because passengers are more likely to show up for these flights. A number of other factors, in addition to overbookings, can lead to airlines denying boarding to passengers. These factors can be driven by safety concerns, operational necessity, or personnel needs. For example, a passenger may be denied boarding for safety or security reasons if they are too intoxicated to fly or if they are unruly (e.g., they get into a fight). Passengers may also be denied boarding to accommodate flight crews that need to get to a different location or U.S. air marshals, who tend to book flights near planned departure times. DOT does not regulate airlines overbooking practices, aside from requiring airlines to inform passengers that a flight may be overbooked. Instead, DOT s regulations primarily focus on oversales, which can be the result of an overbooking and occur when some passengers with confirmed space on a flight cannot be accommodated (i.e., denied boardings ). Passengers are voluntarily denied boarding if they willingly accept the airline s offer of compensation, in any amount, in exchange for relinquishing their confirmed seat. Any other passenger denied boarding is considered to have been denied boarding involuntarily. Because of these regulations, airlines generally have a standard process for denying boarding to passengers, both voluntarily and involuntarily, and communicating denied boarding information to passengers. When a flight is oversold, airlines are required to solicit passengers to voluntarily give up their seats, before denying boarding to passengers involuntarily. To encourage passengers to volunteer to relinquish their seat, airlines may offer incentives, such as money or vouchers for future flights. There is no minimum or maximum amount of money or vouchers that the airline is required to offer, and passengers can negotiate compensation amounts. Federal regulation requires that airlines inform each passenger solicited to volunteer for denied boarding whether they are in danger of being involuntarily denied boarding and, if so, the compensation the airline is obligated to pay. In cases where a flight is oversold and airlines do not get enough volunteers who are willing to relinquish their seat, they will select passengers to give up their seats involuntarily sometimes referred to as being bumped. Airlines are required by regulation to establish boarding priority rules detailing the factors they consider when selecting passengers to be denied boarding involuntarily. These factors may include when the passenger checks in, the fare paid, and the passenger s frequent flyer status. However, according to DOT s website, the criteria cannot subject a passenger to any unjust or unreasonable prejudice or disadvantage. For example, an airline cannot use a passenger s race when making decisions about denied boardings. Further, some airlines make exceptions to their boarding priority rules for passengers with disabilities, including generally not denying them boarding. Airlines are required to compensate certain passengers who are denied boarding involuntarily. Minimum compensation amounts are set in regulation and, as shown in table 1 below, vary based on the price of the ticket, the length of time the passenger is delayed reaching their destination, and whether the flight s arrival airport is domestic or international. Airlines generally must provide compensation by cash or check when the passenger is denied boarding involuntarily, in addition to a written statement explaining the terms, conditions, and limitations of the compensation, and describing the airlines boarding priority rules and criteria. <2. Denied Boardings Have Declined in Recent Years, but Some Passengers Denied Boarding Reported Significant Inconveniences> The total number of passengers denied boarding voluntarily or involuntarily generally decreased from 2012 to 2018. Moreover, denied boardings represented a small percentage of the total number of passengers who boarded flights. On an annual basis, denied boardings accounted for between about 44 (in 2018) and about 100 (in 2012) passengers per 100,000 actual boardings a rate of less than 0.1 percent of actual boardings. As illustrated in figure 1, of these passengers denied boarding, most are voluntary. For example, in 2018, for every 100,000 actual boardings, about 43 passengers were voluntarily denied boarding and about one passenger was involuntarily denied boarding. Passenger complaints submitted directly to DOT about denied boardings also generally decreased from 2012 to 2018, relative to total complaints and passenger boardings. As shown in figure 2, the number of passenger complaints to DOT about denied boardings represented a small percentage of total passenger complaints from 2012 to 2018, annually accounting for less than 4 percent of all complaints. On an annual basis, from 2012 through 2018, the number of complaints about denied boardings reported to DOT ranged from about 410 (in 2018) to about 650 (in 2015). We have previously reported, however, that DOT s complaint data provide an incomplete picture of all passenger complaints because passengers may not be aware that they can report complaints to DOT, and DOT s complaint data do not include complaints from passengers submitted directly to airlines. Specifically, in 2018, we reported that across all complaint categories, DOT estimated it received one complaint for every 50 complaints the airline receives. In an effort to avoid denied boardings, airlines can, in some cases, accommodate passengers in a different section of the aircraft, either by upgrading or downgrading passengers. A revenue management specialist and representatives from an airline industry association we interviewed said that, with limited exceptions, airlines generally do not overbook their premium cabins. Our review of DOT data found that in recent years, until 2018, airlines have generally upgraded fewer passengers to avoid denied boardings. According to representatives from an airline industry association, the decrease in the number of passengers upgraded is likely because airlines have fewer empty premium seats in their first-class cabins than in past years because they are selling more of these seats. For example, a stakeholder said that airlines are now selling upgrades on the day of departure and allowing more customers to use miles to upgrade their seat, leaving fewer available empty premium seats when flights are oversold. DOT permits airlines to downgrade passengers, as long as the airline refunds the passenger the difference in fares. In practice, representatives from an airline industry association said that when a passenger in a premium cabin is to be denied boarding, airlines generally offer the passenger the option of a premium cabin seat on another flight or to downgrade to the economy cabin along with compensation for the fare differential. In our review of seven airline s contracts of carriage, five explicitly stated that if passengers are downgraded, they will be entitled to an appropriate refund, and the other two airlines do not include information about downgrades in their documents because they do not have different cabins of service. According to representatives from an airline industry association, the refund amount is calculated based on the average difference of fare paid between the two cabins, and it is dependent on the flight s origin and destination. <2.1. Passenger Compensation for Involuntary Denied Boarding> While the average amount of compensation for passengers involuntarily denied boarding has increased in recent years, a smaller percentage of such passengers received compensation. As previously mentioned, in certain situations, passengers who are denied boarding involuntarily may not be eligible for compensation. For example, airlines are not required to compensate passengers if an airline uses a smaller aircraft than originally planned for operational or safety reasons and thus cannot accommodate all confirmed passengers. Our review found that the percentage of passengers that were involuntarily denied boarding who qualified for compensation decreased from 76 percent in 2012 to 64 percent in 2018. Aircraft substitution may be contributing to fewer passengers being eligible for compensation, according to DOT data. For example, one airline that does not overbook experienced a number of operational issues in 2016 and 2017 that forced it to operate many of its flights with smaller aircraft. As a result, the airline had to deny passengers boarding involuntarily, and these passengers were not eligible for compensation. As figure 3 shows, from 2015 to 2018, most of the passengers who were denied boarding involuntarily and were not eligible for compensation were ineligible due to airlines using smaller aircraft on some flights. <2.2. Effects of Involuntary Denied Boardings on Passengers> Although the total number of involuntary denied boardings decreased from 2012 to 2018, any passenger involuntarily denied boarding could face varying levels of disruptions to their travel plans. Passengers who are rebooked on the next scheduled flight may encounter minimal inconveniences or expenses. However, other passengers may face more significant travel disruptions, according to representatives from consumer advocate organizations we interviewed. Our review of a non- generalizable sample of passenger complaints submitted to DOT in May and June 2019 also identified instances where passengers reported incurring significant costs in terms of time and money as a result of being denied boarding involuntarily. For example, one passenger reported missing a wedding and paid about $450 in additional hotel costs. In another instance, a passenger missed their cruise after being denied boarding involuntarily. Consumer advocates also told us that passengers may incur costs such as lodging, meals, and transportation, or might miss work as a result of being denied boarding involuntarily. Airlines ability to rebook passengers who are involuntarily denied boarding on the next available flight can be limited. Over the past several years, airlines have increasingly flown with fewer empty seats particularly on certain routes than was typical in the past, according to DOT data. With fewer open seats, airlines have limited options to rebook passengers who are denied boarding. For example, across all departing flights at Hartsfield-Jackson Atlanta International Airport in 2018, on average, 86 percent of seats were filled. These data represent averages across all flights and stakeholders said that factors such as time of day, day of the week, season, and flight origin or destination can affect the number of empty seats on a particular flight. For example, flights on Sunday evening tend to be fuller than flights on Tuesday. One airline revenue management specialist estimated that about 25 to 30 percent of all flights have no empty seats. Representatives from consumer advocate organizations that we interviewed said that planes are operating at record-high levels of capacity, and one advocate stated that no transportation system is designed to operate at or near capacity all of the time, which they believe some airlines are doing on certain routes. In addition, we have previously reported that service to smaller communities is generally less frequent, providing airlines with fewer opportunities to rebook passengers than for more traveled routes. Airlines may also not be able to rebook passengers who are denied boarding on a different airline that has seat availability if they lack commercial agreements to do so. Further, according to representatives from an industry association representing airlines, while most airlines have agreements in place that allow passengers to be rebooked on a different airline, these agreements are primarily used to accommodate passengers on delayed and canceled flights. According to these representatives, passengers who are denied boarding are almost always re-accommodated on the same airline, given that the customer typically volunteers to take a later flight on the same day. Our review of seven airlines contracts of carriage found that four of them have documented policies in place to rebook passengers who are denied boarding on a different airline. Our review of DOT data found that fewer passengers are being rebooked on flights that arrive within an hour of their original flight. Specifically, in 2012, 11.5 percent of rebooked passengers were accommodated on such a flight, compared to 0.11 percent in 2018. While DOT collects data on passengers who are delayed less than an hour, no other information is available to measure the amount of time a passenger is delayed when they are denied boarding. However, based on our review of passenger complaints, we found instances where passengers reported having to wait until the following day to board a flight with available seats. <3. Airlines Have Taken a Range of Actions to Reduce Denied Boardings and Minimize Their Effects on Passengers> Decreases in involuntary denied boardings are due in part to recent airline actions. As mentioned previously, involuntary denied boardings can be costly for both passengers whose travel plans are disrupted, and airlines that have to compensate passengers for such disruptions and then face criticism for denying boarding to passengers with confirmed seats. As a result, airlines have taken a range of actions, primarily intended to reduce such incidents. Some of these actions also provide additional incentives for passengers to volunteer to be denied boarding. Moreover, stakeholders, including consumer advocates and an association representing airlines, agreed that voluntary denied boardings are preferred to involuntary denied boardings, given that airlines and passengers willingly accept the outcome. Reducing the rate or eliminating overbookings. Some airlines have reduced their rate of overbooking or eliminated them altogether in an effort to reduce voluntary and involuntary denied boardings, according to stakeholders and our prior work. In our 2018 report, representatives from three airlines told us their airline had reduced or stopped overbooking flights. Our review of seven airlines customer service documents found that two airlines explicitly stated that they do not overbook their flights. Improving the ability to predict no-shows or rebook passengers. According to representatives from an industry association representing airlines, airlines have made investments to improve their software for predicting the number of passenger no-shows in an effort to reduce voluntary and involuntary denied boardings. These representatives also told us that airlines have hired additional personnel dedicated to more precisely forecasting no-show rates and proactively identifying rebooking options for passengers who are denied boarding. Improving communication with passengers. Some airlines have taken steps to notify passengers about potential denied boardings earlier in the travel process in some cases before travelers have left for the airport in an effort to encourage volunteers, according to stakeholders we interviewed. These stakeholders said that providing advance notice likely further reduces any burden on passengers associated with changing their travel plans. In 2018, five of the nine airlines we interviewed told us they had begun soliciting volunteers to give up their seat earlier in the process. More specifically, according to representatives from an industry association that represents airlines, some airlines call passengers prior to their arrival at the airport to gauge their willingness to give up their seat. Other airlines solicit volunteers at the check-in kiosk, which limits the need for airlines to identify passengers during the boarding process at the gate. None of the stakeholders we interviewed described any communication methods that were specific to passengers with disabilities. Nevertheless, as previously mentioned, four airlines (out of seven) explicitly state in their contracts of carriage that they generally do not deny boarding to passengers with disabilities. Increasing and diversifying compensation for passengers. Some airlines have offered additional incentives or increased compensation amounts to encourage passengers to voluntarily give up their seat. While airlines have historically provided passengers with travel vouchers to solicit volunteers, some have started offering alternative forms of compensation, such as gift cards for Amazon and other retailers, iPads, or travel vouchers with fewer restrictions or that also cover ancillary fees. Our review of DOT data indicates that relative to the number of passengers denied boarding involuntarily, more passengers have volunteered to give up their seat, lessening the need to deny passengers boarding involuntarily. For example, in 2012, for every one passenger denied boarding involuntarily, about nine volunteered to be denied boarding. In contrast, in 2018, for every one passenger denied boarding involuntarily, about 33 volunteered to be denied boarding. Providing passengers with the opportunity to propose acceptable voluntary denied boarding compensation. Some airlines solicit passengers with flexible travel plans to identify compensation amounts they would willingly accept in exchange for voluntarily giving up their seats and taking another flight. Once passengers submit their required compensation amount to the airline, the airline can then use that information to select passengers with the lowest amount of required compensation to accept a denied boarding. This process allows airlines to, among other things, potentially avoid involuntary denied boardings, and identify which passengers require the least compensation in exchange for their travel flexibility. Airlines conduct this process on their website, via their mobile app, or at the check-in kiosk. In some cases, passengers who would consider changing their plans in exchange for compensation provide the airline with a specific dollar amount that they would be willing to accept to give up their seat. In other cases, airlines require each passenger to select a predetermined amount of compensation that they would accept to give up their seat, as illustrated in figure 4. For example, based on the figure below, an airline that oversold its flight would select a passenger who volunteered to give up their seat in exchange for $250, assuming at least one passenger selected that amount. If no passengers selected that amount, the airline would identify a passenger with the next lowest amount in this case, $350. Our review identified at least three airlines that use this type of process to solicit volunteers to give up their seats. Providing additional tools to employees. According to stakeholders we interviewed, airlines have given their employees more discretion regarding the offers they can make to encourage passengers to volunteer to be denied boarding on an oversold flight, or provide training on handling such incidents. While representatives from both consumer advocate organizations we interviewed generally supported some of the airlines actions to manage oversold flights, they also identified additional actions that airlines or DOT could take. Both consumer advocates we spoke to would like to see airlines increase transparency and passenger education related to denied boarding compensation. For example, these advocates believe that prior to agreeing to be voluntarily denied boarding, airlines should be required to inform passengers: (1) of the current compensation amounts for involuntary denied boardings, and (2) that compensation can be provided by cash or check (as opposed to a voucher). Having such information would allow passengers to make more informed decisions about the compensation they would willingly accept to be voluntarily denied boarding. Additionally, one consumer advocate said explicitly that they would also like airlines to inform passengers who are involuntary denied boarding that compensation amounts set by DOT are minimum amounts. Regarding potential additional actions, the FAA Reauthorization Act of 2018 required that DOT issue a rulemaking clarifying, among other things, that the compensation amounts set by DOT for involuntary denied boardings are the minimum compensation amounts that passengers can receive. In October 2019, DOT officials indicated that DOT intends to issue its final rule in July 2020. Moreover, in November 2018, we made three recommendations to DOT to improve its passenger education efforts by, among other things, capturing feedback from passengers directly, and identifying available short- and long-term budgetary resources for these efforts. DOT agreed with our recommendations and is in the process of implementing them. More broadly, both consumer advocates we interviewed called for an end to overbookings. This could be achieved either voluntarily by airlines or in regulation by DOT. These advocates said that overbooking is an outdated practice that protected airlines from high no-show rates during a time when passengers could make multiple reservations and did not incur change fees. Given that this is no longer the case, it is not necessary for airlines to overbook their flights, according to these consumer advocates. They also pointed out that airlines have significant flexibility in their business operations, including, denying boarding when a flight is overbooked, or changing flight schedules. In contrast, passengers have little, if any, recourse if they need to change their travel plans. Most tickets have restrictions that prevent passengers from making changes to their flights without incurring high change fees. Consumer advocates believe that eliminating overbooking would have limited effects on airlines, given the restrictions on passengers tickets. According to three airline revenue management specialists, if airlines were prohibited from overbooking flights, they would likely end up operating aircraft with more empty seats, compared to current trends. Moreover, they also noted that if flights were less full, there could be certain negative implications for airlines and passengers. For example, when fewer seats on a flight are filled with paying passengers, airlines average costs per passenger are higher because many aspects of airlines operational costs such as salaries for crew, mechanic services, and airport landing fees are generally the same, regardless of the number of passengers onboard. These same revenue management specialists also noted that a greater number of empty seats will generally decrease airline s revenue. One of them estimated that the reduced revenues could amount to tens of millions of dollars. Some airlines would also likely change their revenue management practices, according to airline revenue management specialists. Those changes would largely focus on how airlines price their tickets. While two airlines have made a business decision not to overbook and have accepted the financial trade-off, revenue management specialists said that eliminating overbooking would be difficult for other airlines. In particular, all three revenue management specialists agreed that if airlines were prohibited from overbooking, some airlines may offer fewer discounted fare tickets. Two revenue management specialists also said that it is likely that airlines would increase the average fare across all tickets slightly to account for the increased costs and potential lost revenue. Finally, one revenue management specialist also said that airlines might add additional restrictions on tickets, such as by increasing penalties associated with a passenger not showing up for their flight or cancelling their ticket at the last minute. Moreover, even if airlines stopped overbooking, some passengers would still be denied boarding because factors other than overbooking including some that are beyond the airline s control can lead to denied boardings. <4. Agency Comments> We provided a draft of this report to DOT for review and comment. DOT provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Transportation, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions concerning this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments <5. GAO Contact> Andrew Von Ah, (202) 512-2834 or [email protected]. <6. Staff Acknowledgments> In addition to the individual named above, other key contributors to this report were: Ed Laughlin (Assistant Director); Amy Suntoke (Analyst-in- Charge); Amy Abramowitz; Sarah Arnett; Melissa Bodeau; Colson Campbell; Lori Fields; Dave Hooper; Mary-Catherine Overcash; Malika Rice; Pam Snedden; Melissa Swearingen; and Elizabeth Wood.

Why GAO Did This Study Some airlines overbook their scheduled flights (intentionally sell more seats than are available) to compensate for passenger no-shows. It is not illegal for airlines to overbook their flights. However, it can result in an “oversale” where airlines cannot accommodate all passengers on a particular flight. In response, airlines may have to deny boarding to some passengers. DOT is responsible for ensuring airlines adhere to their denied boarding practices as part of its consumer protection enforcement responsibilities. The FAA Reauthorization Act of 2018 included a provision that GAO examine airlines' oversales practices. This report focuses on denied boardings—the result of an oversale—and describes (1) trends in denied boardings and (2) airlines' actions related to denied boardings and mitigating the effects on passengers. GAO analyzed data on denied boardings and related passenger complaints submitted to DOT from 2012 through 2018, and reviewed seven airlines' publicly available documents describing their overbooking and denied boarding policies. Airlines were selected to generally include the largest airlines that GAO previously reported had varying practices on overbookings and denied boardings. GAO also reviewed relevant statutes and DOT regulations, summarized GAO work published in 2018 describing airlines actions to reduce denied boardings, and interviewed DOT officials, one airline industry association, two consumer advocate organizations, and three airline revenue management specialists. The selection of stakeholders was non-generalizable and based on inclusion in prior GAO work and their relevance regarding denied boarding practices. What GAO Found The number of passengers denied boarding (not allowed to board flights they have tickets on) generally decreased in recent years, according to Department of Transportation (DOT) data. Combined, on an annual basis, voluntary and involuntary denied boardings account for less than 1 percent of actual passenger boardings. Voluntary denied boardings. As shown below, most denied boardings are passengers who “voluntarily” gave up their seat for compensation of the airline's choosing, such as airline vouchers. Passengers can negotiate compensation amounts. For every 100,000 actual boardings in 2018, about 43 passengers were voluntarily denied boarding. Involuntary denied boardings. All other denied boardings occur “involuntarily.” These passengers may be eligible for compensation in an amount set by DOT. For every 100,000 actual boardings in 2018, about one passenger was involuntarily denied boarding. While few denied boardings are involuntary, these passengers may encounter significant costs and travel disruptions. GAO's review of passenger complaints submitted to DOT showed instances where passengers involuntarily denied boarding reported missing significant events—e.g., a wedding or a cruise—and incurring additional costs. Airlines can face challenges rebooking passengers, such as those flying to smaller communities, exacerbating these disruptions. Passengers Denied Boarding Voluntarily and Involuntarily per 100,000 Actual Boardings, 2012-2018 Airlines have taken a range of actions, aimed at reducing involuntary denied boardings. Actions include reducing overbookings; requesting volunteers earlier (e.g., at check-in); and increasing compensation for volunteers. While consumer advocates GAO interviewed generally supported these actions, they advocated for an end to overbooking. Three airline revenue management specialists said if airlines were prohibited from overbooking, some airlines may offer fewer discounted fare tickets. Two of these specialists also said airlines might also slightly increase average fares across all tickets.

gao_GAO-19-465

gao_GAO-19-465_0

<1. Background> <1.1. Veterans with Mental Health Conditions> About 2 million of the more than 6 million veterans who received VHA services in fiscal year 2018 had at least one diagnosed mental health condition, with MDD being the most prevalent diagnosis. About half of these approximate 2 million veterans had a single mental health condition while the remaining half had multiple mental health conditions (see fig. 1). In fiscal year 2018, the three most prevalent mental health conditions among veterans using VHA services were MDD (15 percent), PTSD (12 percent), and GAD (3 percent): MDD. This condition is the most prevalent and disabling form of depression. In addition to the immediate depression symptoms (such as persistently feeling sad or anxious, loss of interest in activities, and difficulty sleeping or oversleeping), MDD can result in poor quality of life overall and decreased productivity, and increased risk of suicide. PTSD. Those with PTSD have experienced symptoms that have persisted for more than 1 month after exposure to a traumatic event, although the onset of symptoms may be delayed for much longer, and cause significant distress or impairment in social, occupational, or other important areas of functioning. Symptoms may include recurrent, involuntary memories of the traumatic event and flashbacks in which the veteran feels or acts as if the traumatic event were recurring. PTSD is strongly associated with reduced quality of life and adverse physical health outcomes. GAD. Those with GAD feel continually worried or anxious about a range of events or activities in their daily lives and have difficulty controlling or stopping this worry. Along with feeling worried, those with GAD experience symptoms of tension such as restlessness, feeling on edge, being easily tired, difficulty concentrating, and sleep difficulties. <1.2. Outpatient Mental Health Treatment> Veterans with mental health conditions may be offered a variety of treatment options. Of the approximate 2 million veterans with at least one diagnosed mental health condition in fiscal year 2018, 45 percent received non-pharmacologic therapy, 27 percent received a combination of non-pharmacologic therapy and psychotropic medication, and 10 percent received psychotropic medication only. Non-pharmacologic therapy. Non-pharmacologic therapy, or psychotherapy, involves treating mental health conditions using psychological rather than medical means. There are many different types of therapy options, although not all may be available at every VAMC. Examples of non-pharmacologic therapies include cognitive behavioral therapy and prolonged exposure therapy. Some therapy options may be provided to individual veterans, while others are offered to groups of veterans. Psychotropic medications. Psychotropic medications are used to affect one s mood, thought, or behaviors. Veterans can be prescribed one or more psychotropic medications, from one or more classes, to treat their diagnosed mental health conditions. For example, sertraline a psychotropic medication commonly known by its brand name Zoloft is used by VHA providers to treat both depression and anxiety. Combining treatment. Providers may decide to offer both psychotropic medications and non-pharmacologic therapy, rather than prescribing or offering either option alone. Decisions to offer any of these treatment options are made by providers in various VAMC outpatient care settings. Primary care setting. In addition to addressing other health care needs, PCPs may order non-pharmacologic treatment, prescribe psychotropic medications, or combine both treatment options to address a veteran s mental health conditions. Through the primary care-mental health integration (PC-MHI) model, which VAMCs began implementing in 2007, PCPs may also collaborate with mental health providers (e.g., psychologists, social workers, nurses) who are collocated within the primary care clinic before making treatment decisions. These collocated mental health providers can also offer non-pharmacologic therapy to veterans without requiring a separate visit outside of primary care. Specialty care setting. Mental health providers in a specialty care setting, such as psychiatrists, decide whether to provide any type of treatment for veterans who have been referred to them by providers in primary care for services specific to their mental health conditions. Veterans may also seek services from a mental health provider in specialty care without first obtaining a referral from primary care. <1.3. Mental Health Treatment Planning Requirements> VHA has established certain requirements for providers documentation of specialty mental health care treatment plans, and the Joint Commission periodically reviews the documentation of such plans to ensure that they align with the Commission s standards. VHA. To ensure that providers develop appropriate approaches to treating veterans with mental health conditions and reevaluate such treatment approaches over time, VHA has established certain policies to govern the documentation of mental health treatment decisions by mental health providers in specialty care. For example, in 2008, VHA issued its mental health services handbook to define minimum clinical requirements for mental health services at VAMCs, requiring that providers in specialty care document mental health treatment plans in veterans electronic medical records. The mental health services handbook specifies that plans should include certain components such as documentation that different evidence-based treatment options were considered by mental health providers and that approaches to monitor the outcomes of care were developed. The Joint Commission. The Joint Commission is an independent, not-for-profit organization responsible for accrediting and certifying health care organizations and programs in the United States (including VAMCs) at least once every 3 years, and it has developed standards to use as the basis of its evaluative process. These standards focus on specific patient and organization functions that are essential to providing safe and high-quality care, including plans for treatment provided in mental health care settings. <2. VAMC Resources and the Complexity of Veterans Mental Health Conditions Are among Factors That Contribute to Providers Treatment Decisions> VAMC officials we interviewed reported various factors as contributing to providers decisions to prescribe psychotropic medications and offer non- pharmacologic therapy to veterans. Specifically, officials from multiple VAMCs cited each of the following factors as contributing to treatment decisions: VAMC resources, complexity of veterans mental health conditions, comfort level of providers with treating conditions or prescribing medications, veterans preferences, and logistics of receiving mental health treatment. See table 2 for the factors and supporting examples offered by VAMC officials during our site visits. In our review of documentation VAMC providers may use when making treatment decisions, we identified some additional factors. For example, providers use of clinical practice guidelines (CPG) established by VA and the Department of Defense may contribute to providers treatment decisions. Specifically, the CPG for mental health conditions that are highly prevalent among veterans, including MDD and PTSD, are a resource that all VAMC providers may use when making treatment decisions. For example, the CPG for the management of MDD recommends that providers offer either psychotropic medications or non- pharmacologic therapies (such as behavioral therapy) for the primary treatment of uncomplicated MDD. In contrast, the CPG for the management of PTSD recommends initial treatment for this condition to be a specific type of non-pharmacologic therapy (individual trauma- focused therapy), and when this therapy is not readily available or preferred, then treatments include prescribing psychotropic medications or offering another form of non-pharmacologic therapy. Though it is not mandatory for providers to follow the recommendations of the CPGs, which are based on the strength of evidence and also the potential benefits and harms of treatment options, every provider is responsible for evaluating the appropriateness of applying CPG recommendations in any particular clinical situation. Another factor we identified in our review of documentation was service agreements that VAMCs have in place to help coordinate mental health services across outpatient settings. All five of the VAMCs in our review have formal agreements to help coordinate mental health services across outpatient settings to help manage VAMC resources. These agreements indicate that, for example, providers in primary care can provide treatment for certain mental health conditions, such as uncomplicated depression, without referring veterans to mental health providers in specialty care (see text box). Service Agreements between Primary and Specialty Care for the Treatment of Mental Health Conditions in Selected VA Medical Centers (VAMC) All five of the VAMCs in our review have formal service agreements to help coordinate treatment across primary and specialty care settings for certain mental health conditions, such as uncomplicated depression: All service agreements from the VAMCs in our review indicated that providers in primary care can treat uncomplicated depression without referring veterans to a mental health provider in a specialty care setting. All service agreements indicated at what point mental health providers in specialty care should be involved to help treat veterans with uncomplicated depression for example, if veterans failed to respond to treatment after trying two different psychotropic medications, or if symptoms worsen over time. In addition to uncomplicated depression, other mental health conditions (including anxiety, PTSD, schizophrenia, and bipolar disorder) were addressed in four of the five service agreements we reviewed. For example, the four service agreements indicated that veterans with bipolar disorder should be treated by mental health providers in specialty care. In light of these factors, providers we interviewed reported on the extent to which each of the most prevalent mental health conditions resulted in PCPs prescribing medication to veterans prior to or without being referred to specialty care. Specifically, more providers reported that psychotropic medications are commonly prescribed to veterans with MDD, PTSD, or GAD prior to referring them to specialty care compared to providers who reported that it is common to prescribe without referring veterans to specialty care at all. See figure 2 for the percentages of providers reporting that psychotropic medications are commonly prescribed to veterans with these three conditions prior to referring them to specialty care. Providers also reported on the extent to which it was common for any provider to offer non-pharmacologic therapy to veterans with these three conditions in lieu of, or in addition to, prescribing psychotropic medications. More providers reported that non-pharmacologic therapy is commonly offered in addition to psychotropic medications compared to providers who reported that it is common to offer therapy instead of medication. See figure 3 for the percentages of providers reporting that non-pharmacologic therapy is commonly offered in addition to psychotropic medications. See appendix I for additional information about mental health treatment practices, including the prescribing of psychotropic medications and offering non-pharmacologic therapy to veterans in a random, nongeneralizable selection of medical records from the VAMCs in our review. See appendix II for information on the use of psychotropic medications or non-pharmacologic therapy by VHA providers to treat veterans with certain mental health conditions, nationally, in fiscal year 2018. <3. VHA Has Not Developed Guidance that Communicates Its Expectation That Mental Health Treatment Plans Be Easily Identifiable> VHA has not developed and disseminated guidance that specifies its expectation that mental health providers in specialty care document treatment plans in an easily identifiable way within veterans medical records. According to VHA officials responsible for overseeing mental health services, mental health providers should be documenting treatment plans in notes that are easily identifiable and separate from other health information, rather than embedding the plans in progress notes where they may combined with other information related to veterans medical histories and current health conditions. In our nongeneralizable review of 80 medical records for veterans who were seen by providers in specialty care and prescribed a psychotropic medication, we found that a majority (50) had a mental health treatment plan recorded in a progress note. We viewed several examples where the treatment plan was not the only information recorded within the progress note, making it difficult to readily identify the mental health treatment plan itself. A VHA official responsible for overseeing mental health services told us it is important for a mental health provider in specialty care to document each veteran s treatment plan in such a manner so that the provider, or any other providers who may become involved in the veteran s treatment, can readily refer to the plan as they evaluate progress. This may be particularly important during transitions between inpatient and outpatient care settings, or when adding providers to a veteran s care team. Providers need to be able to readily access veterans mental health treatment plans to ensure that treatment is being provided as ordered, understand why certain treatments were decided against, and assess whether treatment changes are needed. The same VHA official told us that he encourages this practice to support VAMC compliance with the Joint Commission s standards for mental health treatment plans. However, relevant VHA guidance documents for mental health providers do not specify this expectation: VHA mental health services handbook. The VHA mental health services handbook, published in 2008, requires that mental health providers in specialty care document treatment plans that include certain components. However, it does not specify where providers should document such plans within veterans medical records. VHA memo. A 2012 VHA memo promotes the use of a software program by mental health providers in specialty care that, according to VHA officials, facilitates the documentation of treatment plans in notes that are easily identifiable and separate from other information. However, the memo did not specifically state that documenting treatment plans in easily identifiable and separate locations from other information is the goal of using the software program, nor does the memo require providers to use the software. VHA health records handbook. This handbook, published in 2015, provides basic health information procedures for managing veterans health records and specifies that all outpatient providers must include treatment plans in progress notes. It does not explicitly reflect VHA s expectation for mental health providers in specialty care to document mental health treatment plans in an easily identifiable way. Further, the health records handbook specifies that progress notes must also include other types of information, including the history of the veteran s medical problem, the provider s assessment of the problem, any tests or consults ordered, and instructions given to the veteran. VHA officials did not provide a rationale as to why they have not developed guidance that clearly directs mental health providers in specialty care to document treatment plans in an easily identifiable way within veterans medical records. They noted that VHA has relied upon the VAMCs to develop local processes for documenting specialty mental health treatment plans in an easily identifiable way when providers decide not to use the software program that VHA promoted in its 2012 memo. According to VHA officials, VHA is developing a new memo to communicate its expectation that mental health providers in specialty care document treatment plans in an easily identifiable way within veterans medical records. However, as of March 2019, VHA officials had not finalized this memo or indicated when the memo will be disseminated. Standards for internal control in the federal government require that agencies document responsibilities through policies and define objectives in terms that are understood at all levels. These standards also require that agencies communicate necessary information throughout all agency reporting lines to achieve the agencies objectives. Absent VHA guidance that clearly identifies its expectation for documenting specialty mental health treatment plans, providers may incorrectly record treatment plans in veteran s electronic medical records such that they are not easily identifiable. As a result, there is a risk that a provider may be unable to readily access important information about a veteran s mental health treatment, including the use of psychotropic medication or non- pharmacologic therapy, during changes in a veteran s care. VHA may learn of the extent of this risk through efforts to collect information resulting from the Joint Commission s accreditation survey process. Specifically, VHA uses various conference calls to discuss the Joint Commission accreditation survey process and results: According to a VHA official, VHA has weekly and quarterly conference calls with VISNs to, in part, help them prepare their VAMCs for future surveys and, as a result, VHA may learn about different types of citations that apply to multiple VAMCs. This, in turn, may allow VHA to identify concerns that may need to be addressed system-wide, including those related to mental health treatment planning. The Joint Commission provides VHA with an annual summary of data on common citations issued to VAMCs. According to the Joint Commission officials, the Commission provides VHA with this information through a conference call, which may also include a discussion of the underlying causes for any trends in system-wide citations. VHA officials may be able to use this information to address any systemic problems related to the documentation of specialty mental health treatment plans in an easily identifiable way within veterans medical records. According to a VHA official, VHA has not identified the documentation of specialty mental health treatment plans as an area for improvement across VAMCs. This issue was not included in the November and December 2018 conference calls with the VISNs, nor was it included in the 2018 annual summary of data that the Joint Commission provided to VHA. <4. VHA Has Not Monitored Providers Documentation of Required Treatment Option Considerations in Mental Health Treatment Plans> VHA has not developed or implemented an approach for monitoring whether mental health providers in specialty care are documenting their consideration of different evidence-based treatment options in mental health treatment plans as required by VHA s mental health services handbook. In our review of a nongeneralizable sample of 80 medical records for veterans who were seen by such providers and prescribed a psychotropic medication, we found that none of the veterans had treatment plans that documented consideration of different evidence- based treatment options for the veterans mental health conditions. VHA relies on the Joint Commission to assess mental health treatment plans as part of the organization s accreditation process for each VAMC, according to VHA officials. However, VHA does not obtain information resulting from the Joint Commission s accreditation process that specifically relates to whether mental health providers are documenting consideration of different treatment options in their mental health treatment plans as required. The Joint Commission s accreditation standards related to mental health treatment plans align with some, but not all, of VHA s mental health services handbook s required treatment plan components. For example, the standards align with VHA s requirement that mental health providers in specialty care must document how they plan to track outcomes and re-evaluate treatment when needed. However, they do not call for the Joint Commission s accreditation survey to assess whether specialty mental health treatment plans include providers consideration of different treatment options, and, according to organization officials, this is not something they look for when conducting their reviews. VHA s mental health services handbook calls for monitoring through the use of metrics to ensure implementation of the handbook s requirements, including those related to the documentation of the mental health treatment plan components by mental health providers in specialty care. Additionally, standards for internal control in the federal government require that agencies establish appropriate performance measures for defined objectives, perform ongoing monitoring activities, and remediate identified deficiencies on a timely basis. VHA s lack of monitoring may contribute to inadequate documentation of the treatment options considered by mental health providers in specialty care in accordance with the mental health services handbook s requirements. As a result, VHA cannot ensure that mental health providers in specialty care are appropriately considering all available evidence-based treatment options to provide the best care for veterans. This monitoring may be accomplished, for example, by establishing metrics and monitoring performance against such metrics, as called for by VHA s mental health services handbook. Without metrics or other approaches to monitoring, VHA officials may not be identifying and addressing any systemic problems related to consideration of different evidence-based treatment options. <5. VHA Has Taken Steps to Improve Veterans Treatment through the Psychotropic Drug Safety Initiative> VHA has reported improvement in the safe and effective prescribing of certain psychotropic medications used to treat veterans with mental health conditions since the 2013 start of its Psychotropic Drug Safety Initiative (PDSI). To date, PDSI has consisted of three phases, with each phase focusing on different classes or types of psychotropic medications, age groups, or mental health conditions and substance use disorders. PDSI is currently in phase 3 and VHA is in the process of planning for a new phase 4, scheduled to begin in July 2019. For each phase, VHA developed a set of performance metrics from which each VAMC was required to select a designated number as a focus for implementing prescribing-related quality improvement efforts (referred to as the VAMC s priority metrics). See table 3. VHA reported improvements in the majority of the performance metrics from the past PDSI phases. Specifically, VHA reported nationwide improvements in 16 of the 20 metrics that it developed for phase 1, and all 14 of the metrics that it developed for phase 2. For example, upon the completion of phase 1, VHA found that there was a nationwide 5.4 percentage point decrease (indicating improvement on this metric) in the percentage of veterans with PTSD who received one or more outpatient prescriptions for a benzodiazepine (a type of antianxiety medication). VHA reported that the change in benzodiazepine prescribing, among other improvements in treating veterans with PTSD, was particularly noteworthy given that the number of veterans diagnosed with this mental health condition increased over the duration of phase 1. Further, upon the completion of phase 2, VHA found that there was a nationwide 1.7 percentage point decrease (indicating improvement on this metric) in the percentage of veterans 75 or older with an outpatient prescription for a benzodiazepine or sedative hypnotic medication. During each PDSI phase, VHA works with VISNs and VAMCs to support their quality improvement efforts related to their priority metrics. For example, VHA provides feedback and technical assistance to VISNs and VAMCs for developing and implementing quality improvement strategies for their priority metrics, which must be updated and submitted to VHA semiannually; convenes a bi-monthly PDSI conference call for VISN and VAMC staff and providers involved in PDSI, which serves as a forum for providing training to participants, discussing best practices, and facilitating collaboration among VAMCs that may have chosen the same priority metrics; develops a semi-annual feedback report for each VISN that includes, among other content, the most recent quarterly score on the priority performance metrics for each VAMC within the network, according to a VHA official; and provides VISNs and VAMCs access to a PDSI clinical management dashboard to use to identify veterans who may benefit from changes to their psychotropic medication prescriptions. These lists can be filtered by the care setting in which the patient is seen, such as the primary or specialty care settings. Although VISNs and VAMCs are not always required (but are encouraged) to continue quality improvement efforts related to VAMCs priority metrics from past PDSI phases, VHA continues to monitor VAMC performance on all metrics from each PDSI phase. Specifically, a VHA official told us that VHA monitors performance by calculating quarterly VAMC scores on all performance metrics, which are published on the PDSI clinical management dashboard. VHA also disseminates these scores to the VISNs in the semiannual feedback reports. In these feedback reports, VHA highlights any metric from the current or a past phase for which a VAMC within that VISN has regressed. A VHA official stated that if a VAMC regresses significantly in any area, VHA would work with that medical center to determine the cause and take action to reverse the trend as needed. See appendix III for information on PDSI s planned focus on reducing the co-prescribing of benzodiazepines and opioids as well as the initiative s collaboration with VHA s Academic Detailing program, which has developed its own campaign related to stimulant prescribing. <6. VHA Has Included Psychotropic Medications in Multiple Efforts to Examine Suicide Risk among Veterans> Since 2012, VHA has included psychotropic medications in multiple efforts to examine suicide risk among veterans, including two programs and three research studies. These efforts include: Recovery Engagement and Coordination for Health Veterans Enhanced Treatment (REACH VET) Program. VHA includes psychotropic medications as part of its effort to examine veterans who may be at risk of suicide through its REACH VET program. Specifically, REACH VET uses prior research findings to conduct predictive modeling on data collected from VHA s electronic medical records to identify veterans who are within the top tier (0.1 percent) of predicted suicide risk. These veterans may also be at increased risk of other adverse outcomes, such as overdoses, violence, and mental health hospitalization. Of note, five of the 61 variables used in REACH VET s predictive model relate to the prescription of specific psychotropic medications (e.g., alprazolam), and three relate to the prescription of specific psychotropic classes (e.g., antidepressants). Other variables used in the model include demographic characteristics, past suicide attempts, measures of VHA care utilization, and certain diagnoses such as substance use disorder, MDD, and chronic pain. REACH VET coordinators staffed at VAMCs are responsible for notifying the appropriate mental health provider or PCP that a veteran has been identified as being at high risk for suicide, based on a high-risk list of veterans generated monthly by REACH VET s predictive model. As shown in Figure 4, veterans identified as being at high risk for suicide may then receive targeted outreach from their mental health providers or PCPs if those providers conclude that outreach is warranted based on their review of the veterans medical records, according to VHA officials. This outreach may result in changes to the veteran s treatment as agreed upon by the provider and veteran. VHA reported that within the first year of nationwide implementation, February 2017 through February 2018, the program identified close to 30,000 veterans at high risk for suicide. Behavioral Health Autopsy Program. VHA also includes psychotropic medications in its Behavioral Health Autopsy Program. This program examines information about veteran deaths by suicide that are reported to VAMC providers and suicide prevention coordinators. When informed that a veteran has died by suicide, suicide prevention coordinators are to electronically report, among other things, whether the veteran had (1) been prescribed psychotropic and other medications, for the treatment of a mental health condition within the previous year, and (2) adhered to the medications. Other sources of information collected through the program may include coroners and medical examiners reports, death certificates, and information provided by family members and significant others. Data are reported to and analyzed by VHA s VISN 2 Center of Excellence for Suicide Prevention. One recommendation in the program s 2017 annual report called for more efforts to study issues related to medication management, such as veterans medication adherence, overmedication, and frequent and abrupt medication changes. In the past, recommendations from the program have been used to inform VHA suicide prevention policies, programs, and educational efforts, according to VHA officials. For example, officials shared that the program informed the development of a tool kit for providers to use to help address veterans sleep issues after analyses found that sleep patterns were often altered for veterans prior to their death by suicide. Lithium for Suicidal Behaviors in Mood Disorders study. As of March 2019, VHA is in the process of conducting a randomized clinical trial that examines the effect of a specific psychotropic medication (lithium) on reducing suicide risk for veterans with MDD or bipolar disorder who either survived a recent suicide attempt or were hospitalized to prevent one. VHA plans to enroll 1,600 veterans in the study from 28 VAMCs and provide them with the appropriate treatment options as determined by their respective providers, as well as provide some additional care coordination. Additionally, half of the participants will receive lithium, and half of the participants will receive a placebo. The study s investigators told us that, to their knowledge, this study is the first effort to test lithium s efficacy for reducing suicide risk in a randomized clinical trial setting. Investigators also told us that, because all participants will receive medications already proven safe and effective for the treatment of their conditions, it is not considered unethical to withhold lithium, a yet untested medication for treating suicide risk, from half of participants. VHA investigators told us they hope to use the results of this clinical trial to inform future treatment options for patients with MDD or bipolar disorder and who are at risk of suicide. Drugs and Suicide Risk study. Between January 2017 and October 2018, VHA officials and collaborators at the University of Chicago and Columbia University analyzed 513 medications, which included psychotropic medications, prescribed between 2003 and 2014 for association with increased or decreased risk of suicidal events in VHA patients. According to the study s investigators, they expect to be able to identify specific psychotropic medications that are found to be associated with the largest increases and decreases in suicide risk. VHA officials told us that as of March 2019, the research manuscript was under review for publication in a peer-reviewed journal. Using Big Data and Precision Medicine to Assess and Manage Suicide Risk in U.S. Veterans study. As of March 2019, VHA officials, in collaboration with the Department of Energy, were in the process of developing a new model to predict suicidal behavior among veterans by combining data on genetic and non-genetic risk factors, such as demographics, medical conditions, and stressful life events; psychotropic medications are also included as a risk factor, according to VHA officials. The researchers are expected to combine data from VHA electronic medical records with data from a VHA Office of Research and Development program that collects genetic information from veterans to develop the new algorithm. VHA officials we interviewed noted some broad challenges not exclusive to VHA that may affect efforts for any researcher in examining suicide risk and the use of psychotropic medications: Multiple risk factors. All VHA officials that we spoke with discussed the need for efforts examining psychotropic medications and suicide risk to account for other suicide risk factors beyond the use of these types of medication. Such factors may include having a substance use disorder or other mental health diagnoses; homelessness; chronic (non-mental health) medical conditions; age; and psychosocial factors, such as recent loss of a significant other or a history of abuse or violence. Methodological considerations. Most VHA officials that we spoke with mentioned some methodological considerations that must be considered when designing a research study to examine this relationship. For example, an official told us that measuring veterans medication adherence is important to track, but is difficult to do as VHA generally only has data on whether medications were dispensed to veterans, not whether medications were actually taken. Ethics. Some VHA officials that we spoke with noted that certain ethical considerations may limit the methodological options available to researchers, such as randomized clinical trials. For example, it would be unethical to withhold medications that have been proven as safe and effective from veterans who may clinically benefit from receiving such treatments, such as from veterans in a control group. In the face of these challenges, VHA officials also noted some advantages VHA researchers, in particular, may experience in examining the use of psychotropic medications and suicide risk: a large patient population with more than 2 million veterans who have at least one mental health condition, and a corresponding electronic medical records database, providing sufficient data and sample sizes needed to test hypotheses; internal funding streams dedicated to research activities examining issues related to suicide prevention, such as funds available through three of VA s Office of Research and Development s four central research services; and research centers with researchers who have specific expertise about issues related to suicide prevention and the treatment of serious mental health conditions. <7. Conclusions> Veterans diagnosed with mental health conditions rely on providers in VAMCs across the country to make treatment decisions that are safe and effective, including whether to treat highly prevalent and serious conditions such as MDD and PTSD with psychotropic medications, non- pharmacologic therapy, or a combination of both. In recent years, VHA has taken steps aimed at improving the safety and effectiveness of prescribing decisions for certain psychotropic medications and noted important improvements resulting from these efforts. However, VHA s oversight related to treatment planning needs improvement. VHA has yet to disseminate guidance that clearly reflects its expectation that mental health providers in specialty care document mental health treatment plans in a readily identifiable manner in veterans medical records. Additionally, VHA does not monitor whether mental health providers are considering evidence-based treatment options in treatment plans, as VHA requires in its mental health services handbook. As a result, VHA cannot ensure that providers are considering and documenting all appropriate treatment options, adequately evaluating patient care, and making treatment modifications as necessary, among other issues. Furthermore, the lack of monitoring may impede VHA s ability to identify important factors that contribute to providers treatment decisions, which could in turn allow VHA to identify more systemic barriers to safe and effective treatment, such as needed training. In addition, being able to readily identify how veterans are being treated for mental health conditions may allow VHA to enhance its research efforts related to suicide risk. VHA has noted several advantages it has in conducting research involving the role of psychotropic medications in suicide risk among veterans, including that VHA researchers have access to a large patient population with at least one mental health condition. Monitoring veterans use of psychotropic medications and non- pharmacologic therapies and related outcomes may further enhance this capacity for research on suicide risk. <8. Recommendations for Executive Action> We are making the following two recommendations to VA: The Veterans Health Administration should disseminate guidance for VISNs and VAMCs that more clearly reflects its expectation that mental health providers in specialty care should record mental health treatment plans within veterans medical records in an easily identifiable way. (Recommendation 1) The Veterans Health Administration should develop and implement an approach for monitoring treatment plans for veterans with mental health conditions to ensure that such plans include documentation that different evidence-based treatment options were considered. (Recommendation 2) <9. Agency Comments> We provided a draft of this report to VA for review and comment. In its written comments, which are reproduced in Appendix IV, VA concurred with our recommendations. VA agreed that the recommendations would promote adherence to mental health treatment planning requirements. VA stated that it is developing guidance to help ensure that mental health providers in specialty care record mental health treatment plans in separate, easily identifiable documents within veterans medical records. VA also stated that it will develop and implement a process for monitoring whether such plans include documentation that providers considered different evidence-based treatment options. We will monitor VA s efforts to address our recommendations. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committee and the Secretary of Veterans Affairs. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 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. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Mental Health Treatment Practices for Veterans in a Nongeneralizable Sample of Selected Medical Centers We reviewed a nongeneralizable, randomly selected sample of 75 veterans medical records from five Department of Veterans Affairs (VA) medical centers (VAMC) 25 for each of the three most prevalent conditions diagnosed among veterans who had at least one primary care visit in fiscal year 2017 and were prescribed a new psychotropic medication. About half (37) of the 75 medical records we reviewed indicated the veteran was prescribed a new psychotropic medication prior to or without being referred to a mental health provider in specialty care. See table 4. We reviewed a separate, nongeneralizable, randomly selected sample of an additional 75 veterans medical records from the five VAMCs 25 for each of the three most prevalent conditions diagnosed among veterans who were newly diagnosed within that year. Over half (44) of the 75 medical records we reviewed indicated whether the veteran was offered non-pharmacologic therapy in lieu of or in addition to being prescribed a psychotropic medication. See table 5. Appendix II: Information on the Treatment of Veterans with Certain Mental Health Conditions, Nationally, in Fiscal Year 2018 We analyzed national data obtained from VHA on the types of treatments received by veterans with a diagnosis of a single mental health condition who had encounters with VHA providers for that diagnosis in fiscal year 2018, including the three most prevalent mental health conditions diagnosed among veterans. See Figure 5 for the percentages of veterans with these three conditions or another mental health condition who received (1) non-pharmacologic therapy (psychotherapy), (2) at least one medication from a psychotropic medication class, (3) a combination of the two, or (4) neither psychotropic medication nor non-pharmacologic therapy in fiscal year 2018. We also analyzed national encounter data obtained from VHA for veterans with one of the three most prevalent mental health conditions and who received psychotropic medications in a VA medical center (VAMC) in fiscal year 2018. We found that for all three conditions, the largest percentage of veterans who received at least one psychotropic medication from one class were seen in the primary care setting only. The percentages of veterans with medications from two or three classes typically veterans who had more complex mental health conditions, according to a VHA official were larger for veterans seen by specialty care providers, compared to the percentages of veterans with medications from multiple classes seen in primary care only. See Figure 6. Appendix III: PDSI s Planned Focus on Medication Tapering and Collaboration with VHA s Academic Detailing Program The Veterans Health Administration (VHA) has taken steps to improve the safe and effective prescribing of certain psychotropic medications used to treat veterans with mental health conditions through the Psychotropic Drug Safety Initiative (PDSI). PDSI has consisted of three phases since 2013, when the initiative began. Each phase has focused on making improvements related to the prescribing of different classes or types of psychotropic medications, or treating different age groups or mental health conditions and substance use disorders. PDSI is currently in phase 3, and VHA is in the process of planning for phase 4. According to a VHA official, PDSI phase 4 (expected to begin in July 2019) will, in part, increase the role of mental health providers in the monitoring and management of the co-prescribing of benzodiazepines (a type of antianxiety medication) and opioids. This includes tapering the use of these medications among this high-risk veteran population to a reduced dose or discontinuation entirely when the harms associated with their concurrent use outweigh the benefits. The same official told us that, to date, VHA has primarily focused on monitoring the concurrent use of these medications which the Department of Veterans Affairs and the Department of Defense s clinical practice guideline (CPG) for opioid therapy strongly recommends against through the Opioid Safety Initiative and in the primary care setting (see text box). Veterans Health Administration s (VHA) Efforts to Taper Veterans Co-Prescribed Benzodiazepines and Opioids Efforts focused on the establishment of safe and effective tapering programs in the primary care setting: VHA launched the Opioid Safety Initiative in 2013 to ensure that veterans are prescribed and use opioid pain medications in a safe and effective manner. This initiative seeks to establish safe and effective tapering programs for veterans who are co-prescribed opioids and benzodiazepines, among other goals. A VHA official told us that the initiative primarily focuses on monitoring and managing the concurrent use of these medications in the primary care setting. Efforts conducted on an individualized, gradual basis: The Department of Veterans Affairs and Department of Defense s clinical practice guideline (CPG) for opioid therapy strongly recommends that tapering of opioids be done on an individualized basis, weighing the benefits and risks to each veteran as well as the veteran s characteristics and needs. The CPG also notes that the sudden stopping of benzodiazepines should be avoided, since doing so can lead to seizures or death. Department of Veterans Affairs and Department of Defense, Clinical Practice Guideline for Opioid Therapy. To help achieve PDSI s goal of improving the prescribing of certain psychotropic medications, VHA officials leading PDSI collaborate with VHA s Academic Detailing program. Academic detailers, who are Veterans Integrated Service Networks (VISN) or Department of Veterans Affairs (VA) medical center (VAMC) clinical pharmacy specialists, disseminate resources and provide one-on-one educational outreach to providers to help them improve their psychotropic medication prescribing practices. Pharmacy staff, including staff involved in academic detailing, from four VISNs told us that they provide education related to PDSI. The Academic Detailing program has also implemented a campaign to improve the appropriate prescribing and monitoring of stimulants (see text box). Veterans Health Administration s (VHA) Academic Detailing Program Prescription Stimulants Campaign According to a VHA official, in February 2018, the Academic Detailing program implemented a campaign to improve the treatment of patients receiving prescription stimulant therapy for adult attention-deficit / hyperactivity disorder. A VHA official told us that Veterans Integrated Service Networks (VISNs) or Department of Veterans Affairs (VA) medical centers (VAMCs) may choose, but are not required, to participate in this campaign. The stimulant campaign dashboard includes VAMC scores on 13 quality indicators related to (1) prescribing stimulants for off-label use, (2) assessing co-morbidities, (3) monitoring patients, and (4) managing medication. For example One quality indicator measures the percentage of veterans co-prescribed a stimulant and a benzodiazepine, and Another quality indicator measures the percentage of veterans co-prescribed a stimulant and an opioid. Academic detailers (VISN or VAMC clinical pharmacy specialists) may use the dashboard to identify providers who may benefit from changes to their stimulant prescribing practices. A VHA official reported that between February 2018 and the end of fiscal year 2018, academic detailers made 37 staff interactions with providers related to the national academic detailing program s stimulant campaign. As of October 2018 (the most recent data available), 37,223 veterans with at least one diagnosed mental health condition had an active prescription for at least one stimulant, according to a VHA official. Among these veterans, 2,360 had a co-occurring cardiac condition.Sudden death, stroke, or other cardiac events have been reported with stimulants. The U.S. Food and Drug Administration has stated that stimulants should generally not be used in patients with serious heart problems or for whom an increase in blood pressure or heart rate would be problematic. See U.S. Food and Drug Administration, FDA Drug Safety Review Communication: Safety Review Update of Medications Used to Treat Attention-Deficit / Hyperactivity Disorder (ADHD) in Adults, accessed March 1, 2019, https://www.fda.gov/Drugs/DrugSafety/ucm279858.htm. Appendix IV: Comments from the Department of Veterans Affairs Appendix V: GAO Contact and Staff Acknowledgments <10. GAO Contact> <11. Staff Acknowledgments> In addition to the contact named above, Hern n Bozzolo (Assistant Director), Kaitlin Asaly (Analyst-in-Charge), Jennie F. Apter, Karen Belli, Topher Hoffmann, and Rebecca Rust Williamson made key contributions to this report. Also contributing were Rich Lipinski, Diona Martyn, Vikki Porter, and Jennifer Whitworth.

Why GAO Did This Study In fiscal year 2018, of the roughly 6 million veterans who received services from VHA, approximately 2 million had a diagnosis for at least one mental health condition. Treatments for such mental health conditions can include psychotropic medications or non-pharmacologic therapies, which can be prescribed or offered by VA providers in outpatient settings including primary and specialty care. GAO was asked to review how mental health treatment decisions are made by providers in VAMCs and monitored by VHA. This report examines, among other things, (1) factors that contribute to providers' treatment decisions for veterans with mental health conditions, (2) VHA's guidance for documenting mental health treatment plans, (3) VHA's monitoring of whether providers document their consideration of different treatment options, and (4) VHA's efforts to improve the treatment of veterans prescribed psychotropic medications. GAO reviewed VHA documents and a nongeneralizable sample of veterans' medical records from five VAMCs (selected for variety in facility complexity and location); analyzed data on psychotropic medication prescribing; and interviewed VHA and VAMC officials. What GAO Found Officials from the five selected Department of Veterans Affairs (VA) medical centers (VAMC) GAO spoke with reported various factors that contribute to providers' mental health treatment decisions, including decisions regarding the prescribing of psychotropic medications and the offering of non-pharmacologic therapy. Examples of reported factors include: VAMC resources, such as the availability of appointments with mental health providers in specialty care, and the complexity of veterans' mental health conditions, such as the veterans' diagnoses and treatment history. Officials with VA's Veterans Health Administration (VHA) told GAO that specialty mental health care providers are expected to document mental health treatment plans in an easily identifiable way in veterans' medical records, but VHA has not developed guidance explicitly addressing this expectation. For example, VHA's mental health services handbook requires that treatment plans include certain components, but does not specify where to document the plan within a veteran's medical record. As a result, there is a risk that a provider may be unable to readily access information about a veteran's mental health treatment, including the use of medication or therapy, during changes in a veteran's care. VHA has not monitored whether mental health providers in specialty care document the required consideration of different treatment options—such as psychotropic medications or non-pharmacologic therapy—within mental health treatment plans. VHA officials told GAO that VHA relies on the Joint Commission (an independent, not-for-profit organization that accredits and certifies health care organizations) to assess specialty mental health treatment plans as part of the organization's accreditation process for each VAMC. However, the Joint Commission's standards do not specifically assess whether providers consider different treatment options. As a result, VHA cannot ensure that providers are considering all available treatment options and providing the most appropriate treatments to each veteran. VHA has taken steps to improve veterans' mental health treatment through the Psychotropic Drug Safety Initiative (PDSI)—an initiative focused on the safe and effective prescribing of certain psychotropic medications. For example, the first phase included a performance metric aimed at decreasing the percentage of veterans with post-traumatic stress disorder receiving one or more outpatient prescriptions for a benzodiazepine (a medication used to treat anxiety) because of risks associated with the medication. VHA reported a nationwide 5.4 percentage point decrease in the prescribing of this medication for these patients, as well as improvements in the majority of the initiative's other performance metrics. What GAO Recommends VHA should (1) disseminate guidance reflecting its expectation that providers document mental health treatment plans in an easily identifiable way, and (2) implement an approach for monitoring whether these treatment plans include consideration of treatment options. VHA agreed with GAO's recommendations.

gao_GAO-20-363

gao_GAO-20-363_0

<1. Background> <1.1. EM s Strategy for Addressing Tank Waste at the Hanford Site> From 1944 through 1988, the production of plutonium at Hanford generated about 525 million gallons of radioactive and hazardous waste. Some of the waste was dumped directly into the soil, some was encased in drums or other containers and buried, and about 54 million gallons were stored on-site in 177 underground tanks. Some of the waste stored in the underground tanks is high-level waste (HLW) mixed with hazardous chemicals that is to be vitrified a process in which the waste is immobilized in glass prior to disposal. Low-activity waste (LAW) is EM s term for the portion of the tank waste with low levels of radioactivity. EM estimates that LAW comprises more than 90 percent of the volume in the tanks but contains less than 10 percent of the radioactivity. EM currently plans to treat much of Hanford s tank waste in the WTP. The WTP is the most technically complex and largest construction project within EM. As figure 2 shows, the WTP consists of facilities that are designed to separate waste into low-activity and high-level waste streams. Once completed, the WTP is to treat the HLW and a portion of the LAW in separate facilities using vitrification. The WTP consists of the following facilities: Pretreatment Facility. This facility is to receive the waste from the tanks and separate it into HLW and LAW. Under the original WTP design, all waste must first pass through this facility before it can be treated. Tank waste to be sent to the pretreatment facility for processing must meet specific physical and chemical characteristics, known as waste acceptance criteria, and the waste must be certified as having met these criteria before transfer from the tanks to the pretreatment facility. For example, WTP waste acceptance criteria may stipulate that waste meet certain requirements for chemical composition, particle size, and density in order to be handled by the pretreatment facility. Construction of this facility as originally designed is about 40 percent complete. LAW Vitrification Facility. This facility is designed to receive the LAW and immobilize it by vitrification. The canisters of vitrified waste will be permanently disposed of at another facility on the Hanford Site. Construction of this facility is nearing completion, and EM plans to complete commissioning of the facility no later than December 31, 2023. As currently designed, this facility would only have capacity to treat a third to half of the LAW currently in the waste tanks. EM is analyzing alternatives for treating the remaining LAW, known as supplemental LAW. HLW Vitrification Facility. This facility is designed to receive the HLW and immobilize it by vitrification. The canisters of vitrified waste will be stored on-site until a final repository is established. Construction of this facility is about 40 percent complete. Effluent Management Facility. The Effluent Management Facility is being built to evaporate much of the liquid waste produced during LAW processing and vitrification at the LAW Facility. Design work on this facility is nearly complete and construction is under way. EM plans to complete construction of this facility in December 2021. Analytical Laboratory. This facility will be used to analyze the waste at various stages of treatment, such as testing samples of the vitrified waste to ensure that it meets certain criteria and regulatory requirements for disposal. Construction of this facility is complete and EM has begun startup and commissioning activities. Balance of Facilities. These facilities consist of the 22 support facilities that make up the plant infrastructure, such as cooling water systems and silos that hold glass-forming materials. Construction of these facilities is nearing completion, and EM has begun startup and commissioning activities. <1.2. Prior GAO Work on Technical Challenges Facing the WTP> The WTP has faced hundreds of technical challenges since the early years of the project. These challenges ranged from effectively mixing the waste prior to treatment to addressing potential erosion in the facility piping. We have reported on these challenges in the past and have made numerous related recommendations to EM. For example, in 2003 we found that BNI and outside experts had concerns about the technology for separating the waste including problems associated with mixing the waste during separations and evaporating water from the waste and they proposed more testing to resolve those challenges. We recommended that EM consider further testing to resolve those challenges before moving forward with construction of the pretreatment facility. In early 2007, EM decided to build a pilot-scale facility for the WTP to fully test pretreatment technologies before completing the full- scale design of the facility. Similarly, in 2006 we found that the WTP continued to face numerous technical challenges and that many of the technical challenges still had not been addressed even though EM was moving forward with construction on the pretreatment facility. We recommended that EM resolve the technical challenges before moving forward. EM agreed and took steps to ensure that the design of each WTP component was at least 90 percent complete before construction or installation. In December 2012, we found that the WTP continued to face significant technical challenges, even though construction was 55 percent complete, and we recommended that EM not resume construction of the pretreatment facility until the issues had been fully resolved. Because of these ongoing challenges, in December 2012, EM s WTP Engineering Division issued a memorandum that recommended that all activities affecting design, construction, and installation of structures, systems, and components be stopped. According to the memorandum, stopping work would help ORP avoid future nuclear safety and quality compromises and substantial rework. Instead of stopping all work at the WTP, ORP management stopped work only on those facilities that faced the most significant technical challenges, namely, the pretreatment and HLW facilities. As we discuss in this report, EM has not yet resumed construction on the pretreatment and HLW facilities. In 2015, we reported that because of ongoing problems hampering the progress of the pretreatment facility at Hanford, EM was pursuing other pretreatment alternatives (such as feeding the waste from the tanks directly to the vitrification facilities) but had not properly defined the mission need for the analysis or developed a reliable life-cycle cost estimate for the alternatives being analyzed. We recommended that EM revise its analysis to consider a variety of alternatives without limiting potential solutions and that EM further limit construction activities on the pretreatment facility until aggressive risk mitigation strategies are developed and employed to address the technical challenges. EM opted to change the alternative pretreatment approach it had been pursuing and in 2018 began design work on a different alternative pretreatment approach. In April 2018, we reported that seven of nine ORP quality assurance experts expected rework would be needed for existing facilities, including the pretreatment facility. In that report we noted that according to three experts with knowledge about maintenance programs, BNI had not established a fully effective WTP quality assurance program, particularly for the pretreatment facility and HLW facility, and as a result, structures, systems, and components at these facilities have deteriorated and been damaged. We recommended that EM (1) determine the full extent to which problems exist in all WTP structures, systems, and components, (2) stop work in areas where quality assurance problems are recurring until ORP s Quality Assurance Division can verify that the problems are corrected and will not recur, and (3) revise ORP s organizational structure so that the quality assurance function is independent of ORP upper management. As of March 2020, EM had implemented one of our three recommendations (revising ORP s organizational structure), but had not yet fully implemented the other recommendations. <1.3. Regulatory Framework Governing the Hanford Cleanup> Cleanup of the Hanford Site is governed by two main documents. The 1989 Hanford Federal Facility Agreement and Consent Order or Tri- Party Agreement (TPA) is an agreement among DOE, Ecology, and the Environmental Protection Agency. The TPA lays out a series of legally enforceable milestones for completing major activities in Hanford s waste treatment and cleanup process. The 2010 Consent Decree, as amended, resolves certain disputes between Ecology and DOE and addresses a subset of cleanup activities, including completing the construction and achieving initial operations of the WTP and retrieving waste from specified single-shell tanks. Among other things, the consent decree requires DOE to do the following: Begin treating LAW by 2023; Substantially complete the construction of the pretreatment facility by Start WTP operations by 2036. The TPA requires DOE to complete the treatment and vitrification of all HLW and LAW in the Hanford tanks by 2047. In addition to oversight by Ecology and the Environmental Protection Agency, DNFSB is responsible for, among other things, reviewing the design of new defense nuclear facilities at DOE s sites, including the WTP. DNFSB, established in 1988, provides independent analysis, advice, and recommendations to the Secretary of Energy in the Secretary s role as operator and regulator of DOE s defense nuclear facilities to ensure adequate protection of public health and safety at these facilities. DNFSB is not authorized to issue regulations binding on DOE apart from establishing reporting requirements. Instead, DNFSB uses both informal interactions and formal communications with DOE to help ensure that its concerns are addressed. DOE Order 413.3B establishes program and project management requirements for the acquisition of capital assets with the purpose of delivering projects within budget, on time, and capable of meeting mission performance. EM is required to manage its cleanup projects in accordance with this order. In particular, Order 413.3B requires EM to conduct an AOA that is consistent with the 22 AOA best practices we identified. DOE also has an AOA guide, which describes suggested approaches for DOE and its contractors to be consistent with the 22 best practices for an AOA process. The 22 best practices compile common AOA policies and guidance used by different government and private- sector entities and incorporate experts comments. These best practices include the following: Define mission need, Develop AOA time frame, Establish AOA team, Define selection criteria, Weight selection criteria, Include baseline (or status quo) alternative, and Develop a life-cycle cost estimate for each viable alternative. <2. EM Spent About $752 Million on the Pretreatment Facility in Fiscal Years 2013 through 2018, but Construction of the Pretreatment Facility Remains on Hold> From early fiscal year 2013 until the end of fiscal year 2018, EM spent about $752 million to maintain the pretreatment facility and resolve technical challenges. Over half of the $752 million went toward overhead, oversight, and other costs to maintain the partially constructed facility. The remaining costs went toward resolving technical challenges. Design and construction of the pretreatment facility is on hold, and DOE s budget request for fiscal year 2020 states that EM plans to continue limited activities on the pretreatment facility to keep the facility in a preservation and maintenance mode. However, officials told us that EM does not have a cost estimate for completing the pretreatment facility, and EM has no plans to develop such an estimate in the near future. <2.1. Over Half of the $752 Million Spent on the Pretreatment Facility in Fiscal Years 2013 through 2018 Went Toward Overhead, Oversight, and Other Costs to Maintain the Partially Completed Facility> From early fiscal year 2013 when work involving design and construction of the pretreatment facility was suspended until the end of fiscal year 2018, EM spent about $752 million on the pretreatment facility. Among other things, EM used this funding for resolution of the technical challenges that led to the suspension of the facility s construction, overhead and project management, equipment purchase and management, facility maintenance, BNI award and contract modification fees, and EM oversight. (See fig. 3.) Less than half of the $752 million spent on the pretreatment facility in fiscal years 2013 through 2018 went toward resolving technical challenges associated with the facility. According to EVM system reports, EM spent approximately $323 million or 43 percent of the $752 million in total costs on costs incurred by BNI to resolve the technical challenges. This includes activities such as identifying research tasks needed to resolve the technical challenges and performing testing, as well as the cost of subcontracts to assist BNI in resolving the technical challenges. Pretreatment Facility Lifetime Overhead Costs In fiscal year 2019, Bechtel National, Inc. (BNI), the prime contractor for Hanford s Waste Treatment and Immobilization Plant (WTP) including the pretreatment facility allocated $1.5 billion in overhead costs to the pretreatment facility in its Earned Value Management system (for fiscal years 2001 through 2014) that had previously been recorded in non-facility specific accounts. What we refer to as overhead BNI refers to as project services allocation or shared services, which according to officials at the Office of River Protection includes both traditional overhead costs (such as light and power), as well as the cost of common activities for multiple facilities and the management system used for those facilities. Prior to fiscal year 2015, overhead costs for the entire WTP were recorded in non-facility specific accounts. In fiscal year 2015, BNI changed the way that it accounts for these costs by allocating overhead costs to each individual facility; however, at the time, this change was only made for future overhead costs for the entire WTP. In June 2019, BNI also applied this change to pre-2015 costs, which brings BNI s total pretreatment facility costs, from the beginning of the contract in December 2000 through July 2019, to $3.4 billion $1.5 billion of which are overhead costs. However, this allocation of cost to each facility from the project level shared services accounts did not change the overall cost of the WTP project. because of design changes. According to ORP officials, EM did not pay a termination fee for procurements that were terminated because of the vendor going out of business; however, for other terminated procurements, EM might have to pay additional costs if the vendor submits a claim for compensation to BNI, for which BNI in turn seeks reimbursement from EM. In either case, there may be additional costs related, for example, to picking up and transporting items. Facility Maintenance. About $18.8 million or 2 percent of the total $752 million went towards the costs of general facility maintenance. According to ORP officials, facility maintenance includes activities such as maintaining building access controls, maintaining installed components, cleaning up waste from birds, removing snow and trash, and conducting periodic walks of the facility to determine the condition of materials in the building, among other things. Award fees are an amount of money added to a contract, which a contractor may earn in whole or in part by meeting or exceeding subjective criteria stated in an award fee plan typically related to areas within quality, technical ingenuity, cost-effective management, program management, and other unquantifiable areas. Award fees in the context of this report refer to money earned by BNI based on its performance in carrying out work on the pretreatment facility. In this report, contract modification fees refer to money negotiated between BNI and EM based on a change in the contract agreed to by both parties. $153 million the facility s highest costs from fiscal year 2013 through fiscal year 2018. (See fig. 4.) Contributing to the fiscal year 2017 costs was a one-time $60 million contract modification fee for both the pretreatment facility and the high-level waste facility that was negotiated between BNI and EM. According to EM officials, EM and BNI negotiated this fee for work completed by BNI in previous years for which it had not been paid a fee. This work included developing facility designs, resolving technical issues, and conducting reviews and research studies. <2.2. Design and Construction of the Pretreatment Facility Remain On Hold, and EM Does Not Have a Cost Estimate for Completing the Pretreatment Facility> Design and construction of the pretreatment facility have been on hold since 2012. At the time construction was halted, BNI estimated that construction of the facility was about 40 percent complete. In July 2018, the U.S. Army Corps of Engineers reported that construction of the facility was still about 40 percent complete. In a tour of the facility in May 2019, we observed that construction remains on hold and that EM is instead using the space inside the partially constructed building to conduct worker training exercises. Additionally, DOE s budget request for fiscal year 2020 states that EM plans to continue limited activities such as maintaining the existing facility, storing uninstalled equipment, and maintaining records for quality assurance on the pretreatment facility to keep the facility in a preservation and maintenance mode. ORP officials told us in September 2019 that EM does not plan to restart design and construction activities on the pretreatment facility until alternatives for pretreating HLW have been analyzed. According to EM officials, EM does not have an updated cost estimate for completing the pretreatment facility, as required under DOE Order 413.3B. This order requires EM to develop, maintain, and document cost estimates in a manner consistent with methods and best practices identified in GAO s Cost Estimating and Assessment Guide, as well as other documents, including the Office of Management and Budget s Circular A-11, prior to DOE approving a performance baseline change. EM s last independently verified approved cost estimate for completing the entire WTP was completed in 2006. At that time, EM estimated that completing the pretreatment facility would cost approximately $2.5 billion. However, the pretreatment facility has surpassed that amount. Specifically, through fiscal year 2018, EM spent about $3.8 billion on the facility, including approximately $3 billion spent prior to halting construction in 2012 and $752 million spent in fiscal years 2013 through 2018. EM was in the process of updating the cost estimate in 2012 when construction of the pretreatment facility was suspended, and therefore EM s update to the cost estimate was suspended as well. ORP officials told us that they do not have plans to complete a cost estimate for the pretreatment facility. According to these officials, they cannot complete a cost estimate for the pretreatment facility until EM has made a decision about the future of the facility and, if necessary, BNI develops design changes to address technical challenges. The officials explained that the development of design changes depends on the prioritization of funding. They also explained that ORP s highest funding priority is to begin vitrifying some LAW as soon as possible by bypassing the pretreatment facility using alternative technologies and sending the separated LAW directly to the WTP s LAW vitrification facility an approach known as Direct-Feed Low-Activity Waste (DFLAW). Officials told us that ORP s second highest funding priority is the completion of the HLW facility and that the pretreatment facility will not be a priority until EM has made a decision on which pretreatment methods to use going forward and updated the design changes for the facility as needed. <3. EM Reported that Technical Challenges on the Pretreatment Facility Have Been Resolved, but EM Has Not Yet Designed or Engineered the Solutions> After EM halted construction on the pretreatment facility in 2012, EM began working with BNI to address the longstanding technical challenges associated with the design and construction of the pretreatment facility. According to July 2019 correspondence between EM and BNI, both parties consider these technical challenges to be resolved, and according to ORP officials, pretreatment facility engineering and design followed by its construction may now continue. However, based on our interviews with EM and BNI officials, EM has not yet designed or engineered the solutions. In addition, according to DNFSB officials, the DNFSB does not consider the technical challenges to be resolved yet, though it continues to review EM s efforts. <3.1. Since 2012, EM and BNI Have Worked to Resolve Technical Challenges with the Pretreatment Facility, and EM Reported that the Challenges Have Been Resolved> In late 2012, EM halted construction of the pretreatment facility, and EM and BNI began work to resolve technical issues. In November 2012, EM formed a design completion team responsible for resolving the technical challenges. In May 2014, EM asked BNI to submit a plan for resolving the challenges and resuming construction of the pretreatment facility. EM ultimately identified eight key categories of technical challenges to be resolved before resuming construction of the pretreatment facility (see table 1 for a list of the eight categories, and see app. III for a more detailed description of each category of technical challenges). The majority of these categories involved portions of the pretreatment facility intended to manage the HLW. For example, one category EM identified involves preventing hydrogen from building up in the facilities piping and vessels, which could cause an explosion. Another category involves preventing corrosive waste from eroding treatment equipment, which could cause a leak of radioactive materials. In June 2014, BNI formed eight teams to address each category of technical challenges. For example, to address the technical challenges associated with mixing the waste in the pretreatment facility using a technology known as pulse-jet mixing, the design completion team developed a plan to standardize and test a new design to address pulse- jet mixing challenges. Similarly, to address concerns about the potential weaknesses in equipment and piping located in rooms inaccessible to humans once operations begin (known as black cells), EM formed a black cell analysis team. BNI submitted interim updates to EM on the proposed resolution of specific challenges as BNI addressed them. For example, in December 2017, BNI informed EM of its resolution of the challenges related to facility ventilation. Similarly, in September 2018, BNI informed EM of its resolution of the challenges related to the black cells. BNI sent similar correspondence on the other six categories of technical challenges to EM throughout 2019. According to EM officials, EM and its contractors provided DNFSB documentation and briefings on the resolution of the technical challenges. In June 2019, BNI informed EM that it considered all eight categories of technical challenges to be resolved. In July 2019, EM subsequently informed BNI that it agreed with BNI s conclusions that the technical challenges were resolved. According to ORP officials, resolved means that all the required studies, calculations, and testing have been completed and demonstrated to independent experts and EM that (1) the issue is fully understood so that no further research is needed and (2) a solution is ready for detailed design. <3.2. EM Has Not Yet Designed or Engineered the Solutions, and the DNFSB Does Not Consider the Technical Challenges to Be Resolved> Although EM and BNI consider the technical challenges associated with the pretreatment facility to be resolved, EM and BNI have not yet designed or engineered the solutions. BNI acknowledged early in the process that resolution of the technical challenges would involve not only a conceptual solution, but also subsequent design, engineering, and, in some cases, testing of the solutions before construction could resume on the pretreatment facility. For example, in its June 2014 plan for addressing the challenges, BNI noted that prior to making a decision to proceed with construction of the facility, it would need to conduct a number of additional steps, including updating the designs of the pretreatment facility and assessing the nuclear safety basis and the contract implications for the updated designs. In addition, ORP officials told us that proposed revisions to the pretreatment facility would require negotiation with Ecology. As of February 2020, EM and BNI had not yet begun developing these required designs and engineering changes and have no plans to do so until a decision is made on the future of the facility. According to EM officials, ORP s current priorities are to begin DFLAW operations and to conduct an analysis of alternatives related to the treatment of the HLW. These next steps could involve significant work and potential rework to the facility. According to EM officials, resolving the technical challenges likely will require BNI to change its designs for the pretreatment facility and conduct significant rework in portions of the facility that have been completed. ORP officials said that they expect this design work to be significant and do not expect it to be complete enough to proceed with the construction of the facility until at least 2022, depending on the availability of funding to support the design work. BNI s plan going forward includes a number of steps related to updating the pretreatment facility designs. As a result of this significant engineering work still ahead, as we reported in May 2015, EM likely will have to conduct rework of the existing facility (which is 40 percent built), leading to further cost increases and schedule delays. For example, BNI will need to redesign any existing components and systems that have become obsolete since EM halted construction or that need to be reworked to accommodate the technical solutions. In addition, DNFSB officials have begun reviewing EM s proposed solutions, but they said that they do not consider the technical challenges to be resolved. Although EM does not require DNFSB approval to restart construction of the pretreatment facility, ORP officials said that they consider the next step in the process to be DNFSB review of their solutions. DNFSB officials, on the other hand, said that the process used to review issues is as follows: (1) DNFSB raises a concern; (2) EM comes up with a conceptual solution, presents it to DNFSB, and receives feedback; and (3) EM then comes up with a design solution, presents it to the DNFSB, and receives feedback. According to DNFSB officials, because they have not been able to review the updated engineering and design plans, they are not in a position to approve the proposed solution. Since 2012, DNFSB has been reviewing EM s proposed technical solutions as part of its role to provide independent advice and recommendations to DOE regarding the protection of public health and safety at DOE facilities. As of December 2019, DNFSB had officially commented on one of EM s proposed solutions related to technical challenges surrounding the pulse-jet mixers and noted simply that EM s and BNI s work strengthens the technical foundation for using the mixers and that DNFSB would continue to follow the design process. With regard to the remaining challenges, DNFSB officials said that for some, additional deficiencies needed to be addressed. For others, DNFSB officials said they were reviewing the details of EM s proposed solution or needed additional information from EM. For two of the categories of technical challenges, DNFSB officials said they considered them to be operational rather than safety issues and therefore DNFSB would not review EM s proposed solutions. (See table 2.) <4. EM Has Not Yet Met Two Best Practices in Its Analysis of Alternatives to the Pretreatment Facility, and Regulators Have Concerns about EM s Engagement> To begin treating LAW by 2023 as required, EM began pursuing pretreatment alternatives in 2013 and has spent about $428 million on developing these alternatives for LAW pretreatment capabilities that were originally planned for the pretreatment facility. We reported in May 2015 that in analyzing alternative LAW pretreatment approaches, EM did not meet two key steps outlined in best practices and DOE internal guidance define mission need and develop a life-cycle cost estimate for its alternatives. We recommended that EM revise its mission need and its cost estimates for the alternatives being reviewed. In April 2019, EM began analyzing alternatives for treating HLW, and EM officials stated that this analysis of HLW treatment alternatives would follow best practices. However, as of February 2020, EM did not yet have a well- defined mission need statement for its HLW treatment AOA, nor did it have life-cycle cost estimates related to the pretreatment facility, as called for by best practices. In addition, Ecology, a key regulatory stakeholder for the Hanford cleanup, has raised concerns about the AOA as well as EM s engagement with regulators during this process. <4.1. EM Has Been Pursuing LAW Pretreatment Alternatives since 2013 to Begin Treating LAW by 2023> In 2013, to meet its deadline to begin treating LAW by 2023, EM began work on a strategy to bypass the pretreatment facility and instead separate out some of the LAW to remove most of the radioactivity from the tank waste. This approach, called DFLAW, has involved several different activities since 2013 such as constructing separate facilities and infrastructure to accomplish this work, as well as modifying existing facilities: Direct-Feed Low-Activity Waste Modifications and Effluent Management Facility. EM has spent $272 million on modifications to the WTP to support the DFLAW approach, including designing and constructing the Effluent Management Facility. The Effluent Management Facility is intended to manage the high volume of contaminated liquid generated through the processing of LAW. This capability was originally designed to be located in the pretreatment facility. Low-Activity Waste Pretreatment System. In fiscal years 2014 through 2018, EM spent approximately $146 million on the Low- Activity Waste Pretreatment System. The Low-Activity Waste Pretreatment System included designing a permanent facility to receive and treat liquid waste, separating out the less radioactive portion from the underground tanks in preparation for direct feed to the WTP s LAW facility. This function was originally intended to be accomplished by the pretreatment facility. In November 2017, ORP ordered work on this permanent facility to be suspended because, according to EM officials, the cost estimates for completing it had become too high and the urgency of meeting the pending treatment deadline too great. Tank Side Cesium Removal System (TSCR). EM spent about $6 million for work on a demonstration of the TSCR technology in fiscal year 2018 after suspending the Low-Activity Waste Pretreatment System. TSCR will be built next to an underground double-shelled waste tank and will filter waste directly from the tank to remove solids and cesium. The resulting waste will be pumped to a different underground tank for storage until it can be sent to the LAW facility for vitrification. This would enable the rest of the waste to be fed directly to the WTP s LAW facility. ORP plans this demonstration project to be complete as early as 2021 and then, depending on the results, ORP could decide to build additional TSCR units near other tank farms to treat more of the tank waste. In addition to DFLAW, EM briefly pursued a smaller-scale pretreatment approach known as the Test Bed Initiative in which low-level waste was drawn directly out of the underground tanks (using existing processes and commercial facilities), grouted on site, and shipped to a disposal facility in Texas. EM spent about $4.8 million in fiscal years 2016 through 2018 to design the technology and treat 3 gallons of waste from the underground tanks. EM suspended the Test Bed Initiative in June 2019. In total, EM has spent about $428 million developing these alternative pretreatment approaches for LAW, in addition to the $752 million spent on the pretreatment facility since 2012. (See fig. 5.) <4.2. EM Has Not Yet Met Two Best Practices or DOE Guidance in Analyzing HLW Treatment Alternatives> <4.2.1. Low-Activity Waste Analysis of Alternatives> EM began exploring alternative LAW pretreatment approaches as early as 2006 in connection with its analysis of options for treating the supplemental LAW at Hanford. In September 2013, in an effort to make progress while working to resolve technical challenges on the pretreatment facility, EM announced plans to pursue these alternative LAW pretreatment approaches and received funding to do so. However, as we reported in May 2015, EM did not properly define the mission need for the analysis or develop a reliable life-cycle cost estimate for the alternatives it analyzed prior to selecting its preferred alternative: First, in May 2015, we found that EM had developed a narrow statement of mission need that effectively excluded other potential alternatives from being considered. This, we noted, was contrary to DOE requirements in DOE Order 413.3B and our best practices for an AOA process, which specify that statements of mission need should not identify a particular solution such as equipment, facility, or technology, to allow the analysis the flexibility to explore a variety of alternatives without limiting potential solutions. We noted that by narrowly defining the mission need in this way, EM effectively narrowed the range of acceptable options and excluded from consideration other alternatives to expediting waste treatment and addressing the potential danger posed by the leakage of waste from the tanks. Second, we noted in May 2015 that in choosing its current approach to treating LAW, EM did not develop a life-cycle cost estimate for its Low-Activity Waste Pretreatment System approach and did not develop life-cycle cost estimates for all of the alternatives before choosing its course of action. Our AOA best practices and DOE s AOA Guide call for developing a life-cycle cost estimate for each alternative, including all costs from inception of the project through design, development, deployment, operation, maintenance, and disposal. We recommended in our May 2015 report that EM revise its mission need statement and life-cycle cost estimate for the Low-Activity Waste Pretreatment System. EM opted to change this alternative pretreatment approach and in 2018 began designing and building TSCR, as noted above. EM did not undertake an AOA process before making that decision; instead, EM chose to pursue TSCR, a technology similar to one being used at the Savannah River Site in South Carolina. EM officials said the decision to move forward on these LAW pretreatment alternatives without an AOA process was based on the urgency of the upcoming requirement to begin treating LAW by 2023. We continue to believe that as EM pursues additional treatment alternatives, EM should properly define the mission need for the analysis and develop a reliable life-cycle cost estimate for the alternatives it is analyzing. <4.2.2. High-Level Waste Analysis of Alternatives> In April 2019, EM initiated an AOA for treating the HLW in the tanks at Hanford and plans to conclude the review and report its findings in September 2020. According to the review team s September 2019 study plan, the review is to analyze 15 alternatives, including completing the pretreatment facility as planned, repurposing the pretreatment facility, and changing the current approach to pursue other pretreatment options. Some of the other options the review team plans to explore include sending HLW directly from the underground tanks to the HLW facility for treatment, building alternate HLW pretreatment facilities, and shipping the HLW to the Savannah River Site in South Carolina for treatment. (See appendix IV for a list of the alternatives being analyzed.) EM officials said that in undertaking this AOA for HLW treatment alternatives, they plan to meet best practices for an AOA process and those in DOE s AOA Guide. They noted that, consistent with these AOA best practices, EM has developed a time frame to complete the review, established a review team, and defined and weighed selection criteria against which to compare the alternatives. However, based on our review, as of February 2020, EM had not yet met two key steps defining mission need and developing a life-cycle cost estimate for the baseline alternative that are among the best practices we identified for an AOA process. First, EM has not yet defined the mission need, which is the first element in a successful AOA and is called for in DOE s guidance for conducting an AOA. One ORP official said that a succinct definition of the mission need for the AOA does not exist but is or can be deduced from the documents provided to the contractor conducting the analysis. An official from DOE s Office of Project Management confirmed that there is no mission need statement and noted that because the WTP began prior to the DOE Order requiring a mission need statement, there is no such statement for the WTP or for the current AOA. We have previously noted that defining the mission need is the first step in the AOA process in order to ensure that the AOA process does not favor one solution over another. We have also previously noted that when a concise set of objectives is established, it can ensure that the decision-making process stays open to a range of potential options. Second, as we noted earlier in this report, EM does not have an updated cost estimate for the baseline (or status quo) alternative of completing the pretreatment facility. As such, it is uncertain if or how EM will have a life-cycle cost estimate to compare the baseline alternative to the other alternatives it is analyzing. One of the best practices for an AOA process calls for the inclusion of the cost to pursue the baseline alternative (in this case, the cost of completing the existing pretreatment facility), to provide a basis of comparison among alternatives. However, EM officials told us that they do not intend to update EM s cost estimate for completing the existing pretreatment facility because it is not a priority for ORP; instead, ORP s priority is beginning DFLAW operations. Without a life-cycle cost estimate for EM s baseline alternative, decision makers will not have a complete picture of the costs and will have difficulty comparing the alternatives because comparisons may not be based on accurate information. Without a defined mission need and a complete cost estimate for the baseline alternative, EM s AOA for HLW treatment alternatives will be missing key elements that are necessary to provide decision makers with the information needed to make the best decision going forward. EM s analysis and the subsequent decisions that are made based on that analysis could be undermined as a result. <4.3. EM and Ecology Disagree about the Adequacy of Ecology s Engagement in the Process to Analyze Alternatives to the Pretreatment Facility> Officials from Ecology have raised concerns about EM s lack of progress on finishing the original pretreatment facility and EM s shifting focus on the pretreatment mission. In a letter to EM in May 2019, Ecology s director outlined a series of concerns related to the pretreatment mission and stated that Ecology is not conceding to, accepting, or acquiescing in any alternative path forward that is different than what has been agreed to in the TPA and Amended Consent Decree between our two agencies. In September 2019, ORP informed Ecology that a serious risk had arisen that DOE might be unable to meet certain Amended Consent Decree milestones related to, among other things, the construction of the pretreatment facility. In the same month, ORP agreed to participate in holistic negotiations to identify a new path forward for treating and disposing of Hanford s tank waste. As part of this agreement, the parties involved EM, Ecology, and the Environmental Protection Agency could use the services of a mediator to assist with negotiations, which may be completed by July 31, 2020. Ecology officials also said that EM has not adequately consulted with them while making important decisions about the pretreatment mission and facility. In particular, in January 2020, Ecology officials told us that they had not been engaged early, often, or appropriately by EM regarding EM s changing plans to pretreat the tank waste and that they were concerned about the possible negative impacts of EM diverting its resources away from completing the pretreatment facility. According to Ecology officials, they have been invited to key EM meetings but have not been properly engaged in the decision-making process. In an October 2019 presentation to panelists from the National Academies of Sciences, Engineering, and Medicine, Ecology officials noted their frustration with too many ideas that did not work out, resulting in long delays. In December 2019, because of concerns that EM was not providing access to all of the information needed to make timely regulatory decisions, Ecology issued a determination requiring EM to provide information as required by the TPA within 30 days. In January 2020, after EM failed to provide the information, Ecology fined EM $1 million and reiterated that without access to this crucial data, it was nearly impossible for Ecology to independently verify compliance with cleanup regulations. According to officials at EM headquarters, engagement with Ecology is a priority, and ORP officials said that since 2018, their engagement with Ecology has improved. In particular, ORP officials noted that Ecology has had representatives on a joint team tasked with exploring the options to be examined under the HLW AOA and has a representative on the AOA review team to observe the deliberations. In September 2019, we outlined a risk-informed framework for making cleanup decisions and recommended that EM incorporate this framework into its cleanup policy across the entire DOE complex. DOE agreed with this recommendation but has yet to respond with a plan to implement it. In that report, we state that the risk-informed decision-making framework can be applied to a range of cleanup decisions, from selecting a cleanup approach at a single site to prioritizing cleanup activities across sites. The risk-informed decision-making framework consists of several steps, including engaging with stakeholders such as Ecology throughout the decision-making process. In that report, we noted that the goal of engaging stakeholder groups in a risk-informed cleanup decision should be to incorporate their viewpoints and seek their acceptance of the decision-making process as transparent and legitimate, rather than to obtain their concurrence with the final decision. We also found that this can best be accomplished when EM seeks stakeholders input and buy-in to the process by providing meaningful opportunities for engagement early in the process, communicating throughout the process, and providing transparent, understandable information about the science and rationale behind the final decision. Doing so can help improve the likelihood that stakeholders will view the decision-making process as fair and legitimate. By following the steps outlined in our risk-informed decision-making framework as it makes decisions about the future of the Hanford pretreatment facility, EM and stakeholders would have greater assurance that EM s decision-making process is transparent, participatory, and credible. <5. Conclusions> After nearly 20 years and with over $11 billion spent since EM awarded the contract to design and build the WTP, the WTP is not complete and has faced numerous technical challenges, cost overruns, and schedule delays. According to a recent study by the U.S. Army Corps of Engineers and EM s Hanford Lifecycle Report, the largest and most complex portion of the WTP the pretreatment facility is unlikely to be completed as designed and scheduled. Since the early years of the project, we have recommended that EM stop moving ahead on the pretreatment facility until it resolves the numerous technical challenges or conducts a reliable analysis of alternatives and determines a risk-informed, cost-effective path forward. However, EM has yet to fully implement these recommendations. EM officials reported that the technical challenges that have plagued the project for years have been solved, but EM has not developed the design and engineering changes needed to implement the solutions. Instead, EM is focusing on analyzing alternatives to accomplish the mission of the pretreatment facility and officials have stated that this analysis will follow best practices we have identified and DOE guidance. EM s current AOA of HLW treatment alternatives is still under way, and officials told us that they intend to follow best practices for developing an AOA. However, as of February 2020, the AOA still lacks at least two key elements of the best practices. First, without a clear statement of mission need, it is unclear on what basis decision makers will consider and assess the alternatives being considered. Second, without an updated life-cycle cost estimate to complete the pretreatment facility, it is unclear whether the HLW pretreatment alternatives being analyzed represent a better path forward than completing the partially constructed pretreatment facility as originally planned. Without these key elements of an AOA, EM s ultimate decision may not be the best option or be credible with stakeholders. Throughout this decision-making process, EM s engagement with Ecology has not met the expectations of the regulator, resulting in fines and further delays as all parties participate in an ongoing, mediated negotiation on a path forward. By following the steps outlined in our risk-informed decision-making framework as it makes decisions about the future of the pretreatment facility, EM can ensure that its regulators have greater assurance that EM s decision-making process is transparent, participatory, and credible. <6. Recommendations for Executive Action> We are making the following two recommendations to DOE: The Secretary of Energy should direct the Assistant Secretary of Environmental Management to ensure that EM s final AOA for HLW pretreatment at the Hanford Site includes a definition of mission need and life-cycle cost estimates for the baseline or status quo alternative, as called for in the best practices for an AOA process we have identified and DOE guidance. (Recommendation 1) The Secretary of Energy should direct the Assistant Secretary of Environmental Management to follow the steps outlined in GAO s risk- informed decision-making framework as EM makes decisions about the future of the pretreatment mission; in particular, engaging the Washington State Department of Ecology in the AOA process, communicating with them throughout the process, and providing them with transparent information about the rationale behind the final decision. (Recommendation 2) <7. Agency Comments> We provided a draft of this report to the Secretary of the Department of Energy. In its written comments, reproduced in appendix VI, DOE concurred in principle with our recommendations and outlined a plan to address the recommendations by December 31, 2020. DOE also provided additional technical comments, which we have incorporated into the report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, 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 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 significant contributions to this report are listed in appendix VII. Appendix I: Objectives, Scope, and Methodology Our report examines (1) the cost of pretreatment efforts from fiscal year 2013 through fiscal year 2018 and the status of the pretreatment facility, (2) the status of the technical challenges facing the pretreatment facility, and (3) the steps the U.S. Department of Energy s (DOE) Office of Environmental Management (EM) is taking to begin treating waste by 2023 as required and the extent to which EM has engaged with regulators. To determine the cost of the pretreatment facility, we reviewed Earned Value Management (EVM) status reports from Bechtel National, Inc. (BNI) and fiscal year totals for EM s oversight costs and BNI s award and contract modification fees for the pretreatment facility for fiscal years 2013 through 2018 provided by officials in EM s Office of River Protection (ORP), which oversees the construction of the Waste Treatment and Immobilization Plant (WTP) at Hanford. BNI s EVM status reports give actual costs for the work performed categorized by a number of different activities, such as engineering to design the pretreatment facility and the acquisition of plant equipment items to be installed in the pretreatment facility. For reporting purposes, we combined BNI accounts with similar activity descriptions and renamed them. To determine the activities included in the accounts, we reviewed both the Work Authorization Document, which describes activities covered by each account used in BNI s EVM status reports, as well as descriptions of major accomplishments achieved each fiscal year included in the summary status report. To determine the cost of alternative pretreatment efforts, we reviewed EVM status reports for the Direct-Feed Low-Activity Waste project, the Low-Activity Waste Pretreatment System, and the Tank Side Cesium Removal project for fiscal years 2014 through 2018. Because the Test Bed Initiative project did not use an EVM system until fiscal year 2018, we reviewed invoiced costs data for that project for fiscal years 2016 through 2018. To gain context on the planned capabilities of these projects, we reviewed project presentations for pretreatment alternatives and interviewed ORP and BNI officials to learn more about the progress made in developing each project. To assess the reliability of all cost data for both the pretreatment facility and alternative pretreatment efforts, we reviewed documentation and officials responses related to data-gathering processes, data storage systems, and data limitations for each of the relevant sources to ORP. Based on this, we found all of the data sources to be sufficiently reliable for our reporting objectives. Finally, to determine the extent to which EM has established a cost estimate to complete the pretreatment facility that is consistent with DOE policy set out in DOE Order 413.3B, we interviewed officials about EM s cost estimate to complete the facility. To examine the status of technical challenges facing the pretreatment facility and to gather information pertaining to obstacles and risks of project completion, we reviewed the following documents: ORP s 2018 briefing to the Washington State Department of Ecology (Ecology) regarding the status of challenges, BNI s 2018 briefing about the status of the pretreatment facility, The U.S. Army Corps of Engineers 2018 report on the status of the The Defense Nuclear Facilities Safety Board s (DNFSB) 2017 technical report on WTP hazards. We also interviewed officials from EM, regulators at Ecology, officials from the U.S. Environmental Protection Agency, and contractor officials who are working to resolve these challenges to better understand the status of the technical challenges, as well as any concerns they might have. In addition, we interviewed officials from DNFSB an independent agency that provides analysis, advice, and recommendations to the Secretary of Energy regarding the adequate protection of public health and safety at DOE s defense nuclear facilities regarding DNFSB s assessment of the technical challenges and what additional steps, if any, DOE needs to take to resolve the challenges. To examine the steps EM is taking to begin treating waste by 2023 as required, we visited the WTP construction site at Hanford in May 2019 to observe the status of the construction of the pretreatment facility and pretreatment alternatives. We reviewed historical documentation, such as technical reports summarizing testing, and studies conducted by EM and its contractors. These reports included Washington River Protection Solutions 2014 low-activity waste (LAW) alternatives analyses summary and its 2011 conceptual design report, and CH2M HILL Hanford Group s 2006 LAW First Study. We interviewed DOE officials from headquarters to discuss the status of and future plans for the WTP and DOE officials from ORP at Hanford to gather information about the project. We also interviewed ORP contractors regarding their ongoing and planned efforts related to pretreatment of the tank waste and regulator officials from Ecology to better understand their concerns and priorities. To analyze the extent to which EM is following guidance and best practices as it conducts its analysis of alternatives (AOA) of high-level waste (HLW) treatment alternatives, we first interviewed DOE officials and reviewed available documentation associated with DOE s ongoing AOA to determine the status of the draft AOA. We then reviewed the steps EM is taking and compared them against DOE s project management requirements (DOE Order 413.3B) and guidance (DOE Analysis of Alternatives Guide) and the best practices for an AOA process that we identified in our prior work. Because EM was conducting its own AOA concurrent with our review, we selected two key best practices in an AOA process define mission need and develop a life-cycle cost estimate for the baseline (or status quo) alternative because these two steps are requisite for completing the remaining steps of an AOA. These steps are also essential to ensuring that the other 20 best practices and the results of the AOA are credible and based on accurate information. We also noted best practices that EM officials noted EM has met thus far. In addition, we compared EM s decision-making process, in particular its stakeholder engagement, against a framework for risk-informed decision- making we developed in our prior work. We developed this framework in 2019 to assist agencies in identifying and implementing the essential elements of risk-informed decision-making. To create the framework, we synthesized key concepts from relevant literature and input from experts who participated in a meeting convened by the National Academies of Sciences, Engineering, and Medicine. We conducted this performance audit from February 2019 to May 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. Appendix II: GAO Analysis of Bechtel National, Inc. (BNI) Cost Accounts The Office of Environmental Management s contractor for its pretreatment facility, BNI, tracks its costs in its Earned Value Management system. Costs are tracked through the use of different accounting codes that represent the costs of different types of activities. For reporting purposes, we combined BNI accounts with descriptions of similar activities and renamed them. The table below lists the labels we used, the BNI account codes included in each label, and selected examples of activities described for each accounting code. Appendix III: Technical Challenges Facing the Department of Energy s Waste Treatment and Immobilization Plant s (WTP) Pretreatment Facility Appendix III: Technical Challenges Facing the Department of Energy s Waste Treatment and Immobilization Plant s (WTP) Pretreatment Facility Description Inadequate pulse jet mixing can lead to the accumulation of solids in process vessels, resulting in generation and accumulation of hydrogen and potentially leading to explosions. Settled sludge layers will rise in temperature, increasing the hydrogen generation rate. Up to 16 of the 177 underground tanks at Hanford contain large-size plutonium particles that could settle onto internal surfaces of the pulse-jet mixer vessels, which use compressed air to mix the waste. If the pulse-jet mixers could not then resuspend settled particles, an uncontrolled nuclear chain reaction known as a criticality accident could occur. In the Pretreatment facility and High-Level Waste (HLW) facility, the accumulation of hydrogen gas in piping and small vessels can occur after the loss of off-site power or after an interruption of a transfer of waste due to operator error and during normal operation in isolated pipe sections, potentially causing an explosion. Accumulating solids in pulse-jet mixing vessels could cause excessive air to be discharged in the vessels. This discharge could cause premature erosion of vessel surface bottoms, all of which are located in nonmaintanable areas called black cells. In addition, pulse-jet mixing vessels may need structural modifications to account for abnormal environmental conditions, such as seismic events. Because of uncertainties in waste feed characteristics, the vessel and piping design in the Pretreatment facility and HLW facility may require revisions to account for the amount of wear the equipment will need to withstand. Excessive wear could damage plant equipment and result in interruption of operations or leakage of material from vessels and piping. The potential incorporation of a Standards High Solids Vessel into Pretreatment requires a detailed study to determine the feasibility and optimization of this design change. An additional opportunity is created to revisit the capability to perform In service inspections in order to underpin resolution of erosion/corrosion questions. The Project has not established an in-service inspection program. Once WTP operations begin, equipment in black cells within the Pretreatment facility and HLW facility must last for the WTP s 40-year expected design life without maintenance because significant failures of components installed in the black cells could impact the throughput and mission duration of the WTP. Potential weaknesses in equipment and piping located within black cells must be identified before WTP operations begin to ensure that timely repairs can be conducted, should failure of these components occur. Ventilation systems in the Pretreatment facility, HLW facility, and Low-Activity Waste facility must be able to contain radioactive material that could be released from primary confinement. The structural integrity of some internal vessel components in these facilities could be compromised if seismic or other events beyond the design basis occur. The ventilation system must survive a release of radioactive material without shutdown, plugging, or blowing out filters to continue to provide confinement. Appendix IV: High-Level Waste (HLW) Alternatives Being Analyzed by the Office of River Protection Appendix IV: High-Level Waste (HLW) Alternatives Being Analyzed by the Office of River Protection Description HLW is received, characterized, and pretreated in HLW Feed Preparation Facility; contaminated liquids produced in the process are concentrated in a new HLW Effluent Management. HLW is sampled, characterized, and staged in the tanks. HLW is then pretreated in HLW Feed Preparation Facility; contaminated liquids produced in the process are concentrated in HLW Effluent Management Facility. Same as previous alternative with some processes performed at a higher temperature. HLW is transferred to the pretreatment facility for preparation and staging; then leached, washed, and concentrated in the HLW Feed Preparation Facility. Contaminated liquids produced in the process are concentrated in the pretreatment facility. HLW treated using alternative technologies such as grouting or steam reforming. Would require technology development, research and development, lab testing and technology readiness assessment. HLW is immobilized within existing tanks using alternative technologies. Would require technology development, research and development, lab testing and technology readiness assessment. HLW in the tanks located furthest away from the Waste Treatment and Immobilization Plant (in the western portion of the site) is pretreated and treated in new west area HLW Feed Preparation Facility, HLW Effluent Management Facility, and HLW vitrification facilities. HLW is received, characterized, and pretreated in in HLW Feed Preparation Facility; contaminated liquids produced in the process are concentrated in new facilities. Pretreatment facility repurposed to treat low-activity waste. HLW is transferred to compliant mediums for transfer to Savannah River Site for treatment and vitrification. Fuels Material Examination Facility would be retrofitted to provide pretreatment capabilities. HLW vitrification facility is abandoned; pretreatment facility is repurposed to pretreat and vitrify HLW. HLW is pretreated and vitrified at a near-tank mobile facility or in a centrally located facility using bulk vitrification technology. Would require technology development, research and development, lab testing and technology readiness assessment. Same as the second alternative above with added filtering capability. HLW is sampled, characterized, and staged in the tanks. Contaminated liquids produced in the process are concentrated in HLW Effluent Management Facility. Same as previous alternative with added step of concentrating the HLW in the HLW Effluent Management Facility before sending it to be vitrified. Appendix V: Analysis of Alternatives (AOA) Best Practices The guidance below is meant as an overview of the key principles that lead to a successful AOA process and not as a how to guide with detailed instructions for each best practice identified. Conforming to the 22 best practices helps ensure that the preferred alternative selected is the one that best meets the agency s mission needs. Not conforming to the best practices may lead to an unreliable AOA, and the customer will not have assurance that the preferred alternative best meets the mission needs. Table 6 shows the 22 best practices. Appendix VI: Comments from the Department of Energy Appendix VII: GAO Contact and Staff Acknowledgments <8. GAO Contact Staff Acknowledgments:> David C. Trimble, (202) 512-3841 or [email protected] In addition to the contact named above, Amanda K. Kolling (Assistant Director), Jeffrey T. Larson (Analyst in Charge), Mark Braza, Kelly Friedman, Richard P. Johnson, Gwen Kirby, and Alan K. Smith made key contributions to this report.

Why GAO Did This Study The Hanford Site in Washington State contains large quantities of nuclear waste. EM has been building the Waste Treatment and Immobilization Plant—which consists of multiple facilities, including a key pretreatment facility—to treat a large portion of the nuclear waste at Hanford. Under way since 2000 and costing over $11 billion to date—$3.8 billion of that spent on the pretreatment facility—the plant has faced technical challenges, cost overruns, and schedule delays. In late 2012, work on the pretreatment facility stopped until technical challenges could be resolved. In 2018, the U.S. Army Corps of Engineers reported that at current annual funding levels, completing the pretreatment facility on time would not be possible. Senate Report 116-48 accompanying the National Defense Authorization Act for fiscal year 2020 included a provision for GAO to review this project. This report examines (1) the cost of pretreatment efforts from fiscal year 2013 through fiscal year 2018, (2) the status of the technical challenges facing the pretreatment facility, and (3) the steps EM is taking to start treating waste by 2023 as required, among other things. GAO toured the facility, analyzed EM documents and expenditure data, and interviewed EM officials. What GAO Found The Department of Energy's (DOE) Office of Environmental Management (EM) spent $752 million in fiscal years 2013 through 2018 on the pretreatment facility at the Hanford Site in Washington State. This facility was to separate nuclear waste into two streams for treatment in other site facilities. However, EM stopped design and construction of the facility in 2012 due to technical challenges. According to expenditure data, over half of the $752 million EM spent was for overhead, oversight, procurements, and facility maintenance. The rest was spent resolving the technical challenges. DOE's fiscal year 2020 budget request states that EM plans to continue “limited activities”—such as maintaining the existing facility and storing uninstalled equipment—while construction remains on hold. After working to address pretreatment facility technical challenges since 2012, EM and its contractor consider these challenges—ranging from facility ventilation concerns to preventing explosions during waste treatment—to be conceptually resolved. However, EM has not yet designed, engineered, or tested solutions to the challenges. In addition, the Defense Nuclear Facilities Safety Board—an independent agency that provides analysis, advice, and recommendations regarding safety at DOE's defense nuclear facilities—does not consider the challenges resolved pending additional information and, in some cases, additional design and engineering work by EM. To begin treating waste by 2023 as required, EM has been pursuing alternatives to the pretreatment facility. Since 2013, EM has spent over $400 million pursuing alternatives for low-activity waste pretreatment capabilities originally planned for the pretreatment facility. However, as GAO reported in May 2015, EM did not properly define a mission need statement or a life-cycle cost estimate prior to selecting its preferred alternative for treating low-activity waste, consistent with analysis of alternatives best practices and DOE policy, and GAO recommended EM revise its analysis. In April 2019, EM began an analysis of alternatives for treating high-level waste, which EM expects to be completed in September 2020. However, as of February 2020, EM had not yet defined a mission need for this new analysis of alternatives and did not have a life-cycle cost estimate for its baseline alternative. Without these, decision makers will not have the information they need to make the best decisions for pretreating high-level waste, and EM cannot assure decision makers that alternative approaches meet mission needs. What GAO Recommends GAO is making two recommendations, including that DOE ensure that its analysis of alternatives for pretreatment of high-level waste include a mission need statement and a life-cycle cost estimate for the baseline alternative. DOE concurred in principle with both recommendations.

gao_GAO-20-443T

gao_GAO-20-443T_0

<1. NNSA Faces Challenges in Executing Ongoing and Planned Weapon Programs and Related Capital Asset Projects to Modernize the Nuclear Stockpile> NNSA is executing and plans to carry out multiple weapon programs and a range of related capital asset projects over the next 2 decades. First, NNSA is currently conducting four weapon modernization programs: the B61-12 LEP, the W88 Alteration 370, the W80-4 LEP, and the W87-1 Modification program. Table 1 provides more information on each of these programs based on our prior work, with selected updates on program schedules, cost estimates, and budgets from the Fiscal Year 2020 Stockpile Stewardship and Management Plan and NNSA testimony. In addition to these four ongoing programs, the 2018 Nuclear Posture Review calls for NNSA to consider additional weapon programs specifically, a program to develop a modern nuclear-armed sea-launched cruise missile, and another to develop a new submarine-launched ballistic missile warhead (now being referred to as the W93). The Nuclear Posture Review also instructs NNSA to maintain the B83-1 bomb until a suitable replacement can be found. To support and enable ongoing and planned weapon programs, NNSA also plans to spend billions of dollars over the next 2 decades on capital asset projects and other infrastructure risk reduction and recapitalization efforts to modernize the production infrastructure NNSA uses to produce components and materials needed for its weapon programs. Table 2 provides more information on selected NNSA capital asset projects discussed in our recent reports, with selected updates on program schedules and cost estimates from the DOE Office of Project Management s January 2020 Monthly DOE Project Portfolio Status Report. According to NNSA s plans, the agency must carry out many of its weapon programs while simultaneously modernizing the very infrastructure on which these weapon programs rely for components and other materials. Therefore, any delays or technical challenges that affect NNSA s plans for its production facilities may be expected to result in delays and challenges to the weapon programs. Figure 1 shows the estimated schedules for the weapon programs and related capital asset projects described in tables 1 and 2 and reported on in our prior work, with updated information as presented in the Fiscal Year 2020 Stockpile Stewardship and Management Plan. We have reported on the potential effects on NNSA s weapon programs of delays or technical challenges in modernizing its production facilities. For example: The W87-1 Modification program s schedule may be particularly vulnerable to production challenges, including pit production challenges, because, as we reported in November 2018, it will require all newly-made components, including pits. In our most recent report on the W87-1 program, a classified report issued in February 2020, we found that NNSA s past challenges in managing plutonium activities at Los Alamos and in executing projects of this size cast doubt on NNSA s ability to produce 80 pits per year in 2030. As we note in that report, an independent assessment of NNSA s pit production strategy in March 2019 concluded that no options evaluated by NNSA could be expected to produce 80 pits per year by 2030. The independent assessment further stated that NNSA had no precedent for major projects costing more than $700 million dollars that had been completed in fewer than 16 years, and that many similar projects were eventually cancelled. Future weapon programs will require newly produced explosives, including some that NNSA has not produced at scale since 1993. As we reported in June 2019, NNSA officials stated that producing these materials will pose challenges that include replicating decades-old recipes for the materials and preparing for their full-scale production in aging facilities. As we noted in that report, similar problems restarting dormant production capabilities have delayed past weapon programs notably, the W76-1 LEP, which NNSA completed in December 2018. As we reported in March 2009, NNSA had to delay first production of the W76-1 from September 2007 to September 2008 when it encountered problems restarting production of a key material, known as Fogbank. NNSA is working to reconstitute its high explosives capabilities, as we reported in June 2019. Nonnuclear parts and components comprise over 80 percent of the items in a nuclear weapon, and NNSA s Kansas City National Security Campus procures or produces most of these. In April 2019, we found that work on the B61-12 LEP and W88 Alteration 370 was expected to double at the Kansas City site during fiscal years 2020 through 2022. Our April 2019 report also identified challenges that could complicate work at the site. For example, disruption to the established supply chain for externally supplied parts which comprise about 65 percent of the nonnuclear parts used at the Kansas City site could result in production delays, and the site needs hundreds of thousands of additional square feet of manufacturing space to meet workload demands. We have also recently completed work in which we reported on challenges integrating the schedules of NNSA s weapon programs with the schedules for DOD s modernized delivery systems. For example, the W87-1 warhead will need to be integrated on a delivery system that is under development, an intercontinental ballistic missile known as the Ground-Based Strategic Deterrent. We have ongoing work examining DOD and DOE plans to modernize and integrate warheads and delivery vehicles and expect to issue a classified report in spring 2020. <2. NNSA Has Taken Steps to Improve Its Management of Weapon Programs and Enabling Capital Asset Projects, but Additional Improvements Are Needed> As we have recently reported, NNSA has made improvements in its management of some weapon modernization programs and enabling capital asset projects. We have concluded that NNSA s federal program and project management capacity is improving, as are the controls it has developed for program and project performance. For example: We found in January 2018 that NNSA has established and strengthened management requirements for LEPs. Specifically, in January 2016, NNSA s Office of Defense Programs issued a program management directive that designates risk-based program execution requirements that all programs must follow. The directive places LEPs in one of the highest-risk categories, meaning these programs are required to apply more rigorous management controls specified in the directive, including using earned value management. Further, in January 2017, NNSA issued two directives implementing requirements for NNSA s Office of Cost Estimating and Program Evaluation to conduct independent cost estimates. In May 2018, we found that the program cost estimate for the B61-12 LEP substantially met the criteria for all four characteristics of a high-quality, reliable cost estimate, in part because it was the first LEP to undergo an independent cost estimate. We reported in our February 2017 high-risk update that DOE demonstrated a strong commitment and top leadership support for improving project management. For example, DOE made changes to its revised project management order, issued in May 2016, in response to recommendations we made in prior years, such as requiring that projects develop cost estimates and analyses of alternatives according to best practices we identified. In September 2017, we found that NNSA had made progress in developing a revised scope of work, cost estimate, and schedule for the Uranium Processing Facility project, which is to modernize uranium production efforts at the Y-12 National Security Complex. We reported at that time that these improvements may help NNSA stabilize escalating project costs and technical risks experienced under the previous strategy. In November 2017, we found that NNSA had established programs to manage strategic materials specifically, uranium, plutonium, tritium, and lithium and had defined requirements and managerial roles for program managers. Since that time, NNSA has taken steps to implement a new enterprise-wide approach for managing explosives activities, as we found in our June 2019 report on those activities. However, we have identified additional actions NNSA could take to further improve its management of weapon modernization programs and related projects. As NNSA s workload increases, additional management rigor will help ensure that programs and projects are executed consistent with cost and schedule estimates, and that risk is effectively managed and communicated. For example: We found in our January 2018 report that NNSA had not adopted the best practice of having an independent team validate its earned value management systems against the national standard for such systems, which could help the agency better manage risk in its LEPs. We also found that NNSA had not established specific benchmarks for technology readiness at LEP decision points, consistent with best practices. We recommended that NNSA require an independent team to validate contractor earned value management systems for LEPs and establish technology readiness requirements at LEP decision points. According to an update NNSA provided to us in September 2019, the agency has not taken action to address these recommendations. We continue to believe that it should do so. We found in our September 2017 report that NNSA had not developed a complete scope of work, a life-cycle cost estimate, or an integrated master schedule for its overall uranium program of which the Uranium Processing Facility is only one part and had no time frame for doing so. We recommended that NNSA should set a time frame for when the agency would develop a complete scope of work, a life-cycle cost estimate, and an integrated master schedule for the overall uranium program. NNSA generally agreed with our recommendation and has taken actions to respond to it. We expect to issue a report on the Uranium Processing Facility and NNSA s plans for its uranium program in March 2020. As we reported in February 2020, the plutonium program has begun to develop a schedule for pit production. However, NNSA allows strategic materials programs such as the plutonium program to tailor their approach to developing schedules and does not require that they meet best practices for schedule estimating. We recommended that NNSA ensure that the plutonium program develop a schedule for pit production consistent with best practices for schedule development. NNSA agreed with our recommendation. Our ongoing work includes reviews of NNSA s management of other efforts essential to ongoing weapon modernization programs, such as the production of radiation-hardened microelectronics at Sandia National Laboratories in New Mexico and of depleted uranium at the Y-12 National Security Complex in Tennessee. <3. NNSA Needs a Portfolio-based Approach to Managing Its Weapon Modernization Programs and Related Efforts> NNSA s weapon modernization programs and enabling infrastructure efforts have significant interdependencies that require integrated management across the portfolio of programs to effectively manage cost, schedule, and risk. Portfolio management best practices developed by the Project Management Institute state that organizations can optimize their portfolios of programs and projects by assessing their capability and capacity to finance specific portfolio components; determining which portfolio components should receive the highest priority; and identifying components to be suspended, reprioritized, or terminated. In our April 2017 report on NNSA s budget materials and modernization plans, we found that NNSA did not clearly identify the extent to which its long-range budget estimates for its overall modernization program fell short of specific annual budget requests anticipated in this plan. We concluded that NNSA had not addressed the projected bow wave of future funding needs and the mismatch between those needs and the potential funding available in the years in question. By not addressing the risks associated with the potential funding shortfall, we concluded, NNSA raised questions about its ability to achieve its modernization program goals at cost and on schedule. As a result, as discussed above, we recommended that NNSA include an assessment of the affordability of its portfolio of modernization programs in future versions of the Stockpile Stewardship and Management Plan for example, by presenting options NNSA could consider to bring its estimates of modernization funding needs into alignment with potential future budgets, such as potentially deferring the start of or canceling specific modernization programs. NNSA did not explicitly agree or disagree with our recommendation. The President s fiscal year 2021 budget request for NNSA indicates that the bow wave has arrived, requesting an increase of about $3.1 billion over the funding enacted for Weapons Activities in fiscal year 2020 a year-to-year increase of over 25 percent. The Fiscal Year 2020 Stockpile Stewardship and Management Plan, issued in July 2019, includes a new section on affordability analysis and states that the section was added in response to our April 2017 recommendation. However, our review of this section indicates that it does not fully respond to our recommendation because it does not provide information about how potential misalignment between NNSA s modernization budget estimates and projections of the President s modernization budgets may be addressed, or about the potential impacts of adjusting program schedules or cost or schedule overruns. Since the issuance of the 2018 Nuclear Posture Review, NNSA s portfolio of planned programs has only grown more extensive and complex. We continue to believe that NNSA, by assessing its portfolio of modernization programs in future versions of the Stockpile Stewardship and Management Plan for example, by presenting options NNSA could consider to bring its estimates of modernization funding needs into alignment with potential future budgets, such as potentially deferring the start of or canceling specific modernization programs could help congressional and NNSA decision makers better understand NNSA s priorities and trade-offs that it may need to undertake in the future, depending on funding and program performance. Chairman Cooper, Ranking Member Turner, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have at this time. <4. GAO Contact and Staff Acknowledgments> If you or your staff members 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 Jason Holliday, Assistant Director; Antoinette C. Capaccio; Julia Coulter; Rob Grace; John Hocker; Dan Royer; and Kiki Theodoropoulos. Related GAO Products The following is a selection of GAO s recent work assessing the National Nuclear Security Administration s management of nuclear weapon programs and related capital asset projects: Nuclear Weapons: NNSA Should Further Develop Cost, Schedule, and Risk Information for the W87-1 Warhead Program. GAO-20-207C. Washington, D.C.: February 28, 2020. Nuclear Weapons Sustainment: Improvements Made to Budget Estimates in Fiscal Year 2019 Joint Report, but Opportunities Remain to Enhance Completeness. GAO-20-37R. Washington, D.C.: November 7, 2019. Nuclear Weapons: Additional Actions Could Help Improve Management of Activities Involving Explosive Materials. GAO-19-449. Washington, D.C.: June 17, 2019. Modernizing the Nuclear Security Enterprise: NNSA Is Taking Action to Manage Increased Workload at Kansas City National Security Campus. GAO-19-126. Washington, D.C.: April 12, 2019. High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas. GAO-19-157SP. Washington, D.C.: March 6, 2019. Nuclear Weapons: NNSA Has Taken Steps to Prepare to Restart a Program to Replace the W78 Warhead Capability. GAO-19-84. Washington, D.C.: November 30, 2018. B61-12 Nuclear Bomb: Cost Estimate for Life Extension Incorporated Best Practices, and Steps Being Taken to Manage Remaining Program Risks. GAO-18-456. Washington, D.C.: May 31, 2018. Nuclear Weapons: NNSA Should Clarify Long-Term Uranium Enrichment Mission Needs and Improve Technology Cost Estimates. GAO-18-126. Washington, D.C.: February 16, 2018. Nuclear Weapons: NNSA Should Adopt Additional Best Practices to Better Manage Risk for Life Extension Programs. GAO-18-129. Washington, D.C.: January 30, 2018. Nuclear Weapons: NNSA Needs to Determine Critical Skills and Competencies for Its Strategic Materials Programs. GAO-18-99. Washington, D.C.: November 14, 2017. Modernizing the Nuclear Security Enterprise: A Complete Scope of Work Is Needed to Develop Timely Cost and Schedule Information for the Uranium Program. GAO-17-577. Washington, D.C.: September 8, 2017. National Nuclear Security Administration: Action Needed to Address Affordability of Nuclear Modernization Programs. GAO-17-341. Washington, D.C.: April 26, 2017. High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15, 2017. DOE Project Management: NNSA Needs to Clarify Requirements for Its Plutonium Analysis Project at Los Alamos. GAO-16-585. Washington, D.C.: August 9, 2016. DOE Project Management: NNSA Should Ensure Equal Consideration of Alternatives for Lithium Production. GAO-15-525. Washington, D.C.: July 13, 2015. Nuclear Weapons: NNSA and DOD Need to More Effectively Manage the Stockpile Life Extension Program. GAO-09-385. Washington, D.C.: March 2, 2009. GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. GAO-09-3SP. Washington, D.C.: March 2009. 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. 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.

Why GAO Did This Study NNSA is simultaneously modernizing the nation's nuclear weapon stockpile and the infrastructure on which weapon programs depend. In a 2019 report, NNSA stated that this is the busiest time for the nuclear security enterprise since the Cold War era. GAO's April 2017 review of NNSA nuclear modernization programs concluded that NNSA made optimistic assumptions about future costs. DOD and DOE estimate that nuclear modernization will cost hundreds of billions of dollars over the next decade. This statement is based on 18 GAO reports issued from July 2003 to February 2020 and selected updates. It discusses (1) NNSA's ongoing and planned programs and projects to modernize weapons and related infrastructure and challenges they present; (2) NNSA's improvements in managing these programs and projects, and additional steps NNSA could take to make further improvements; and (3) GAO's prior recommendation to NNSA on assessing the affordability of its portfolio of modernization programs. To conduct the updates, GAO reviewed DOE planning and budget documents. What GAO Found The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) is conducting four programs to modernize nuclear weapons, and the Department of Defense's (DOD) 2018 Nuclear Posture Review calls for NNSA to consider additional programs to refurbish or build new weapons over the next 2 decades. NNSA is also managing numerous, multi-billion-dollar construction projects to modernize the infrastructure it uses to produce components and materials needed for its weapon programs. GAO has reported on challenges NNSA faces in managing these efforts. For example, GAO's February 2020 report on the W87-1 warhead program found that NNSA's past challenges in managing plutonium activities cast doubt on NNSA's ability to produce the required number of plutonium weapon cores on schedule. GAO also found in June 2019 that future weapon programs will require newly produced explosives, including some that NNSA has not produced at scale since 1993. NNSA has improved its management of weapon programs and related projects in some respects. For example, NNSA has established requirements for independent cost estimates in weapon programs and has made progress in revising plans for the Uranium Processing Facility project. However, GAO has identified additional actions that could further improve NNSA's management of weapon programs and projects. For example, in September 2017, GAO reported that NNSA had not developed a complete scope of work, a life-cycle cost estimate, or an integrated master schedule for its overall uranium program. GAO recommended that NNSA set a time frame for developing these plans. GAO expects to issue a report on NNSA's uranium program plans in March 2020. GAO concluded in April 2017 that NNSA had not addressed a potential mismatch between funding needs and funding availability. GAO recommended that NNSA assess its portfolio of modernization programs—for example, by presenting options to align programs to potential future budgets, such as potentially deferring the start of or cancelling specific programs. NNSA did not explicitly agree or disagree with GAO's recommendation. NNSA included an affordability analysis in July 2019 planning documents, but the analysis does not fully respond to GAO's recommendation because it does not state how potential misalignment between program costs and budget projections may be addressed. GAO continues to believe that presenting options to align its portfolio of programs to potential future budgets could help Congress and NNSA better understand NNSA's priorities and trade-offs that may need to be undertaken in the future. What GAO Recommends GAO has made numerous recommendations to NNSA, including that it assess its portfolio of modernization programs to present options to align programs and budgets. NNSA has taken some action but has not fully responded to this recommendation.

gao_GAO-20-225T

gao_GAO-20-225T_0

<1. TSA Has Taken Steps to Improve Aviation Security, but Additional Actions Are Needed> <1.1. TSA Has Taken Actions to Strengthen International Aviation Security but Could Take Additional Steps to Ensure the Security of U.S.-bound Flights> Civil aviation, including U.S.-bound flights, remains a target of coordinated terrorist activity. In the last 2 years, we issued reports on TSA s foreign airport and air carrier inspection programs (December 2017), assessments of Cuban aviation security (July 2018), and TSA s process for reviewing security directives and emergency amendments that apply at last point of departure airports (October 2019). Foreign airport assessments and air carrier inspections. In December 2017, we reported that TSA had taken steps to enhance its foreign airport assessments and air carrier inspections since 2011, including aligning resources based on risk, resolving airport access issues, making evaluations more comprehensive, and creating operational efficiencies. For example, we found that TSA had implemented targeted foreign airport assessments in locations where risk was high and developed a system to strengthen its data analysis capabilities. However, we also found that TSA s database for tracking the resolution status of security deficiencies did not have comprehensive data on security deficiencies root causes and corrective actions. In addition, the database lacked adequate categorization mechanisms such as capturing subcategories that would better explain the root causes of security deficiencies. We recommended, among other things, that TSA fully capture and more specifically categorize data on the root causes of security deficiencies that it identifies and corrective actions. To implement this recommendation, TSA developed a tool to capture airport vulnerability data and provided training to staff in the use of the tool and developed guidance that delineates updated categories for root causes in its data systems. Cuban aviation security. In July 2018, we reported on TSA s efforts to ensure the security of air carrier operations between the United States and Cuba. We found that TSA s inspections and assessments in Cuba generally followed standard operating procedures, but TSA did not inspect all air carriers at its own established frequency. We recommended that TSA improve its ability to identify certain air carriers requiring inspection in Cuba and develop and implement a tool that more reliably tracks their operations between the United States and Cuba. In response to our recommendation and as required under the TSA Modernization Act, TSA developed several tools and processes that corroborate and validate flight schedule data. For example, TSA developed a tool to analyze aggregate flight data and validate or identify service to the United States from international locations and began issuing monthly reports on unscheduled operations to its inspectors responsible for Cuba. By taking these steps, TSA is better able to identify operations requiring inspection and corroborate and validate flight schedule data. Security directives and emergency amendments. When threat information or vulnerabilities at foreign airports indicate an immediate need for air carriers to implement additional security measures, TSA may issue new or revise existing security directives (for domestic air carriers) and emergency amendments (for foreign air carriers). The TSA Modernization Act includes a provision for us to review the effectiveness of the TSA process to update, consolidate, or revoke security directives, emergency amendments, and other policies related to international aviation security at last point of departure airports. As of March 2019, there were 46 security directives and emergency amendments (i.e., directives) in effect related to air carrier operations at foreign airports. Earlier this month, we reported that TSA reviews directives, but its process does not fully define how to coordinate with industry representatives and TSA has not determined if it is appropriate to incorporate the security measures of many longstanding directives into air carrier security programs in accordance with TSA policy. Representatives from four domestic air carriers stated that coordination with TSA on directives has improved. However, representatives from six air carriers and two associations indicated that TSA has issued revised directives that are vague or difficult to implement because TSA did not sufficiently involve them in the review process. This contributed to TSA officials offering different interpretations of aircraft cabin search requirements. Further, TSA policy states that directives are not intended to be permanent and are expected to eventually be canceled or incorporated into security programs. Our analysis found that TSA issued more than one half (25) of the directives prior to 2014, meaning they have been in effect for more than 5 years. Several have been in effect for more than 10 years. We recommended, among other things, that TSA better define how to coordinate with air carriers when reviewing directives and when to cancel or incorporate longstanding security directives and emergency amendments into security programs. TSA agreed with our recommendations and plans to develop a process for more formal and consistent coordination with air carrier and industry association stakeholders and consideration of directives for cancellation or incorporation into security programs. <1.2. TSA Created a Domestic Aviation Security Working Group to Develop and Update Leading Practices with Transportation Security Stakeholders> Public area security. In November 2013, an armed individual entered the Los Angeles International Airport, firing multiple shots killing a transportation security officer and injuring two others and a passenger. As a result of this and subsequent airport attacks, TSA co-hosted a series of security summits with stakeholders and published the Public Area Security National Framework in May 2017 outlining a series of best practices and recommendations to secure airport pubic areas. The TSA Modernization Act requires TSA and the DHS Cybersecurity and Infrastructure Security Agency to establish a public area security working group to promote collaboration between TSA and public and private stakeholders to develop non-binding recommendations for enhancing security in public areas of transportation facilities. The Act also requires TSA to periodically share best practices developed by TSA and transportation stakeholders related to protecting public spaces of transportation infrastructure from emerging threats. In March 2019, TSA officials established the public area security working group to engage with stakeholders to validate and update the best practices that were developed in the 2017 Public Area Security National Framework. The working group consisted of security stakeholders from both aviation and surface transportation modes. In October 2019, TSA officials told us that they plan to issue an updated list of best practices in the fall of 2019. Insider threats. Recent incidents involving aviation workers misusing their access privileges have heightened concerns regarding the risk of insider threats at airports. TSA estimated in 2018 that there were approximately 1.8 million people with unescorted access to secured areas of the nation s airports. We have ongoing work examining the actions TSA, airport operators, and air carriers have taken to mitigate concerns regarding insider threats at airports and the extent to which TSA s Insider Threat Program is guided by a strategic plan. Additionally, the TSA Modernization Act requires TSA, in consultation with the Aviation Security Advisory Committee to conduct a study examining the cost and feasibility to airports, airlines, and TSA of implementing enhanced employee inspection measures at all access points between non-secured areas and secured areas of certain airports. We will review this study once submitted by TSA. <1.3. TSA Coordinates Reviews of Passenger Screening Rules, but Could Better Measure Rule Effectiveness> Screening rule changes. In 2010, TSA began identifying passengers for enhanced screening who are not known or suspected terrorists, but who fall within the scope of screening rules. Specifically, TSA identifies passengers for enhanced screening through the application of screening rules, which TSA develops by considering current intelligence and other factors. TSA refers to these rules and lists as Silent Partner and Quiet Skies. Silent Partner rules identify passengers for enhanced screening on inbound flights to the United States. Quiet Skies rules a subset of the Silent Partner rules identify passengers for enhanced screening on subsequent domestic and outbound flights. The TSA Modernization Act includes a provision for GAO to review the oversight mechanisms and effectiveness of Silent Partner and Quiet Skies. We found that TSA coordinates reviews of Silent Partner and Quiet Skies through quarterly meetings and notifies an expanded set of DHS and TSA stakeholders including DHS Traveler Redress Inquiry Program and the Federal Air Marshal Service of rule changes as required under the Act. We also found that TSA has not identified a means to comprehensively measure rule effectiveness. TSA officials explained that they had not yet fully assessed the rules effectiveness because it was difficult to measure. TSA has access to data such as the outcomes of enhanced screening of Silent Partner and Quiet Skies passengers at airport checkpoints that could be explored to better assess rule effectiveness. Exploring additional data sources could help TSA refine and supplement the agency s existing efforts to measure program effectiveness. In our draft report, we recommended that TSA explore additional data sources for measuring the effectiveness of Silent Partner and Quiet Skies rules. TSA is currently reviewing the draft report and is scheduled to provide any comments by early November 2019. <1.4. TSA Should Ensure Aviation Screening Technologies Continue to Meet Detection Requirements after Deployment> To protect the U.S. aviation sector, including the roughly 440 airports it regulates, TSA deploys technologies to screen passengers and their carry-on and checked baggage for homemade explosives and other prohibited items that could, among other things, cause catastrophic damage to an aircraft. The ongoing threat of terrorism requires TSA to continually assess the effectiveness of its screening operations and, when necessary, develop and deploy new screening technologies. The TSA Modernization Act includes a provision for us to review whether TSA allocates resources appropriately based on risk at TSA-regulated airports, among other things. Our review of TSA acquisition documents found that TSA considers risk at the beginning of the screening technologies acquisition process. However, TSA officials could not provide an example of when risk information for specific airports had directly influenced decisions about where and in what order to deploy screening technologies to airports in the recent past. Fully disclosing what risk factors are weighed and how decisions are made could better ensure that TSA s deployment of screening technologies matches potential risks. We recommended that TSA officials document their assessments of risk and the rationale behind decisions to deploy screening technologies. We also found that TSA does not ensure that screening technologies continue to meet detection requirements after they have been deployed to airports, when performance can degrade over time. According to officials, the agency uses certification a step in the test and evaluation process to confirm that technologies meet detection requirements before they are deployed to airports, and calibration of the technologies to confirm that technologies are at least minimally operational while in use at airports. They stated that these processes are sufficient to assure TSA that screening technologies are operating as intended. While these processes serve important purposes, they do not ensure that screening technologies continue to meet detection requirements after they have been deployed because performance can degrade over time. Developing and implementing a process to ensure technologies continue to meet detection requirements after deployment would help ensure that TSA screening procedures are effective and enable TSA to take corrective action if needed. In our draft report, we recommended that TSA develop and implement a process to ensure technologies continue to meet detection requirements after deployment. TSA is currently reviewing the draft report and is scheduled to provide any comments by early November 2019. <2. Actions are Needed to Improve Surface Transportation Security> <2.1. TSA Should Improve Coordination for its Surface Transportation Security Training Program> The TSA Modernization Act includes a provision that we review resources provided to TSA surface transportation programs and the coordination between relevant entities related to surface transportation security. According to our analysis, TSA Surface Programs received $123 million in fiscal year 2017 and $129 million in fiscal year 2018. The surface program appropriation represented about 1.6 percent of TSA s total appropriation in both fiscal years, according to DHS data. We also found that in fiscal years 2017 through 2019, TSA reported using surface program resources for non-surface activities. For example, in fiscal year 2018, TSA reprogrammed $5 million from the Surface Programs account to Mission Support activities to address security requirements and increase hiring of transportation security officers. Further, we found that TSA could improve internal coordination roles and responsibilities for planning and implementing its voluntary Intermodal Security Training and Exercise Program (I-STEP) a program intended to engage with system operators and governmental security partners to enhance surface transportation security. For example, officials from TSA s office that provides intelligence briefings during program exercises stated that they do not typically participate in planning meetings because they are not consistently invited to attend. In our draft report, we recommended that TSA clarify roles and responsibilities for all offices involved in the coordination of surface transportation exercises, including when these offices are to coordinate. TSA is currently reviewing the draft of this report and is scheduled to provide any comments by early November 2019. <2.2. Actions Needed to Reflect Pipeline Security Roles in Key Documents and to Address Weaknesses in TSA s Pipeline Security Program Management> More than 2.7 million miles of pipelines transport and distribute the natural gas, oil, and other hazardous liquids that the people and businesses within the United States depend on to operate vehicles and machinery, heat homes, generate electricity, and manufacture products. Responsibility for safeguarding these pipelines is shared by TSA; the Pipeline and Hazardous Materials Safety Administration (PHMSA), within the Department of Transportation (DOT); and pipeline operators. TSA oversees the security of all transportation modes, including pipelines. PHMSA oversees pipeline safety. DHS and DOT signed a memorandum of understanding (MOU) on their roles across all transportation modes in 2004, and an Annex to the MOU in 2006 to further delineate their pipeline security-related responsibilities. The TSA Modernization Act includes a provision for GAO to review DHS and DOT roles and responsibilities for pipeline security. We reported in June 2019 that key pipeline security documents need to better reflect the current operating environment. For example, the MOU Annex has not been reviewed to consider pipeline security developments since 2006. As a result, the MOU Annex may not fully reflect the agencies pipeline security and safety-related activities. We reported that by developing and implementing timeframes for reviewing the MOU and updating it, as appropriate, TSA and PHMSA could better ensure any future changes to their respective roles and responsibilities are clearly delineated and updated on a regular basis. In addition, TSA s Pipeline Security and Incident Recovery Protocol Plan, issued in March 2010, defines the roles and responsibilities of federal agencies and the private sector, among others, related to pipeline security incidents. For example, in response to a pipeline incident, TSA coordinates information sharing between federal and pipeline stakeholders and PHMSA coordinates federal activities with an affected pipeline operator to restore service. However, TSA has not revised the plan to reflect changes in at least three key areas: pipeline security threats (e.g., cybersecurity threats), incident management policies, and DHS s terrorism alert system. By periodically reviewing and, as appropriate, updating its plan, TSA could better ensure it addresses changes in pipeline security threats and federal law and policy related to cybersecurity, incident management and DHS s terrorism alert system, among other things. We made five recommendations to address these issues, including for TSA and DOT to develop and implement a timeline for reviewing and updating the 2006 MOU Annex and for TSA to periodically review and update its 2010 pipeline incident recovery plan, as appropriate. TSA and PHMSA have actions under way to address our recommendations. For example, PHMSA officials stated that PHMSA and TSA continue to collaborate on updates to the 2006 MOU Annex. TSA has also developed and provided pipeline operators with voluntary security guidelines, and evaluates the vulnerability of pipeline systems through security assessments. However, in December 2018 we identified some weaknesses and made recommendations to strengthen TSA s management of key aspects of its pipeline security program. For example, we reported that the number of TSA security reviews of pipeline systems has varied considerably over time. TSA officials stated that staffing limitations ranging from 1 full-time equivalent in 2014 to 6 from fiscal years 2015 through 2018 within its Pipeline Security Branch have prevented TSA from conducting more reviews. Further, TSA does not have a strategic workforce plan to help ensure it identifies the skills and competencies such as the required level of cybersecurity expertise necessary to carry out its pipeline security responsibilities. We recommended that TSA develop a strategic workforce plan. As of October 2019, TSA has not yet fully addressed this recommendation. We will continue to monitor progress. Chairman Correa, Ranking Member Lesko, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions you may have at this time. <3. GAO Contact and Staff Acknowledgments> If you or your staff members have any questions about this testimony, 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 statement. Other individuals making key contributions to this work include Kevin Heinz, Assistant Director; Paul Hobart, Analyst-in-Charge; Josh Diosomito; Amber Edwards; Michele Fejfar; Melissa Greenaway; Barbara Guffy; Winchee Lin; Tom Lombardi; Michelle Serfass; and Adam Vogt. Key contributors to the previous work discussed in this statement are listed in each of the cited reports. 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.

Why GAO Did This Study Threats to the nation's transportation systems persist and continue to evolve. Within DHS, TSA is the federal agency with primary responsibility for the prevention of and defense against terrorist and other threats to the United States' civil aviation, and rail, public transit, pipeline, and other surface transportation systems. The TSA Modernization Act includes provisions intended to enhance security across this broad range of systems and further calls on GAO to review TSA's progress in these areas. This statement summarizes past and ongoing work related to TSA's actions to address selected aviation and surface transportation security areas covered by the TSA Modernization Act. This statement is based on products GAO issued from December 2017 through October 2019 and draft reports currently with TSA for comment. To perform this work GAO reviewed TSA program documents, visited domestic and foreign airports, and interviewed TSA officials, DHS officials, and transportation industry stakeholders, including associations and air carriers. What GAO Found The Department of Homeland Security's (DHS) Transportation Security Administration (TSA) has made initial progress in certain security areas mandated by the TSA Modernization Act, but additional actions are needed. International aviation security. In December 2017, GAO reported that TSA has taken steps to enhance its foreign airport assessments. Since that time, TSA has developed a tool to better track and address foreign airport vulnerabilites. In addition, TSA reviews security directives and emergency amendments it issues to address security concerns. However, TSA's review process does not fully define how to coordinate with industry representatives and it has not determined if it is appropriate to incorporate the security measures of many longstanding directives into air carrier security programs in accordance with TSA policy. In October 2019, GAO recommended, and TSA officals agreed, that TSA better define how to coordinate with air carriers when reviewing directives and when to incorporate directives into security programs. Passenger screening rules. TSA develops screening rules by considering current intelligence and other factors to identify passengers who fall within the scope of the rules for enhanced screening. GAO found that TSA coordinates rules reviews through quarterly meetings and notifies an expanded set of DHS and TSA stakeholders of rule changes as called for by the Act. TSA tracks some data on rule implementation but does not comprehensively measure rule effectiveness. In its draft report, GAO recommended that TSA explore additional data sources for measuring the effectiveness of its rules. TSA is currently reviewing this recommendation. Aviation screening technologies. GAO found that TSA does not ensure that screening technologies continue to meet detection requirements after they have been deployed to airports. According to officials, the agency uses certification—a step in the test and evaluation process—to confirm that technologies meet detection requirements before they are deployed to airports, and calibration of the technologies to confirm that technologies are at least minimally operational while in use at airports. While these processes serve important purposes, performance can degrade over time. In its draft report, GAO recommended that TSA implement a process to ensure technologies continue to meet detection requirements after deployment. TSA is currently reviewing this recommendation. Surface transportation pipeline security . In December 2018, GAO identified some weaknesses and made recommendations to strengthen TSA's management of key aspects of its pipeline security program. For example, TSA does not have a strategic workforce plan to help ensure it identifies the skills and competencies—such as the required level of cybersecurity expertise—necessary to carry out its pipeline security responsibilities. GAO recommended, and TSA concurred, that TSA develop a strategic workforce plan. As of October 2019, TSA has not yet fully addressed this recommendation. We will continue to monitor progress. What GAO Recommends GAO has made recommendations designed to address the challenges discussed in this statement. TSA concurred with recommendations from prior work and is currently reviewing recommendations from our draft reports, including those regarding passenger screening rules and aviation screening technologies.

gao_GAO-19-389

gao_GAO-19-389_0

<1. Background> <1.1. Administration and Oversight of the School Meals Programs> The Food and Nutrition Service at USDA is responsible for overseeing the school meals programs at the federal level, which includes issuing regulations and guidance. The school meals programs are administered at the state level by a designated state agency generally an education or agriculture agency that issues guidance to school districts providing the meals. School districts are responsible for certifying students as eligible for free or reduced-price meals, providing children with nutritionally balanced meals each school day, and counting and claiming eligible meals for federal reimbursement, among other things. USDA and state agencies also conduct oversight of the school meals programs. Figure 1 summarizes the responsibilities of the different entities within the school meals programs. All students in schools operating the school meals programs may participate in the programs, and eligible students may be certified to receive free or reduced-price meals. Individual students can be certified into the school meals programs either through household application or direct certification. Household application. A household can submit an application that lists all sources of household income and the names of all household members, among other information. School districts compare this information to income-eligibility guidelines to determine whether the student is eligible for free or reduced-price meals. Alternatively, the household can indicate on the application that it participates in certain public-assistance programs such as the Supplemental Nutrition Assistance Program (SNAP) or that the student meets an approved designation, which confers categorical (automatic) eligibility for free meals. No documentation to support income listings such as tax returns or pay stubs is required at the time of application. Direct certification. Under the direct certification method, data matching is used to identify and certify students who are categorically eligible for free meals. State agencies are required by statute to match student enrollment records against SNAP records and may also match against records for other public-assistance programs or approved designations. Students who are directly certified into the school meals programs are eligible for free meals without a household application. Alternatively, schools can use certain program provisions to serve meals at no charge to all students (i.e., eligibility is not determined for each student individually on an annual basis). Community eligibility provision. Schools and school districts may apply for community eligibility if their percentage of students identified as eligible for free meals without an application known as the identified student percentage is at or above 40 percent. Meals served at schools using the community eligibility provision are reimbursed using a formula based on the identified student percentage. Other special provisions. Under these special provisions, schools generally use standard procedures to certify free and reduced-price eligible students and count meals by eligibility category to establish a base year. Following the base year, schools serve free meals to all students and are reimbursed based on the information collected in the base year. <1.1.1. Meal Counting and Claiming> USDA reimburses state agencies, which in turn reimburse school districts, for qualifying meals through the process of meal counting and claiming. A meal is reimbursable if it meets federal nutrition requirements and is not reimbursable if it is missing a required food component or fails to meet the meal pattern requirements. Meals are recorded at the point of sale in a school. Generally, individual meals are recorded as either free, reduced price, or paid based on the student s certification status, unless the school is operating under community eligibility or a special provision. Reimbursable meals are tallied at each school. School districts aggregate meal tallies from each school and then report to the respective state agencies on a monthly basis. State agencies then aggregate the reports from each district and submit tallies of free, reduced-price, and paid meals to USDA. USDA then reimburses states for the amount reported. Meals in each category (free, reduced-price, and paid) are reimbursed at different rates. <1.1.2. Oversight> Given that the school meals programs are administered on a daily basis at schools across the country, USDA officials stated that the agency relies on two key oversight practices management evaluations and administrative reviews to monitor these programs. Management evaluations. USDA conducts management evaluations of state agencies administration of the school meals programs. USDA uses risk-based criteria, such as the level of turnover in state agency staff, to select the state agencies to review each year. According to USDA officials, starting in fiscal year 2019, USDA will automatically select a state agency for review if it has not been reviewed in the past 3 years. According to USDA guidance, examples of operations it reviews during management evaluations include (1) state oversight of certification and verification of students into the school meals programs, (2) administrative reviews of school districts conducted by state agencies, (3) claims for reimbursement, and (4) state oversight of compliance with federal meal pattern requirements, among other areas. According to USDA officials, if USDA considers state agencies reviewed in one year as high risk for program noncompliance, those agencies may receive an additional management evaluation in the following year focused on technical assistance. Administrative reviews. USDA develops guidance for administrative reviews in which state agencies review school districts administration of the school meals programs. State agencies are required to conduct administrative reviews of each of their school districts at least once in a 3-year review cycle. USDA guidance states that the objectives of administrative reviews include identifying noncompliance, providing technical assistance, and assessing fiscal actions. Among other things, state agency staff are to review a school district s certification records and its meal counting and claiming data for the most recent month for which a claim for reimbursement was submitted. State agency staff are also to review school meals served while the staff are on-site to determine whether the meals contain the required food components. State agency staff are to record any identified noncompliance and also provide technical assistance to school district staff. <1.2. Estimation of Improper Payments in the School Meals Programs> The Improper Payments Information Act of 2002 (IPIA), as amended, requires agencies to identify, estimate, and report their improper payment amounts and to develop and implement improper payment reduction plans, among other things. USDA estimates improper payments for the school meals programs through a model based on its APEC study, which is conducted by contractors. The most recent APEC study (APEC II) was released in May 2015 and covered activity during the 2012 2013 school year. USDA conducts an APEC study about every 5 years, with APEC III expected to be released in 2020. Conducting the APEC study involves multiple sampling and data analysis efforts, including the following examples from APEC II. In-person surveys. Contractors conducted in-person surveys of over 3,000 sampled households to collect information on each household s circumstances at the time of application, including income, household size, and receipt of other public-assistance benefits. Using this information, contractors determined a sampled student s eligibility status and compared it to the school district s master benefit list and application or direct certification documentation. Data matching. Contractors assessed the accuracy of the identified student percentage the figure used to determine reimbursement for schools using the community eligibility provision for over 100 sampled schools. To do so, contactors used an iterative process to match sampled students to SNAP and Temporary Assistance for Needy Families records, as well as additional data sources if necessary. Observation of meal service. Contractors observed approximately 25,000 lunch transactions and 23,000 breakfast transactions at over 400 sampled schools to identify the food items in each meal at the point of sale, whether the meal was served to a student or nonstudent, and whether the meal was recorded as reimbursable. USDA determined that conducting the APEC study annually would not be feasible. Instead, the APEC study includes a model that allows USDA to use program participation data to report estimated improper payment error rates on an annual basis. Changes in program participation data result in small changes to the estimated improper payment error rates USDA reports during years between APEC studies. <1.3. Fraud Risk Management Standards and Guidance> According to federal standards and guidance, executive-branch agency managers are responsible for managing fraud risks and implementing practices for combating those risks. Federal internal control standards call for agency management officials to assess the internal and external risks their entities face as they seek to achieve their objectives. The standards state that as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks. In July 2015, GAO issued the Fraud Risk Framework, which provides a comprehensive set of key components and leading practices that serve as a guide for agency managers to use when developing efforts to combat fraud in a strategic, risk-based way. The Fraud Risk Framework describes leading practices in four components, as shown in figure 2. The Fraud Reduction and Data Analytics Act of 2015, enacted in June 2016, requires the Office of Management and Budget (OMB) to establish guidelines for federal agencies to create controls to identify and assess fraud risks and design and implement antifraud control activities. The act further requires OMB to incorporate the leading practices from the Fraud Risk Framework in the guidelines. In July 2016, OMB published guidance about enterprise risk management and internal controls in federal executive departments and agencies. Among other things, this guidance affirms that managers should adhere to the leading practices identified in the Fraud Risk Framework. Further, the act requires federal agencies to submit to Congress a progress report each year for 3 consecutive years on the implementation of controls established under OMB guidance, among other things. It is important to note that fraud and fraud risk are distinct concepts. Fraud is challenging to detect because of its deceptive nature. Additionally, once suspected fraud is identified, alleged fraud cases may be prosecuted. If the court determines that fraud took place, then fraudulent spending may be recovered. Fraud risk exists when individuals have an opportunity to engage in fraudulent activity, have an incentive or are under pressure to commit fraud, or are able to rationalize committing fraud. When fraud risks can be identified and mitigated, fraud may be less likely to occur. Although the occurrence of fraud indicates there is a fraud risk, a fraud risk can exist even if fraud has not yet been identified or occurred. For example, suspicious billing patterns or complexities in program design may indicate a risk of fraud. Information to help identify potential fraud risks may come from various sources, including whistleblowers, agency officials, contractors, law-enforcement agencies, or beneficiaries. <2. USDA Has Reported Taking Various Steps to Reduce Improper Payment Error Rates, but Redefined What It Considers to Be an Improper Payment in Fiscal Year 2018> <2.1. USDA Reported Taking Steps to Reduce School Meals Improper Payment Error Rates> USDA has reported various actions aimed at lowering the school meals improper payment error rates in its agency financial reports. These actions including onetime actions and longer-term efforts cover multiple aspects of the programs. The actions USDA reported included the creation of a new household application prototype intended to reduce applicant errors and the development of training for food service workers to address administrative errors. USDA also reported on mechanisms to collect information on program errors to support agency analysis and monitoring efforts. Examples of the reported actions are illustrated in figure 3 below. Because the study used to develop improper payment error rates in school meals programs APEC is conducted about once every 5 years, the effect of these actions is currently unknown. Estimated improper payment error rates reported in years between APEC studies will generally not reflect the effect of most actions until the next study is released. Currently, the next APEC study is expected to be released in 2020. <2.2. Reported Error Rates for Fiscal Year 2018 Are Not Comparable to Prior Years Because of a Change in Definition> USDA changed what it considers to be an improper payment in the school meals programs for fiscal year 2018 reporting, resulting in improper payment error rates that are not comparable to those of prior years. Specifically, USDA determined that meal claiming errors do not meet the definition of an improper payment. According to USDA, meal claiming errors occur when meals are incorrectly categorized as reimbursable or nonreimbursable at the point of sale. For example, a meal claiming error occurs when a meal that is missing a required meal component (e.g., the required quantity of a vegetable) is counted as reimbursable. USDA officials reported that the rationale for the change in what constitutes an improper payment is that meal claiming error does not result in the payment of federal funds for services that were not provided or that were provided to ineligible recipients. Agency officials also stated that the remedy for meal claiming error is to add the missing food component to the meal, so correcting the error would not reduce program payments. Although the errors will not be considered in determining the reported estimated improper payment error rates, USDA officials stated that the agency is committed to reducing meal claiming error and will continue to measure it as part of its periodic APEC studies. Prior to fiscal year 2018 reporting, meal claiming errors were considered improper payments. As a result, this change contributed to a significant decrease in the estimated improper payment error rates for the school meals programs reported for fiscal year 2018, as shown in figure 4. Accordingly, the results shown for 2015 through 2018 in figure 4 are not comparable. <3. Limited Risk Assessment Hinders USDA s Ability to Better Ensure Oversight Practices Address Fraud Risks> Although USDA considers certain program integrity risks through specific processes, it has not assessed fraud risks in the school meals programs. As a result, USDA cannot determine whether its key oversight processes extensive efforts designed for broad monitoring purposes address areas at risk for fraud. The assess component of the Fraud Risk Framework calls for federal managers to plan regular fraud risk assessments and to assess risks to determine a fraud risk profile. Furthermore, federal internal control standards state that management should consider the potential for fraud when identifying, analyzing, and responding to risks. According to USDA officials, fraud in the school meals programs would look the same as nonfraudulent errors. For example, income listed on an application may be misreported intentionally or unintentionally. Consequently, agency officials stated that they have not established a process to plan or conduct a specific fraud risk assessment for these programs. Instead, fraud risks are considered through the agency s efforts to assess overall program integrity risk in the programs. We have previously reported that integrating fraud risk management into a larger program integrity approach could limit the amount of resources and attention focused specifically on fraud prevention, detection, and response. The deceptive nature of fraud makes it harder to detect than nonfraudulent errors, potentially requiring control activities that are specifically designed to prevent and detect criminal intent. According to agency officials, USDA s efforts to assess overall program integrity risks in the school meals programs include researching, monitoring, and reporting activities designed to identify areas of program operations susceptible to improper payments and program error. Specifically, agency officials stated that these efforts include research projects the APEC study used to estimate improper payment error rates and other smaller-scale, informal projects and a consideration of specific risks when annually determining which states USDA will review through management evaluations. These efforts to assess overall program integrity risk serve specific purposes and are not designed to identify or address fraud risks in the school meals programs. For example, the purpose of one research project mentioned by USDA officials was to identify challenges related to alternative service models for the School Breakfast Program, which include serving breakfast in locations other than a cafeteria and at a later time in the morning. USDA has not developed a process to consider these disparate efforts to comprehensively assess fraud risks. As a result, USDA s efforts do not align with the overarching concepts of planning and conducting fraud risk assessments in the Fraud Risk Framework. The Fraud Risk Framework identifies leading practices for planning fraud risk assessments. Specifically, the leading practices include tailoring the fraud risk assessment to the program and planning to conduct the assessment at regular intervals and when there are changes to the program or operating environment. The leading practices also include identifying the tools, methods, and sources for gathering information about fraud risks and involving relevant stakeholders in the assessment process. Information to help identify potential fraud risks may come from various sources, including whistleblowers, agency officials, contractors, law-enforcement agencies, or beneficiaries. Existing oversight efforts such as USDA s management evaluations and administrative reviews may also be a useful source, as information on errors and noncompliance may highlight areas at risk for fraud. The Fraud Risk Framework also identifies leading practices for conducting fraud risk assessments, as illustrated in figure 5. Without a process to plan and conduct regular assessments, USDA cannot identify and assess fraud risks facing the school meals programs. Such information is necessary to appropriately design and implement an antifraud strategy including specific controls like USDA s key oversight processes and evaluate and adapt its strategy and controls to improve fraud risk management in these programs. <4. Conclusions> Historically, the school meals programs have reported high estimated improper payment error rates. USDA has reported various steps to reduce the error rates, though a change in what USDA considers an improper payment in the school meals programs resulted in error rates for fiscal year 2018 that are not comparable to those of prior years. Although the two concepts are different, high improper payment error rates may suggest that the school meals programs may also be inherently vulnerable to fraud. However, USDA has not established a process to plan and conduct regular fraud risk assessments for the school meals programs, and existing efforts to assess specific risks in the school meals programs do not comprehensively consider fraud risks. According to leading practices, such an assessment is a pivotal step in managing fraud risks, helping to ensure that USDA s key oversight efforts are targeted at areas at greatest risk for fraud in these programs, and helping safeguard the government s substantial investment in them. <5. Recommendation for Executive Action> The Administrator of the Food and Nutrition Service should establish a process to plan and conduct regular fraud risk assessments for the school meals programs that align with the leading practices in the Fraud Risk Framework. (Recommendation 1) <6. Agency Comments and Our Evaluation> We provided a draft of this report to USDA for review and comment. On April 29, 2019, the Director of the Office of Program Integrity for Child Nutrition provided us with the agency s oral comments on the draft report. FNS officials generally agreed with the recommendation in the draft report. FNS officials noted that the agency does not currently conduct a formal fraud risk assessment, but they explained that the agency considers fraud risks through multiple existing efforts. These efforts include APEC and other studies, as well as key oversight processes. For example, FNS noted that the APEC study aims to identify the factors that contribute to errors in the school meals programs. Officials explained that this study includes an interview of sampled households, in part to determine whether these households underreported income on their applications and whether such underreporting suggests anything about the applicants intent. As noted in our report, we agree that these efforts may be a useful source of information on areas at risk for fraud. However, we continue to believe that additional action is necessary to comprehensively assess fraud risks in the school meals programs, consistent with the Fraud Risk Framework. USDA also provided technical comments, which we incorporated into the report, as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Agriculture, the FNS Administrator, 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 have any questions about this report, please contact me at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, the following staff members made key contributions to this report: Gabrielle M. Fagan, Assistant Director; James M. Healy, Analyst in Charge; and Matthew L. McKnight. Also contributing to this report were Rachel Frisk, Maria McMullen, Jean McSween, and Sabrina Streagle.

Why GAO Did This Study In 2018, almost 30 million children participated in the National School Lunch Program and over 14 million participated in the School Breakfast Program, with cash payments totaling almost $17 billion. Historically, the school meals programs have reported high estimated improper payment error rates, which suggest that these programs may also be vulnerable to fraud. GAO was asked to review improper payment error rates and potential fraud in the school meals programs. This report (1) describes steps USDA has reported taking since 2015 to lower improper payment error rates and (2) examines the extent to which USDA has assessed areas of risk for fraud in the school meals programs. GAO reviewed the results of the most recent study USDA uses to estimate improper payments in the school meals programs, as well as the error rates and actions to reduce them reported in USDA's agency financial reports from fiscal years 2015 through 2018. Further, GAO analyzed guidance for key oversight practices and documentation regarding USDA's risk assessment processes. GAO examined these processes against the leading practices in the Fraud Risk Framework for assessing fraud risks. GAO also interviewed agency officials. What GAO Found The Department of Agriculture (USDA) has reported various actions aimed at lowering estimated improper payment error rates in the National School Lunch Program and School Breakfast Program (school meals programs). Examples include a new application prototype intended to reduce applicant errors and training for food service workers to reduce administrative errors. USDA uses a model based on a periodic study to estimate improper payments, and reported error rates will generally not reflect the effect of most actions until USDA's next study is released, likely in 2020. However, in fiscal year 2018, USDA redefined what it considers an improper payment. Specifically, meal claiming errors—for example, meals that are missing a required nutritional component but that are counted as reimbursable—are no longer considered improper payments, resulting in error rates for fiscal year 2018 that are not comparable to prior years. USDA has not assessed fraud risks in the school meals programs, which hinders its ability to ensure that its key oversight practices—extensive processes designed for broad monitoring purposes—address areas at risk for fraud. The assess component of A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework) calls for managers to plan regular fraud risk assessments and to assess risks to determine a fraud risk profile. USDA officials stated that the agency considers fraud risks through efforts to assess overall program integrity risk in the programs, which include research projects and consideration of specific risks when allocating monitoring resources. However, GAO found that USDA's efforts to assess risk do not comprehensively consider fraud risks. As a result, these efforts are not aligned with the overarching concepts of planning and conducting fraud risk assessments in the Fraud Risk Framework. Establishing a process to plan and conduct regular fraud risk assessments that align with the leading practices in the Fraud Risk Framework—including those in the figure below—will help USDA design and implement an antifraud strategy, as well as evaluate and adapt its strategy to improve fraud risk management in the school meals programs. What GAO Recommends GAO recommends that USDA establish a process to plan and conduct regular fraud risk assessments for the school meals programs that align with the leading practices in the Fraud Risk Framework. USDA generally agreed with the recommendation.

gao_GAO-20-307

gao_GAO-20-307_0

<1. Background> In the Santa Cruz River Basin and Tijuana River Valley watersheds, which straddle portions of the 1,954-mile U.S.-Mexico border, water flows north from higher elevations in Mexico into the United States. Both countries have infrastructure along the border to manage, divert, and treat wastewater, including sewers, pipelines, and treatment plants, in addition to the two international wastewater treatment plants in the United States. The Nogales and South Bay plants are located in the middle and lower end of the Santa Cruz River Basin and Tijuana River Valley, respectively. Figure 1 shows the location of the international wastewater treatment plants along the border. In 2018, USIBWC treated more than a combined 14 billion gallons of sewage at the Nogales and South Bay international wastewater treatment plants. At the Nogales plant, USIBWC treated 4.5 billion gallons of sewage an average of 12.45 million gallons per day from the city of Nogales in Sonora, Mexico. In addition, the plant treats an average of 2 million to 2.5 million gallons per day of sewage from the Arizona cities of Nogales and Rio Rico. The Nogales plant discharges treated wastewater into the Santa Cruz River. At the South Bay plant, USIBWC treated 9 billion gallons of sewage in 2018 an average of 24.8 million gallons per day from the City of Tijuana in Baja California, Mexico. The South Bay plant discharges treated wastewater though a pipeline, called the South Bay Ocean Outfall, into the Pacific Ocean. Both watersheds are located in arid regions characterized by infrequent but sometimes intense precipitation that forms short-lived streams or washes that fill with water during such events but may be dry at other times. These high-precipitation events lead to high levels of stormwater runoff. Urban stormwater is a major contributor to pollution in the nation s waterbodies, including rivers and oceans, and can contribute to disease outbreaks and beach closings, as well as flooding. <1.1. International Boundary and Water Commission> IBWC s mission is to provide binational solutions to issues that arise during the application of U.S.-Mexico treaties regarding, among other things, water quality and flood control in the border region including constructing and operating wastewater treatment plants, as directed by Congress. The U.S. and Mexican governments established IBWC (then the International Boundary Commission) in 1889, initially to resolve boundary-related differences arising along the border. Various agreements between the United States and Mexico added water distribution and flood management in the transboundary rivers to IBWC s responsibilities, including management of the border reaches of the Rio Grande and Colorado rivers. In the 1944 treaty, Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande, the United States and Mexico agreed to apportion their shared waters, distributing the waters of the Colorado River and the Rio Grande between both countries. As part of the 1944 treaty, the United States agreed to annually provide a guaranteed amount of water from the Colorado River to Mexico unless deliveries were limited by extraordinary drought and to allocate the waters of the Rio Grande between the two countries, as well as authorizing jointly built and operated dams, reservoirs, and hydroelectric plants to manage water from the Rio Grande River. USIBWC manages this infrastructure and ensures annual compliance with the 1944 treaty water delivery requirements. As part of its flood control efforts, IBWC maintains and manages over 500 miles of levees for flood protection. The 1944 treaty established the key organizational components of IBWC and its two sections USIBWC and the Mexican Section which are federal agencies of their respective governments. Under the treaty, USIBWC and the Mexican Section are each headed by a commissioner who is an engineer. The treaty allows each commissioner to employ engineers, legal advisers, and assistants as needed and established certain positions two principal engineers, legal counsel, and a secretary (that is, a foreign officer) as entitled to diplomatic status in the other country s territory. USIBWC is headquartered in El Paso, Texas, and the Mexican Section is headquartered in the adjoining city of Ciudad Juarez, Chihuahua, Mexico. USIBWC and the Mexican Section also have their own field offices along the border that operate and oversee joint work. <1.2. U.S. Section of the International Boundary and Water Commission> USIBWC operates under the foreign policy guidance of the Department of State and implements treaties between the United States and Mexico related to boundary preservation and water management, including border sanitation and flood control in the border region. USIBWC is headed by the U.S. Commissioner and is made up of six executive offices and three departments, with about 240 full-time equivalent employees as of fiscal year 2017, the most recent data available at the time of our review. The six offices include the Foreign Affairs Office and a Legal Affairs Office; the former houses the foreign officer responsible for diplomatic communications and provides advice for the interpretation of treaties and minutes, and the latter houses legal counsel. The three departments in USIBWC are the Administrative Department, which supports all agency functions through acquisitions, budget, finance, accounting, and information management; Engineering Department, which is headed by a Principal Engineer of Engineering who provides technical and policy advice to the U.S. Commissioner and technical support in planning, engineering, environmental management, and construction management; and Operations Department, which is headed by the Principal Engineer of Operations who through the agency s field offices oversees the maintenance and operations of the two international wastewater treatment plants as well as more than 100 hydrologic gaging stations, 500 miles of levees, four diversion dams, two international storage dams and associated hydroelectric power plants, more than 600 hydraulic structures, and one-half of all international boundary monuments and markers on the U.S.-Mexico land border and at international ports of entry. USIBWC s annual budget, which has averaged $75 million per year since fiscal year 2010, is submitted to Congress as part of the Department of State s overall budget. Under State s budget process, USIBWC submits a budget request 2 years in advance of the funding to be spent. Once the department s leadership approves USIBWC s budget, it is incorporated into the overall departmental budget request for review by OMB. After OMB s review, the budget is included as part of the President s annual budget request to Congress. The agency receives its appropriated funding in two budget line items: (1) Salaries and Expenses and (2) Construction. As shown in figure 2, USIBWC funding has declined, when considering inflation (fiscal year 2018 dollars). According to USIBWC officials, the agency s funding has increased about 1.1 percent per year since fiscal year 2010 and has been relatively flat since fiscal year 2017. According to a USIBWC budget official, the agency s costs are increasing at an average inflation rate of nearly 3 percent per year. USIBWC s budget from fiscal years 2010 through 2019, however, was more than double its budget from fiscal years 2003 through 2007. According to the official, starting in fiscal year 2010, the agency received an increase in its construction appropriations to fund dam and levee improvements along the border. Before that, in fiscal year 2008, USIBWC received additional appropriations of $55.6 million to pay for levee repairs; and in fiscal year 2009, under the American Recovery and Restoration Act, received $220 million for construction projects. <1.3. Other Federal Agencies Involved with Water Infrastructure Projects on the U.S.-Mexico Border> In addition to USIBWC, other federal agencies that manage or collaborate on water infrastructure projects in communities along the U.S.-Mexico border include the following: U.S. Army Corps of Engineers (Corps). The Corps provides assistance for flood control, wastewater treatment, drinking water, and water supply projects in communities across the United States, as directed by Congress. To provide flood control assistance, the Corps Emergency Streambank and Shoreline Protection program plans, designs, and constructs erosion control projects that protect public infrastructure. It conducts these directly or under contract with other federal agencies, such as USIBWC. Congress has also authorized the Corps to provide assistance to nonfederal interests for carrying out water-related environmental infrastructure and resource protection and development projects, including waste water treatment and related facilities. In addition, the Corps Planning Assistance to States program helps states, local governments, and tribes with preparing comprehensive plans for the development and conservation of water and related land resources. The Corps has worked on various projects along the U.S.-Mexico border. For example, to address stormwater that flows downhill from Nogales, Sonora into Nogales, Arizona, near USIBWC s Nogales plant, USIBWC requested an evaluation by the Corps on possible flood protection improvements in Mexico, which was completed in 2004. Based on the Corps recommendations, the local and federal governments in Mexico constructed several dams and detention basins. To address flooding of the Tijuana River in southern California, USIBWC contracted with the Corps to implement the U.S. portion of the Tijuana Flood Control Project in 1978. For this project, the Corps prepared construction plans and supervised the construction of a quarter-mile concrete channel in the United States that extends downstream from the U.S.-Mexico border. EPA. In 1983, the United States and Mexico signed the Agreement on Cooperation for the Protection and Improvement of the Environment in the Border Area (the La Paz Agreement). In the agreement, the United States and Mexico agreed to coordinate their efforts to address problems of air, land, and water pollution in the border area, defined as the area situated within 100 kilometers (approximately 62 miles) of either side of the border. The agreement names EPA as the national coordinator responsible for its implementation and provides EPA with a formal means of working with its federal counterpart in Mexico on binational programs. In addition, EPA and its Mexican counterpart created a binational program to fund environmental improvement projects for communities along the border, called the U.S.-Mexico Border Water Infrastructure Program. The most recent plan developed under the agreement U.S.- Mexico Border 2020 is an 8-year cooperative program initiated in 2013 that identified five goals to protect the environment and public health in both countries. The second goal to improve access to clean and safe water includes protecting and restoring binational watersheds by addressing the inadequate collection and treatment of wastewater. Under the program, EPA works with federal agencies including USIBWC and state and local agencies to build grant-funded projects to improve water quality in the border area, including wastewater infrastructure projects that connect to or are related to USIBWC s two international wastewater treatment plants in Arizona and California. North American Development Bank (NADB). In 1993, another agreement between the United States and Mexico led to the creation of two entities NADB and the Border Environmental Cooperation Commission to develop the environmental infrastructure of the U.S.- Mexico border region. NADB s supervisory board includes representatives from EPA and the Departments of State and Treasury. NADB also established the Border Environment Infrastructure Fund to administer grant funds provided by EPA, for the implementation of high- priority municipal water and wastewater infrastructure projects located within 62 miles north of the U.S.-Mexico border, as well as 187 miles south of the border. NADB funds wastewater and sewer projects in communities along the border, including projects at USIBWC s two international wastewater treatment plants. <1.4. The Clean Water Act> IBWC s two wastewater treatment plants are required to meet water quality standards under the Clean Water Act. The act establishes the basic structure for regulating surface water quality, including regulation of discharges of such pollutants as E. coli bacteria and heavy metals, such as arsenic and lead, into the waters of the United States. The act requires states to establish water quality standards that protect public health and the environment and consider aquatic wildlife and human consumption and recreation, among other uses. The act also requires EPA to maintain and improve water quality by assisting and overseeing states efforts, among other responsibilities. The states are required to monitor and assess the conditions of water bodies, and those that do not meet state water quality standards are considered impaired. Other provisions of the Clean Water Act include the following: NPDES permits. The Clean Water Act prohibits the discharge of pollutants from point sources (sources of pollution, such as wastewater treatment plants and industrial facilities) into waters of the United States without a permit from EPA or an authorized state. Under the act, EPA and authorized states issue NPDES permits for point sources of pollution, which among other things regulate the amount of pollutants that can be discharged. Another component of the NPDES program is the pretreatment program, to prevent the introduction of pollutants into a publicly owned wastewater treatment plant that will interfere with its operation. According to EPA, by reducing or eliminating waste from industries, fewer toxic pollutants are discharged to and treated by the publicly owned wastewater treatment plant, providing benefits to both these plants and the industrial users. EPA has authorized most states, including Arizona and California, to administer clean water discharge permits. The Arizona Department of Environmental Quality administers the NPDES permit for the Nogales plant. The plant is also subject to state permits, such as an aquifer permit required in Arizona to limit the impact of the plant s discharge on groundwater in the vicinity. The San Diego Regional Water Quality Control Board administers the NPDES permit for the South Bay plant. Stormwater runoff. Stormwater runoff is generated from rain and snowmelt events that flow over land or impervious surfaces such as paved streets, parking lots, and building rooftops and does not soak into the ground. The NPDES stormwater program regulates some stormwater discharges from three potential sources: certain municipal storm sewer systems, construction activities, and industrial activities. Operators of these sources might be required to obtain an NPDES permit before they can discharge stormwater. This permitting mechanism is designed to prevent stormwater runoff from washing harmful pollutants into local surface waters. Total Maximum Daily Load. Under the Clean Water Act, states must establish water quality standards; for waters that do not meet these standards, states must develop Total Maximum Daily Loads (TMDLs), which EPA approves. TMDLs set targeted limits for pollutants but are not self-implementing; EPA and states help reduce pollutants by issuing permits for point sources, whereas they provide voluntary incentives to reduce nonpoint source pollution (pollution that cannot be traced to a single source). <1.5. Wastewater Utilities and Asset Management> Wastewater and stormwater utilities in the United States and Mexico are managed, for the most part, by local municipal governments. In the United States, local governments own and operate the majority of drinking water and wastewater utilities and charge users for their service through water rates. In Mexico, local and state governments, including Nogales and Tijuana, own and operate drinking water and wastewater utilities. Each city has its own sewer and wastewater infrastructure, including wastewater treatment plants. For example, the state of Tijuana Public Service Commission of Tijuana is responsible for the operation and maintenance of wastewater collection and treatment infrastructure, and of the drinking water distribution system. In the United States and Mexico, stormwater may be managed by a wastewater utility or a local municipality. Asset management is a widely recognized tool used across a variety of infrastructure sectors to manage physical assets, such as highways, machinery, and buildings. In the case of water infrastructure, those assets include pipelines, tanks, pumps, sewers, and other facilities. In a March 2004 report, we found that water utilities may benefit from implementing asset management practices to better identify and manage their infrastructure needs. To assist water utilities in adopting asset management, in 2003, EPA developed an asset management framework for water utilities. In 2008, EPA incorporated this framework into a best practices guide for water utilities based on similar frameworks used by water utilities in Australia and New Zealand. In a March 2004 report, we reported that federal law does not require water utilities to use asset management, but large water utilities may be more likely to use asset management than small water utilities. In a January 2016 report, we identified leading asset management practices for wastewater utilities that include identifying key assets such as pipelines, treatment plants, and other facilities and assessing their life-cycle costs. We have also previously identified key capital planning principles that apply to large capital acquisitions, such as infrastructure. For example, in a February 2007 report, we identified five key planning principles in OMB guidance on capital programming contained in OMB Circular A-11. These include developing links between strategic goals and infrastructure; developing a needs assessment and identifying gaps in infrastructure; evaluating alternatives; using a review and approval framework with criteria for selecting capital investments; and developing a long-term capital investment plan. Further, OMB s capital planning guidance states that each capital asset should have an operations and maintenance plan that outlines the procedures and responsibilities for scheduled preventive and regular or routine corrective maintenance. In addition, in November 2019, OMB issued a memorandum to federal agencies that reinforced the need to implement the capital programming guidance in OMB Circular A-11 that agencies develop, document, and implement a capital planning process. We have also previously found that economic guidance generally states investment decisions such as those made for infrastructure should be informed by a consideration of both benefits and costs of relevant alternatives. For example, OMB has issued guidance on estimating costs and benefits to help federal agencies efficiently allocate resources through well-informed decision making about activities. This guidance includes OMB Circular A-94, which we have previously identified as providing leading practices for economic analysis. OMB Circular A-94 directs agencies to follow certain economic guidelines for estimating costs and conducting cost-effectiveness analyses of federal programs or policies to promote efficient resource allocation through well-informed decision making in certain circumstances. The guidance applies to federal agencies and programs, but we have previously found that it provides leading practices for economic analysis of investment decisions. Under OMB Circular A-94, a cost estimate is to include a comprehensive assessment of the costs. <2. The Two Wastewater Plants Operate, and the United States and Mexico Manage and Share Costs, Under the 1944 Treaty> Under the 1944 Treaty, USIBWC and the Mexican Section have negotiated minutes laying out the countries roles and responsibilities in managing and operating the two wastewater treatment plants in the United States. Under this authority, both sections have also established cost-sharing agreements for the ongoing operation and maintenance of each plant. <2.1. The 1944 Treaty and Related Minutes Establish IBWC in Its Current Form and Address the Construction, Management, and Operation of the Two Plants> The 1944 treaty establishes the jurisdiction, structure, and functions of IBWC under the treaty, largely establishing IBWC s present form and processes. Specifically, IBWC is authorized to jointly study, investigate, and develop solutions to transboundary problems related to water and the international boundary. Under the treaty, when a new or anticipated boundary or water problem is identified, USIBWC and the Mexican Section are to discuss solutions and make recommendations to their respective governments for its resolution before negotiating a formal solution through a minute. The early detection and evaluation of the problem, followed by the development of measures for resolution, are a part of IBWC s mission, according to USIBWC s website. The proposal for a new IBWC project may be initiated by one or both governments, or by state or local authorities in either country through their respective IBWC section. The project is then to be jointly investigated. If the findings of the IBWC joint investigations show that a cooperative project is feasible and is justified as a binational project, USIBWC and the Mexican Section may endorse the findings in a minute and recommend the project to the United States and Mexico governments. Under the 1944 Treaty, IBWC is also authorized to resolve disputes between the two countries arising from the interpretation or application of the treaty. In ratifying the treaty, the U.S. Senate resolution specified that USIBWC should only conduct work related to the eight projects identified in the treaty and not undertake any other construction projects without congressional authorization. As a result, USIBWC has received separate authorizations from Congress for projects implemented through treaty minutes, including the two international wastewater treatment plants. Specifically, USIBWC constructed the Nogales and South Bay plants under a series of statutory authorizations enacted in several Congresses from the 1930s to the 2000s. USIBWC officials said that IBWC can develop documents that are an alternative to a minute but serve the purpose of gaining consensus between the two sections. Alternatives include an exchange of letters, a signed term of reference, and a joint report drafted by principal engineers from USIBWC and the Mexican Section. A letter exchange would provide the approval of an activity from both the U.S. and Mexican Commissioners, such as flood operations criteria in any given year or emergency notification protocols for communities along the border. A term of reference would provide the scope of work for a project or protocol, describe the work that the two sections will do, and how they will do it. A joint report of the principal engineers is a technical document that can describe ongoing activities or that can commit IBWC to a new activity. These reports can be adopted as a minute, or, if the activity is already under way, not adopted. As a diplomatic agency under the Department of State, USIBWC can negotiate agreements with Mexico on its own, but State gets involved in certain situations, such as the negotiation and conclusion of an IBWC minute, or with respect to large and costly projects, according to State officials. For example, under the Department of State s Circular 175 procedure, authorization to negotiate and conclude binding international agreements is obtained via approval of a memorandum by the Secretary of State or another Department of State senior official. The Department of State may also provide diplomatic support in a variety of ways. For example, State may draw attention to an issue by sending a diplomatic note to the Mexican Embassy to formally request the need for action to resolve a problem. Further, in coordination with USIBWC, the U.S. Embassy and Consulates may engage with Mexican government officials to advocate actions to address problems, such as water quality problems, including during meetings with Mexican federal and local officials, according to State officials. The IBWC commissioners and staff from both USIBWC and the Mexican Section work together in formal and informal ways, according to officials from both sections. The commissioners meet on a regular basis to discuss ongoing and, if appropriate, new, projects to carry out the treaty. Between meetings, the commissioners exchange information through formal channels with letters. In addition, according to USIBWC officials, the two sections staff are in frequent contact, through formal and informal communication. For example, USIBWC officials said staff from both sections will exchange daily emails and telephone calls to discuss information and collaboration on various IBWC projects. Under Article 3 of the treaty, the joint use of international waters is subject to any sanitary measures or works which may be mutually agreed upon by the two Governments, which hereby agree to give preferential attention to the solution of all border sanitation problems. Under this article and the articles authorizing joint investigations and solutions, IBWC has negotiated a series of minutes related to sanitation issues, one of which dealt with the issue broadly and others of which dealt with specific geographic locations. Each minute is pursuant to various statutory authorizations in the United States. In 1979, IBWC signed Minute 261, which provides that that the two countries should take timely measures to prevent any border sanitation problem. The minute also provides that for each border sanitation problem, IBWC would prepare a minute that would identify the problem, the course of action for resolution, and a specific time schedule for implementation. Other minutes were executed for sanitation issues in Nogales and Tijuana, pursuant to various statutory authorizations in the United States. For the Nogales plant, Minute 206, signed in 1958, approved a jointly operated and maintained wastewater plant in Arizona based on a Joint Report by the principal engineers. Minute 227, signed in 1967, provided for the relocation of the plant to its current location and expanded the treatment capacity of the plant. Minute 276, signed in 1988, approved a further increase in the capacity of the plant. For the South Bay plant, Minute 283, signed in 1990, approved the construction of the South Bay plant in San Ysidro, California. This minute described the water quality situation, discussed alternatives to fix the problem, and recommended a plan to fix it. The recommended plan included the building of the international wastewater treatment plant, as well as completion of Mexico s sewage system for Tijuana, and other steps. <2.1.1. Construction and Operations of the Nogales International Wastewater> The Nogales plant provides secondary treatment for wastewater generated in both Nogales, Arizona, and Nogales, Sonora, Mexico. USIBWC and the City of Nogales, Arizona, own the plant, which began operating in 1972. In 1945, IBWC recommended that a plant be built 1.5-miles north of the border with a treatment capacity of 1.6 million gallons per day. The plant was completed in 1951. An underground pipeline, referred to as the trunkline, was also constructed to transport the sewage under the border from Mexico 1.5-miles to the plant for treatment. As the population grew in both cities, the communities recognized the need for a larger plant. At the request of the City of Nogales, Arizona, the new plant with a treatment capacity of 8.2 million gallons per day according to USIBWC documents was constructed 9-miles north of the border, at the confluence of the Nogales Wash with the Santa Cruz River (see fig. 3). Construction on the new plant began in 1970 and was completed in 1972. In 1988, IBWC signed a minute upgrading the plant, adding additional treatment capacity for Mexican wastewater. Then to comply with more stringent federal and state regulations, the plant was upgraded in 1992 and 2009. At present, USIBWC manages the plant, which has treatment capacity for up to 17.2 million gallons of wastewater from Mexico and the United States per day according to USIBWC documents. Wastewater treatment plants collect sewage from residences and businesses and treat it to remove pollutants such as sediment, bacteria, and other materials. There are three types of treatment at wastewater treatment plants in the United States. States are required to meet standards for two of them. Primary treatment involves physical processes such as screening and sedimentation to remove a portion of pollutants that settle or float. Secondary treatment augments physical treatment with biological processes to remove organic matter. The treatment involves the use of bacteria to consume waste material. Secondary treatment, combined with disinfecting chemicals, such as chlorine, can reduce about 85 percent of pollutants. Tertiary treatment involves specialized or advanced treatment that is specific to the pollutant. For example, some treatment plants try to reduce nutrients such as nitrogen and phosphorus. Tertiary treatment can include additional filtration, reverse osmosis, or additional chemical or biological processes. The South Bay plant provides secondary treatment for wastewater generated in Tijuana, Mexico. USIBWC operates the plant. In the decades, before the plant was built in 1997, untreated sewage reached the Tijuana River, which flows north from Mexico to San Diego, California. The river transported raw sewage to the Pacific coast at Imperial Beach, California, creating a nuisance and public health risk in the United States. To address the problem, IBWC signed Minute 283 in 1990, which provided the framework for a project to treat wastewater from Tijuana, Mexico, at a plant located in the United States. Construction began in 1994. In 1997, the South Bay plant opened with discharge through an emergency connection to the City of San Diego s wastewater treatment facility. The South Bay plant became fully operational in 1999, providing advanced primary treatment for 25 million gallons of sewage coming from Mexico daily and discharging treated wastewater 3-miles offshore in the Pacific Ocean through the South Bay Ocean Outfall, which is a 3.5-mile-long pipe, according to USIBWC documents. The plant was upgraded with secondary treatment facilities in 2010. It is designed to treat up to 25 million gallons per day of Tijuana s sewage, with the ability to treat up to 50 million gallons per day for a short period of time, according to USIBWC officials. The City of Tijuana also operates five wastewater treatment plants in Mexico to treat its remaining sewage, though these plants are not always fully operational. The South Bay plant s facilities include five canyon collectors located along the border in five of the six cross-border canyons. During normal operations, smaller amounts or low-flows of urban runoff and wastewater from Mexico are diverted by these canyon collectors and conveyed to the plant through underground pipelines (see fig. 5). <2.1.2. IBWC Minutes Describe Roles, Responsibilities, Costs, and Cost-Sharing Agreements for Operating and Maintaining the Plant> IBWC minutes, with the approval of the U.S. and Mexican governments, establish each country s roles and responsibilities, outline the costs of the Nogales and South Bay plants, and describe the cost-sharing arrangements between the United States and Mexico for operating and maintaining the plants. Minutes for each plant specify the cost-sharing arrangement for construction. See appendix II for details of the IBWC minutes that authorize the construction, management, and operation of the two plants. For the original Nogales plant, the U.S. government authorized the funding in the Department of State, Justice, Commerce, and the Judiciary Appropriation Act for 1947 and provided funding with certain conditions, including that the City of Nogales agreed to furnish the lands or easements free of cost and that the city operate and maintain the project once it was completed. Under Minute 227, signed in 1967, Mexico agreed to participate in funding the expansion of the capacity of facilities at the Nogales plant. This Minute also authorized the relocation of the plant; however, the Minute provided that Mexico s share of the construction costs of enlarging the international sewage treatment facilities would not change if the United States for domestic reasons constructed the enlarged treatment plant north of its existing site. Mexico conditioned its approval of the relocation on the agreement that Mexico not bear any costs associated with the extension of the IOI pipeline necessary for the relocation, according to USIBWC officials. Further, under Minute 227, the United States, Mexico, and the City of Nogales, Arizona, shared the construction costs of the treatment plant. During the relocation of the plant and resulting extension of the IOI, the City of Nogales acquired all easements in land or the land necessary for the relocation and contributed $791,000 for the expanded plant and IOI, according to USIBWC officials. Mexico s share was based on the costs of enlarging the treatment plant at the site used for the initial 1951 plant. Since the City of Nogales, Arizona, wanted the plant to be located away from the city limits, the additional IOI costs were not borne by Mexico. The second plant was upgraded in 1988, 1992, and 2009. In 1988, Mexico provided $1 million to pay for the additional capacity built at the plant, as the total capacity allotted to Mexico after the upgrade was 9.9 million gallons per day, and the City of Nogales, Arizona, was allotted a total capacity of 4.84 million gallons per day. The United States and the City of Nogales, Arizona, shared the costs for the 2009 upgrade to the facility. During the 2009 upgrade, EPA provided a $65 million grant to the City of Nogales, Arizona; the City of Nogales, Arizona, contributed $700,000; and USIBWC provided an additional $2 million for the construction of an ultraviolet disinfection system according to USIBWC documents. For the South Bay plant, the United States and Mexico agreed to construct the plant under Minute 283 and to share the costs for construction, operation, and maintenance for the plant under Minute 296. Congress authorized USIBWC s participation in 1987 amendments to the Clean Water Act. The construction cost for the plant was $241.1 million. The United States contributed $224.6 million specifically, EPA provided $127.4 million to USIBWC for costs associated with the construction of the plant and related infrastructure, $89.2 million to the City of San Diego and the Corps to construct the South Bay Ocean Outfall, and $8 million to the Corps for additional environmental work. Mexico contributed $16.8 million, which was the amount that it would have had to pay to construct and maintain a plant in Mexico. As part of Minute 283, IBWC also built a diversion infrastructure just south of the border to capture low-volume, dry-weather flows in the Tijuana River to prevent northbound transboundary flows into the United States. This diversion system is operated by Mexican entities and includes pumps and pipelines that send wastewater to the South Bay plant. Minutes also specify cost-sharing arrangements for the ongoing operation and maintenance of the plants. Under the cost-sharing agreements in relevant minutes, the Mexican government generally reimburses USIBWC annually for a portion of the treatment costs at each plant. The reimbursement rate is annually adjusted based on what it would cost to treat a similar amount of wastewater in Mexico according to USIBWC officials. In addition, USIBWC has a separate agreement with the City of Nogales, Arizona, for the Nogales plant that stipulates reimbursements for their sewage treatment. These minutes and cost-sharing arrangements are as follows: Cost-Sharing Agreements for the Nogales plant. Under Minute 206, Mexico agreed to pay for some operations and maintenance costs, based on its proportion of wastewater flows to the Nogales plant for treatment, at a discounted rate for a predetermined amount of sewage. IBWC commissioners periodically review this discounted rate. Specifically, USIBWC assesses the percentage of sewage (up to 9.9 million gallons per day) Mexico sends to the Nogales plant and adjusts the rate to what it would cost to perform the same service in Mexico, according to USIBWC officials. Furthermore, the Mexican government has agreed to pay full U.S. cost for any flow above the treaty-allotted 9.9 million gallons per day, according to these officials. Meters located at three sites along the U.S-Mexico border continuously measure the sewage flow, and if the amount of sewage treated by the plant exceeds the 9.9 million gallons per day, Mexico is billed by USIBWC for the full cost of sewage treatment, according to USIBWC officials. Separately, USIBWC charges a rate for treatment of the city s sewage under a Memorandum of Agreement with the City of Nogales, Arizona. Cost-Sharing Agreements for the South Bay plant. Under Minute 296, Mexico agreed to pay for operations and maintenance costs for the plant based on the treatment of up to 25 million gallons per day. The pump that diverts Tijuana s wastewater into the South Bay plant can pump as much as 29 million gallons per day, and the plant can treat more than 25 million gallons per day if needed. Similar to the Nogales plant, USIBWC, on a quarterly basis, bills the Mexican government a prorated amount for the treatment services based on the amount of flow. For example, in fiscal year 2018 Mexico paid USIBWC about $2.4 million for treatment of its wastewater. In fiscal year 2018, the plants operational and maintenance costs totaled $4.5 million for the Nogales plant and $15 million for the South Bay plant, and in that fiscal year, the Mexican government reimbursed USIBWC $4.4 million for both plants, according to USIBWC documents. In addition, according to USIBWC officials, the City of Nogales, Arizona is behind in its payments for the Nogales plant by $3 million, and Mexico owes $3 million, according to officials. USIBWC initially pays for the operations and maintenance costs at all its facilities, including the two wastewater treatment plants, and then seeks reimbursement from Mexico and the City of Nogales, Arizona, for their portions of the operation and maintenance costs. The operation and maintenance costs for each plant include the plant s employees, such as water operators and skilled technical employees, who manage nonstop operations such as running the equipment, controlling the processes, and monitoring the facilities. The Nogales plant employed 17 people as of 2019. USIBWC has used a third-party contractor (Veolia Water Operating Services) to conduct operational and maintenance activities at the South Bay plant since 1998, according to officials. USIBWC Salaries and Expenses budget line item includes funding for each plant s operation and maintenance. According to federal officials in the United States and Mexico, the operations and maintenance of wastewater infrastructure in Mexico is an ongoing challenge. According to these officials, Mexican wastewater utilities do not have the resources or the long-term technical expertise to address equipment maintenance problems in a timely manner to prevent spills. Although NADB has provided financing to wastewater infrastructure utilities that send wastewater to USIBWC s Nogales and South Bay plants, utilities often the lack the resources necessary to adequately maintain the infrastructure and equipment after the construction loan ends, according to NADB officials. NADB could condition financing for every wastewater infrastructure project on capacity to adequately manage operations and maintenance of the infrastructure, as it has for a few projects, according to USIBWC and EPA officials. In the United States, as we reported in January 2016 the U.S. Department of Agriculture includes as one of its loan conditions the capacity of the wastewater utility to pay for operations and maintenance of infrastructure. USIBWC has identified numerous projects related to operating the plants or building new infrastructure that remain unfunded under the agency s current appropriations level, according to an agency document. USIBWC s Budget Office, as part of its Fiscal Year Year-end Budget Procedures and Guidance, annually sends its staff a report with the projected balances for the Salaries and Expenses and Construction line items for the remainder of that fiscal year. The guidance directs that each department Engineering, Operations, and Administration identify work or projects for which they need funding. Each projected balance is to be calculated by subtracting expenses from each group s allocated funding for the year. The departments are to identify any outstanding requirements and associated costs for the remainder of the fiscal year. For fiscal year 2018, USIBWC identified $9 million in potential operations and maintenance work and $2.8 million for potential construction projects, based on agency documents. For example, USIBWC identified the need for $149,000 for new pumps and motors for pump stations at the South Bay plant but deferred the purchase due to other funding needs, according to an official. <3. Several Factors Can Affect the Plants Operations, and Raw Sewage Periodically Spills into the Watersheds> Several factors can affect each plant s operations. IBWC and others have taken some actions to address the factors affecting each plant s operation, including initiating an informal binational rapid response team to address breaking and failing wastewater infrastructure along the border. However, IBWC has not taken the necessary steps to formalize this rapid response team, and raw sewage continues to periodically spill into the Santa Cruz River Basin and Tijuana River Valley watersheds. <3.1. Both Plants Operate Under Clean Water Act Permits and Several Factors Can Affect the Plants Operations> USIBWC s Nogales and South Bay plants are subject to NPDES permits issued by the states of Arizona and California, respectively, which generally prohibit the discharge of pollutants from the plants unless specifically allowed under the permit. Generally, a NPDES permit is issued for a term of 5 years to a single facility and reflects site-specific conditions of that facility. The Nogales plant s NPDES permit requirements are based on a maximum monthly average of 17.2 million gallons per day to be treated and discharged into the Santa Cruz River. The permit allows the discharge of certain pollutants within specified limits, including some heavy metals, such as mercury and copper. Under the permit, USIBWC must also meet several monitoring requirements, including monitoring the pollutants in the water coming into the plant from the IOI, the amount of treated wastewater discharged into the Santa Cruz River, and the presence of pollutants named in the permit. USIBWC is to submit this information to Arizona Department of Environmental Quality (ADEQ) for monthly or annual review. The Nogales plant permit also requires USIBWC to remove sludge produced as part of the treatment process and dispose of it at an offsite location that is certified to receive that type of byproduct. Since 2014, ADEQ has issued four Notices of Violation to USIBWC for the Nogales plant s permit. The notices cited the exceedances of certain substances above permit limits, including some heavy metals in the discharge (in 2019); the presence of pollutants toxic to human, animals, plants, or other organisms (in 2018); untreated sewage spilled into a tributary of the Santa Cruz River (in 2017); and USIBWC s failure to accurately monitor and report specific substances to ADEQ as outlined in the permit (in 2014). Each notice outlined actions that USIBWC was required to take to improve the water quality problem identified within a specific time frame. The South Bay plant has not received any Notices of Violation under its current NPDES permit, which was issued in 2014, according to USIBWC officials. The current permit covers the South Bay plant and other infrastructure including five canyon collectors and the South Bay Ocean Outfall. The permit sets a discharge limit of 25 million gallons per day of treated wastewater, on a monthly average, to the Pacific Ocean through the South Bay Ocean Outfall. The permit limits the pollutants that can be discharged, such as zinc and mercury. Under the permit, USIBWC and the City of San Diego conduct a joint monitoring program of the wastewater discharge at the South Bay Ocean Outfall and are required to submit the data collected from this joint monitoring effort to the San Diego Water Board. The permit also includes monitoring requirements for other parameters, including heavy metals and organic chemicals that are considered harmful to the environment and public health. The South Bay plant has not violated the permit s discharge limits through the South Bay Ocean Outfall since secondary treatment began in 2010, according to USIBWC officials. During rainstorms or wet weather in Tijuana and when pipelines or pumps break, the plant does not treat all the water flowing from Mexico. During these events, water flows to the Tijuana River and canyons and mixes with unknown amounts of urban runoff, treated effluent from the Tijuana River, and wastewater in Mexico and then flows into the Tijuana River Valley watershed in the United States. During dry weather, the runoff is largely groundwater and some untreated discharge from illegal connections (dry-weather flows); during storms, this runoff mixes with large amounts of rainfall (wet-weather flows). There are several factors that can affect the operation of the Nogales plant. Lack of heavy metal pretreatment in Mexico. In Mexico, metal treatment and plating facilities operate in Nogales, Sonora and directly discharge wastewater that contains heavy metals into the city s sewer systems, which end up at the Nogales plant for treatment. While a municipal pretreatment program exists in Nogales, Sonora, it is designed to meet Mexico s minimum federal requirements and is insufficient to detect and respond to the dumping of industrial contaminants when they occur, according to ADEQ documentation and officials. Deteriorating sewage infrastructure in Mexico. Sewage infrastructure in the City of Nogales, Sonora, is not adequately maintained, according to USIBWC officials. As a result, the city of Nogales, Sonora, sends wastewater amounts to the plant in excess of the amount agreed upon in the minute between USIBWC and the Mexican section. Due to the proximity of the plants to the U.S.- Mexico border, USIBWC s international wastewater treatment plants in southern California and southern Arizona are located in areas patrolled by Customs and Border Protection (CBP) agents. In southern California, the waterways in which sewage pipelines connect to the South Bay International Wastewater Treatment Plant provide a natural crossing point at the border, which CBP has blocked with gates. In southern Arizona, drug smugglers use the International Outfall Interceptor pipeline which transports sewage from Mexico to the Nogales International Wastewater Treatment Plant to transport drugs. According to CBP officials, smugglers in Mexico drop drug bundles into manholes that connect to the pipe, and smugglers in the United States cut into the pipe to retrieve the bundles. These holes in the pipe can cause sanitary sewer spills in Nogales, Arizona. CBP agents patrol along the pipeline to catch smugglers and retrieve the drug bundles, according to CBP officials. Deteriorating infrastructure in the United States. In the United States, the deteriorating condition of the IOI causes untreated sewage to periodically spill into the Santa Cruz River watershed and Nogales Wash. The deterioration is due to the age of the pipe, as well as ongoing corrosion and erosion of the pipeline (see fig. 6). See appendix III for more details on the factors that affect the operations of the Nogales plant. One key factor affects the operation of the South Bay plant: insufficient sewage infrastructure in Mexico contributes to transboundary sewage flows that, if not diverted, can reach the plant and disrupt its operations. According to a 2019 study, Tijuana has not built sufficient sewage infrastructure to serve the area s exponential population growth and urbanization. When problems arise with Tijuana s treatment facilities, the city diverts a portion of its wastewater for treatment at the South Bay plant. In these instances, the Mexican utility may also shut down Pump Station CILA, a main pump located in the Tijuana River that diverts the river to the treatment plant. If the South Bay plant is not notified and does not shut down its pump and canyon collectors, it may receive additional flows. While the plant can treat additional wastewater and has not violated its NPDES permit, the plant is experiencing an increase in the number of days that it treats above capacity, according to USIBWC officials. In addition, USIBWC officials stated that the South Bay plant is not designed and operated to address some of the wastewater that flows into the Tijuana River Valley watershed. These wastewater flows are due to: Limited Tijuana Basin diversion infrastructure. The Tijuana Basin diversion system consists of the Mexican-operated Pump Station CILA and the South Bay plant s canyon collectors. This system captures dry-weather flows for treatment at the South Bay plant or for a wastewater treatment plant in Mexico. However, it is not designed to capture high flows that result from pipe breaks or pump failures. To avoid affecting the South Bay plant s wastewater treatment operations, during incidents of high flows, Pump Station CILA and the five canyon collectors are shut off. During these events, the water bypasses the South Bay wastewater treatment plant and flows untreated into the Tijuana River and watershed. For example, a February 2017 spill from a broken pipeline in Mexico released 143 million gallons of sewage-contaminated water into the Tijuana River that bypassed the South Bay plant and was not treated. Lack of maintenance for existing sewage infrastructure in Mexico. A lack of maintenance for Tijuana s existing sewage infrastructure causes excess wastewater flows into the Tijuana River according to USIBWC officials. For example, in August 2019, USIBWC reported that on June 19, 2019, 1.9 million gallons of wastewater were released into the Tijuana River because of trash buildup at one of Tijuana s pumps that caused the pump to fail. A 2019 study also reported that the poor condition of critical wastewater infrastructure in Mexico results in approximately 30 percent of Tijuana s wastewater entering the Tijuana River or Pacific Ocean without treatment. See appendix III for more details on these factors that affect the operations of the South Bay plant. <3.2. IBWC and Others Have Taken Some Actions to Address the Factors that Affect the Plants Operations, but Releases of Raw Sewage Continue> USIBWC and the Mexican Section have taken some actions to address the factors that can impede plant operations. However, raw sewage is still released from Mexico into the Santa Cruz River Basin and Tijuana River Valley watersheds and continues to have significant public health and environmental impacts. USIBWC and others have taken various actions to address the factors that affect Nogales plant operations, including the following: Sending letters to heavy metal dischargers. To address the presence of heavy metals in the wastewater stream, in October 2018, USIBWC, ADEQ, and EPA sent joint letters to four American companies affiliated with the metal treatment and plating facilities in Nogales, Sonora, Mexico. The letters asked for the companies cooperation in addressing the issue and offered to meet with each company to discuss possible solutions. According to USIBWC officials, they received a response from one company, but not the other three. However, in continued monitoring, USIBWC has seen fewer instances of heavy metals in the wastewater that it treats at the Nogales plant according to agency officials. Maintaining treatment capacity in Nogales, Sonora. To address the inadequate wastewater infrastructure in Nogales, Sonora, IBWC has collaborated with other stakeholders to maintain wastewater treatment capacity in Mexico. For example, the U.S. State Department sent a diplomatic note to the Mexican government in February 2019 regarding the failing pumps and asked the Mexican government to quickly respond and eliminate the discharges that end up at the Nogales plant. USIBWC officials stated that the Mexican Section of the IBWC purchased two new pumps, which were expected to arrive at the pump station in Nogales, Sonora, in late 2019. The Mexican Section also plans to work with the local utility to install equipment to remove grit from the wastewater and prevent degradation of the new pumps. Upgrading infrastructure in the United States. In 2005, USIBWC proposed a five-phase plan to rehabilitate the IOI s pipe that uses a process referred to as cured-in-place pipe. In this process, a polyester tube is inserted into the pipe and inflated, which then hardens to become a pipe within a pipe. This process has an estimated cost of $50 million. As of November 2019, the rehabilitation had not started due to funding disagreements between USIBWC and the state of Arizona. According to USIBWC officials, the agency does not want to fund the entire project but has secured $28.1 million for it. According to USIBWC officials, the City of Nogales will not contribute any funding without a change to the current cost-sharing agreement on reimbursements between the city and USIBWC for sewage treatment. The cured-in-place pipe process will address some of the IOI s deferred maintenance issues but will not resolve ongoing disagreements about which entity is responsible for funding annual maintenance and operations. According to USIBWC officials, the annual maintenance needs include more than the work to repair the IOI. For example, lateral pipelines that connect City of Nogales sewers to the IOI also need to be maintained; occasional breaches in the pipeline need to be repaired; and vegetation management along the pipeline is necessary to prevent root intrusion into the pipeline. USIBWC officials estimated the annual cost for operations and maintenance, including infrastructure repair and personnel costs, at about $1.5 million to $2 million. IBWC and others have also taken actions to address the pump failures and pipeline breaks in Tijuana that send polluted flows downstream, affecting the Tijuana Basin diversion infrastructure and subsequently the South Bay plant. These actions include the following: Negotiating a Binational Tijuana River Spill Notification Protocol. In August 2017, IBWC negotiated a notification protocol for raw sewage discharges into the Tijuana River that may enter the United States. The protocol was prompted by the February 2017 spill from a broken pipeline in Mexico of 143 million gallons of sewage- contaminated water that flowed into the Tijuana River. The initial protocol stated that a formal memorandum of understanding would be developed at a later date to formalize the protocol; however, the initial protocol remains in place. According to an USIBWC official, Mexico has since adhered to the protocol twice by warning USIBWC of imminent raw sewage flows when pipelines in Tijuana, Mexico, ruptured. However, in August 2019, USIBWC reported that most of the transboundary flows were detected by an automated alert system on the U.S. side of the border that was deployed by USIBWC in October 2018 to better monitor and detect any transboundary flows. The system relies on river gage data recorded at the Tijuana River that is also posted to the USIBWC website. Upgrading infrastructure in Mexico. In April 2018, the Department of State sent a diplomatic note to the Mexican government after failures in Tijuana s sanitation infrastructure led to sewage flows on multiple days in 2017 and 2018. The diplomatic note requested that the Mexican government take appropriate measures (as outlined in Minute 283) to stop sewage flows from crossing into the United States, including making short-term repairs and longer-term upgrades. According to USIBWC officials, Mexico does not have much funding for its infrastructure. However, in March 2019, Mexico and EPA, through NADB, funded the replacement of three segments of the Poniente Collector in Tijuana, Mexico, to eliminate a key source of untreated discharges into the Tijuana River in the United States. Participating in the Tijuana River Diversion Study. In 2019, NADB funded the study of alternatives to expand or adapt the diversion infrastructure in the Tijuana River to identify potential infrastructure projects (and associated costs) to divert dry-weather flows and possibly some flows that result from wet weather mixed with wastewater and raw sewage. The study developed project alternatives in Mexico, the United States, or both countries that would reduce the number of days that transboundary flows occur, including by diverting more wastewater through the South Bay plant to prevent its release in the United States. The alternatives range in cost from $8 million to $236 million. USIBWC, the Mexican Section, the EPA, the Mexican National Water Commission, and the Tijuana water utility also coordinated on the study, which was completed in July 2019. Even with the efforts of IBWC and others, raw sewage continues to be released in both watersheds due to deteriorating and insufficiently maintained sewage infrastructure primarily in Mexico, with the exception of the IOI in the United States. In the Santa Cruz River, the presence of raw sewage in Nogales Wash and the river continues to threaten public health and the survival of fish and wildlife, including endangered species, according to representatives of Friends of the Santa Cruz River, a local nonprofit organization. Similarly, raw sewage containing E. coli and other pathogens continues to flow into the Tijuana River and watershed primarily during storm events or breaks in infrastructure in Tijuana, contributing to public health concerns and beach closures in southern California. To address the continuing release of raw sewage due to pipe breaks and pump failures, at an IBWC meeting in spring 2019, USIBWC proposed the development of a rapid response team comprised of technical experts from both countries that could immediately respond to infrastructure problems, such as pipe breaks and pump failures. This team would take actions to mitigate sewage leaks along the border such as those in Nogales, Sonora, and Tijuana. For example, the team would respond immediately to situations in which a pipe break in Mexico causes wastewater to flow into the United States and would put in place appropriate diversions and equipment to repair the break. Members of the team would come from both countries, and funding for their deployment would come primarily from the United States. USIBWC has not estimated the cost to form and annually support the binational team. The principal engineers from both USIBWC and the Mexican Section have agreed to start building the team with their respective staff, according to a USIBWC official. However, this agreement is informal, and IBWC has not taken the necessary steps to formalize the team. Such steps could include preparing a minute. Specifically, Minute 261 states that for each border sanitation problem, IBWC is to prepare a minute identifying: (1) the problem; (2) the conditions which require solution; (3) specify quality standards that should be applied; (4) the course of action that should be followed for its solution; and (5) the specific time schedule for its implementation. According to IBWC officials, the benefit of a minute is that it functions as a formal agreement between the respective governments, encouraging them to provide greater support through funding and other resources to ensure the solutions and projects are implemented. According to USIBWC officials, they also have alternatives to negotiating a minute, such as issuing a joint report, and a minute may not be necessary for the countries to formalize their commitment. For example, IBWC could exchange formal letters signifying their intent to form the team or issue a joint report written by each IBWC section s principal engineers. By formalizing a binational rapid response team to address sewage infrastructure failures along the U.S.-Mexico border, including the watersheds around the Nogales and South Bay plants, USIBWC would have better assurance that it is able to more effectively address the urgent and recurring sewer breaks and pump failures in Mexico that contribute to raw sewage spills. <4. USIBWC States That It Lacks Authority to Address Unmanaged Stormwater Problems, and Has Not Used Long-Term Capital Planning That Includes Key Planning Principles> USIBWC has taken some actions to address water quality problems at both plants, but USIBWC and the Mexican Section have not taken actions to address unmanaged stormwater flows and their associated water quality problems. USIBWC officials stated that the agency does not have the authority to manage stormwater problems in the Santa Cruz River Basin or Tijuana River Valley watersheds without direction by Congress. Further, USIBWC has not fully incorporated key planning principles for long-term capital planning that would help it identify alternative approaches for resolving the ongoing water quality problems along the border. <4.1. Unmanaged Stormwater Complicates Water Quality Management in the Two Watersheds, and USIBWC Has Not Taken Actions to Address the Issue> USIBWC and others have taken some actions to address the water quality problems that exist in the two watersheds, but USIBWC has not taken actions that include identifying alternatives to address stormwater and stormwater quality in the Santa Cruz River Basin watershed or in the Tijuana River Valley watershed. As a result, unmanaged stormwater flows largely untreated downhill from Mexico, carrying bacteria, trash, and sediment into the lower portions of the Santa Cruz River Basin and Tijuana River Valley watersheds where the Nogales and South Bay plants are located, threatening key infrastructure and complicating water quality management in the watersheds. The stormwater carries the pollutants across the border, depositing them in the river channel, shorelines, nearby wetlands, and in the case of the Tijuana River ultimately the ocean, causing public health and environmental concerns in the United States. In addition, stormwater can damage plant infrastructure. <4.1.1. Even with USIBWC Actions, Unmanaged Stormwater Threatens Key Infrastructure and Carries Bacteria into the Nogales Wash> The Nogales Wash is the main drainage for the cities of Nogales, Sonora, and Nogales, Arizona. Stormwater from the upper watershed flows into the wash and crosses the border, carrying bacteria and sediment into the United States. According to IBWC officials, because Nogales, Sonora, does not have adequate stormwater sewers, Mexican citizens remove manhole covers to allow stormwater to drain from the streets into the sanitary sewers during heavy rainstorms. The IOI essentially becomes a combined sewage system one in which wastewater and stormwater flow in the same pipelines even though it was not designed as such, according to USIBWC officials. The excess stormwater causes increased pressure in the IOI that is released when the manholes in the United States overflow, sending sewage into the streets of Nogales, Arizona. In July 2018, ADEQ documentation noted that Nogales, Sonora, experiences frequent flooding during heavy rain events in the summer and uses the IOI to mitigate flood events, which results in releases of untreated sewage into the residential and business neighborhoods in the City of Nogales, Arizona and the Santa Cruz River watershed. For example, in 2017, Santa Cruz County Health Services and the Arizona Department of Health Services released public health advisories for elevated E. coli for the City of Nogales, Arizona, due to untreated sewage leaking from the IOI. According to one of these advisories, stormflows are typically high in pollutants that can be harmful to human health such as bacteria and pathogens. Unmanaged stormwater flowing into the Nogales Wash can destabilize the IOI, which runs inside or below the wash, from the border to the Nogales plant. Stormwater rushing down the wash erodes and removes natural and manmade materials covering the pipeline, such as the cement panels lining the middle portion of the wash (see fig. 7). For example, in July 2017, flooding in the Nogales Wash eroded the soil around a manhole in the IOI, partially shearing the pipe and causing untreated wastewater to flood into the wash and into the streets of Nogales, Arizona, resulting in elevated levels of E. coli in the wash and Santa Cruz River. As a result, the Arizona Governor s Office declared a State of Emergency in Santa Cruz County and sent a notice of the Nogales plant s permit violation to USIBWC. To date, USIBWC s actions have focused on emergency repairs and cleanup when untreated sewage has leaked from the IOI into the Nogales Wash and Santa Cruz River. During the July 2017 event, for example, to prevent further contamination of the wash due to the release of raw sewage leaking from the broken section of the IOI, USIBWC hired a contractor to install a bypass system to divert the raw sewage spilling into the wash to the Nogales plant for treatment. Other stakeholders also took action. For example, at the request of the Arizona governor s office, the Corps stabilized earthen banks along the Nogales Wash that had eroded. The Arizona Army National Guard and Arizona Department of Transportation also took part in similar efforts. In general, the Nogales Wash is not regularly maintained to stabilize the earthen banks and concrete panels to prevent erosion. According to USIBWC officials, operations and maintenance of the Nogales Wash and management of stormwater in the Nogales Wash is a municipal responsibility and not the responsibility of the IBWC. As a result, USIBWC has not taken action to manage the Wash to prevent stormwater damage to the IOI. Instead, it has as with the example above sought to bring in other federal agencies that USIBWC says have authority over domestic water management. However, Nogales city managers do not accept responsibility for managing the wash, stating that it is IBWC s responsibility. USIBWC and other federal agencies have conducted some studies in Mexico to address stormwater management in the watershed. For example, USIBWC contracted the Corps to conduct an evaluation to develop measures to reduce the threat of flooding and alternatives to reduce potential flood damage in Nogales, Sonora. The study was completed in 2004. Based on the recommendations in the evaluation, Nogales, Sonora, and the Mexican federal water agency, constructed 14 dams and detention basins from 2008 through 2015. However, according to USIBWC officials, the basins that are in Mexico and maintained by the local utility are full of sediment and have not been cleared because the local Mexican utility does not have funds to maintain them. In addition, USIBWC and the U.S. Geological Survey have collaborated on joint studies of the watershed surrounding Nogales, Sonora, for many years according to USIBWC officials. For example, one study completed in 2016 was to be the basis of further work to identify stormwater management projects, but that work has not been planned or conducted. (See app. IV for details of additional studies.) In the absence of an entity that regularly maintains the wash, the IOI is still threatened when stormwater runs through the wash. IBWC has not contracted for or conducted a study to identify long-term solutions to the stormwater quality problems in the watershed, like was done with the Tijuana River Diversion Study. Instead, since 2005, USIBWC has responded to events that threaten the IOI as they occur at the request of the City of Nogales, Arizona, and used an emergency response authority that is applicable to the U.S.-Mexico border, according to USIBWC officials. The Mexican Section also has not addressed maintenance of the already insufficient stormwater conveyance infrastructure in Nogales, Sonora. Without resolution, the unmaintained wash and inadequate stormwater infrastructure in Mexico threaten the stability of the IOI with additional stormwater damage. <4.1.2. Even with IBWC Actions, Unmanaged Stormwater Carries Trash, Sediment, and Bacteria throughout the Tijuana River Valley Watershed> Stormwater carries trash into the canyons that cross the border area, as well as bacteria from illegal sewer connections and infrastructure breaks in Tijuana, and sediment that erodes from the steep hills of Tijuana. As part of routine operation and maintenance, USIBWC annually removes trash and clears sediment from the grates in the South Bay plant s five canyon collectors according to agency officials (see fig. 8). The pollutants carried in the transboundary stormwater also cause ongoing degradation to the riparian and estuarine habitats within the lower Tijuana River Valley, impacting ecological diversity, wildlife, and ceremonial and recreational use of the area. For example, from 2003 through 2017, the City of Imperial Beach, California, closed public beaches for at least one-quarter of the year and half the year in some years due to bacterial contamination in the Tijuana River, according to city officials. Although the parties dispute the source of pollution causing the closures, the raw sewage that enters into the Tijuana River Valley and flows with stormwater into the ocean is a likely source of pollution. In response to the bacteria and trash problems caused by flows from Mexico into the Tijuana River Valley, the California Regional Water Quality Control Board, San Diego Region, initiated the development of two TMDLs for bacteria and trash for the Tijuana River. If the TMDLs are applied, USIBWC would be responsible for meeting the TMDL requirements, according to a California state official; USIBWC disagrees. If it were subject to a TMDL, USIBWC would be expected to oversee the trash collection and removal in the United States even if the trash originated in Mexico. USIBWC maintains that its ownership of the Tijuana Flood Control Project does not make it responsible for the quality of water flowing in that project from Mexico under the Clean Water Act. As of November 2019, the issue of whether USIBWC should take action to resolve these pollutant problems is in litigation. In 2015, IBWC also negotiated a minute to address stormwater effects in the Tijuana River Valley, Minute 320, General Framework for Binational Cooperation on Transboundary Issues in the Tijuana River Basin. According to USIBWC officials, the minute was developed after local stakeholders in California asked Mexico to take action to address stormwater problems in the United States. Mexico responded that it participates in binational solutions to issues through IBWC. Under Minute 320, the United States and Mexico acknowledged that binational coordination is required to address stormwater flows that carry bacteria, trash, and sediment, as well as other pollutants that threaten the Tijuana River Basin. growth of aquatic vegetation and decrease spawning areas and habitats for fish and other organisms. rubber, and construction material settles on the bottom of waterways, affecting bottom feeding organisms. In response, IBWC formed three binational working groups composed of local, state, and non-governmental stakeholders to conduct studies to identify the sources of bacteria, trash, and sediment that stormwater flows carry into the Tijuana River Valley. The working groups are tasked with recommending solutions to the problems based on the studies findings. However, Minute 320 did not set a timeline for completion of the studies nor did it identify sources of funding for potential projects recommended by the working groups. According to USIBWC officials, Minute 320 anticipates that there may be variety of sponsors and funding resources for projects recommended by the working groups. The three groups stopped meeting in 2017. In June 2019, the water quality and sediment groups resumed meetings, but as of September 2019, the trash working group had not reconvened. According to USIBWC officials, as of November 2019, IBWC is convening a meeting of a reconstituted Minute 320 Binational Core Group, following up on stakeholder recommendations to re-establish and strengthen the Minute 320 process: Water quality working group. The water quality group is working on an ongoing binational water quality monitoring program that began in December 2018 and was to end in November 2019. The group is sampling sewage and other flows at various locations in the United States and Mexico to establish baseline data for pollutants in the waters of the Tijuana River watershed according to USIBWC officials. Sediment working group. The sediment group is working on an ongoing sediment detention feasibility study funded by USIBWC to identify the most effective means of sediment management within the Tijuana River channel. The sediment working group had recommended the study. USIBWC estimates the cost of removing sediment at $15 million per year, based on an estimated 492,000 tons of sediment entering the river each year and about three-quarters of it being removed. According to USIBWC officials, the sediment working group expects to complete the study in early 2020. Trash working group. The working group has developed the scope of work for a binational study of trash booms in different sites along the Tijuana River. It is waiting on funds to perform a feasibility study. USIBWC and several state and local agencies have taken further actions to address these water quality problems in the Tijuana River Valley Watershed, including the following: Constructing a temporary earthen berm in the Tijuana River Channel. In 2018, USIBWC constructed a temporary earthen berm in the U.S. section of the concrete channel of the Tijuana River, close to the border. The purpose of the berm was to hold back low-volume, dry-weather flows contaminated with untreated sewage; however, some sediment and sewage still enters the Tijuana River Valley during high-volume flows or storm events because those flows permeate the berm according to USIBWC documents. USIBWC officials said the berm is just a temporary measure to capture low- volume flows of sediment and trash during dry weather and is not intended as a long-term solution for the river channel. Monitoring water quality in the Pacific Ocean. To understand the sources of beach pollution, USIBWC contracts with the City of San Diego to regularly monitor water quality in the Pacific Ocean, in particular around the discharge points for the city s wastewater treatment plant and the South Bay plant. Starting in 2018, the City of San Diego and USIBWC began a joint program to track the extent of dispersion of sediment into the Pacific Ocean where the Tijuana River empties into the ocean according to USIBWC and City of San Diego officials. Collecting and disposing of trash and sediment. Several state and local agencies collect and remove sediment from their land parcels in the Tijuana River Valley. For example, California State Parks placed a boom across the floor of one of the five canyons to collect trash and sediment from stormwater flows (see fig. 9). Since 2015, California State Park employees annually collect and remove trash and sediment from the rack and disposes of it at a local landfill and quarry, at a cost of $1.8 million per year. In addition, the U.S. Customs and Border Protection agency also removes trash and debris from grates associated with four of the five cross-border canyons as often as necessary to protect the health of agents conducting daily patrol operations. Identifying projects to reduce sewage, trash, and sediment, in the Tijuana River Valley. The County of San Diego is funding an assessment to identify and prioritize potential projects that could be implemented in the United States to improve the water quality in the Tijuana River Valley by addressing transboundary flows of sewage, trash, and sediment. The county expects the assessment to be completed in March 2020, and intends to work with partners in the region to identify funding and other resources necessary to implement the highest priority projects, according to San Diego County officials. (See app. IV for additional studies.) As of October 2019, USIBWC officials said they were reviewing alternatives outlined in the 2019 study of alternatives to expand or adapt the diversion structure for the South Bay plant to address transboundary sewage flows. In December 2019, local government officials in California passed a resolution supporting a set of projects to be built on the U.S. side of the border to resolve the water quality problems. The mayors of several California municipalities endorsed EPA to receive funding to construct projects on the U.S. side of the border to help resolve water quality problems in the Tijuana River basin. In January 2020, a large trash buildup in a storm drain on the border caused putrid water to back up in Tijuana, highlighting the nature of the trash and sediment problem in the upper watershed, which also affects the lower watershed. In December 2019, a congressional committee identified the need for EPA to lead the efforts to resolve these problems. According to USIBWC officials, while the most cost-effective solutions are in Mexico, the Mexican government lacks resources to make all of the infrastructure improvements. However, officials told us the proposed solutions on the U.S. side of the border may be more expensive or difficult to implement in part due to other constraints to the United States. For example, one of the alternatives would divert untreated sewage to the South Bay Ocean Outfall for direct discharge into the Pacific Ocean, but the discharge likely would not meet Clean Water Act standards. According to USIBWC officials, solutions that lead to violations of Clean Water Act standards would not be acceptable to USIBWC, EPA, or other U.S. stakeholders. According to EPA officials, USIBWC has expertise in operating and managing water and wastewater infrastructure, while EPA has expertise in addressing water pollution. In addition, EPA officials stated that USIBWC s binational presence and ability to work across the border is important to deal with operations and maintenance issues, such as clearing stormwater channels. EPA officials stated that their role in coordinating with USIBWC is important for identifying and addressing specific water quality problems. For example, joint efforts by both agencies through the Mexicali Binational Sanitation Observation and Technical Committee led to successful solutions to wastewater pollution and trash problems through joint monitoring and site visits, according to EPA officials. <4.1.3. USIBWC States That It Lacks Authority to Address Stormwater Quality Problems in Each Watershed, and Long- Standing Problems Remain> USIBWC officials stated that the agency does not have the specific authority to manage stormwater problems in the Santa Cruz Basin or Tijuana River Valley watersheds without the direction of Congress. Minute 261 states that IBWC shall give permanent attention to border sanitation problems and give currently existing problems immediate and priority attention. In addition, OMB Circular A-94 calls for agencies to assess the benefits and costs of alternative projects. Although IBWC, USIBWC, and others have taken some actions to address stormwater quality problems in the Santa Cruz River Basin and Tijuana River Valley watersheds, such as conducting studies of stormwater and building some retention basins, the problems have nevertheless continued to occur over many years, and no entity has taken action to identify alternatives, cost estimates, funding sources, or time frames for implementing them. USIBWC officials stated that feasibility studies and analyses are necessary steps in justifying requests for funding a project and investigating the cost and technical feasibility of a project. While USIBWC has conducted some feasibility studies on different individual solutions, it has not done a comprehensive study to recommend any overall solutions to address the transboundary stormwater problems of bacteria, trash, and sediment in either watershed. According to USIBWC officials, previous projects it has built in Nogales and South Bay were developed with federal, state, and local partnerships and with congressional approval. In particular, USIBWC officials stated that the agency does not have specific authorization for stormwater management in the watersheds surrounding the Nogales and South Bay plants because the 1944 Treaty and accompanying legislation did not authorize that the agency carry out projects for stormwater management along the border. USIBWC s role in addressing certain transboundary stormwater flows and associated water quality problems is in dispute in ongoing litigation involving the Santa Cruz and Tijuana River basins, and USIBWC officials stated that they would not take action to resolve the stormwater quality problems without congressional direction. Yet without action, the long-standing environmental and health problems associated with transboundary stormwater flows in the watersheds of both rivers will continue. Under these circumstances, Congress has the opportunity to provide direction and specific authorization for USIBWC to take action. Such action would include identifying alternatives, cost estimates, funding, and time frames. <4.2. USIBWC Has Not Fully Incorporated Key Capital Planning Principles That Would Help Identify Alternative Approaches to Address Water Quality Problems in Both Watersheds> USIBWC has not fully incorporated key capital planning principles that would help identify alternative approaches to address water quality problems in the Santa Cruz or Tijuana River Valley watersheds. In 2019, OMB issued a Capital Programming Guide that supplements Circular A- 11, which provides guidance on capital programming, including key capital planning principles (see table 1). In February 2007, we reported that OMB s guidance on capital planning requires long-range planning and a disciplined decision-making process as the basis for managing assets to achieve an agency s goals and objectives. We also reported that the planning phase is the most important for the capital decision-making process and that it links capital asset investments to an organization s overall mission and long-term strategic goals. We emphasized that agencies should evaluate a full range of alternatives to bridge any performance gap and recommended that Congress require agencies to develop long-term capital plans and submit them for review. Furthermore, in January 2016, we reported that asset management planning for water utilities includes key components such as assessing the current state of their assets (for example pipelines and treatment plants), incorporating life-cycle costs, and developing a strategy for the long-term funding of the repair and replacement of their assets. In our review of documents and interviews with USIBWC officials, we found that the agency incorporates aspects of the key planning principles in its capital planning and budgeting but has not fully incorporated the principles. For example, the agency has a strategic plan that identifies its goals, including a goal to improve the quality of water along the border. We have stated, along with OMB, the importance of linking capital asset investments to an organization s overall mission and long-term strategic goals. However, in its capital planning and budget process, USIBWC does not fully assess or identify future needs, as called for in OMB s key capital planning principles. Those principles state that a needs assessment identifies the resources needed to fulfill both immediate requirements and anticipated future needs, based on the agency s goals and objectives. According to USIBWC officials, the agency conducts and funds capital planning on a project-by-project basis because it uses year-end money to fund studies or evaluations to identify project needs or alternatives. Specifically, USIBWC engineers identify the need for a project, and the agency identifies year-end appropriations to pay for a study of that project. For example, in one case described by a USIBWC official, the agency contracted with the Corps of Engineers to conduct a study of USIBWC flood control levees and their condition. The agency used year- end funds in its Salaries and Expenses budget line item to pay for the study, and USIBWC officials stated that the study has since been the basis for its request for levee repair and replacement projects. In addition, we found that USIBWC conducts alternative evaluations of potential projects, as directed by OMB s guidance that states an evaluation should be conducted of a wide range of alternative approaches to determine how to bridge performance gaps in capital infrastructure. According to USIBWC officials, the agency is considering a range of alternatives and plans to conduct an analysis of costs associated with the projects, as leading practices for benefit-cost analysis and alternative comparison suggest. For example, the contractor for the 2019 study of alternatives to expand or adapt the diversion infrastructure for the South Bay project has assessed alternatives and costs to reduce the number of days that transboundary flows cross the border bringing bacteria, trash, and sediment into the United States. However, this was done for one part of the water quality problems created by transboundary flows and will not solve the problems associated with water quality problems created by all stormwater flows. USIBWC has not evaluated alternative approaches or costs for managing stormwater and associated water quality problems in the Santa Cruz River Basin and Tijuana River Valley watersheds that will continue to impact water quality along the border, and states it has no responsibility to do so. USIBWC also has not developed a comprehensive, long-term capital plan to help achieve its strategic goal for water quality. Instead USIBWC has elements of a plan, such as asset management documents for each of its two wastewater plants that identify key equipment replacement costs and schedules. The Nogales plant manager provides USIBWC officials with 10-year cost projections for major equipment, which include information on cyclic maintenance and life-cycle replacements. The operator of the South Bay plant prepares a 5-year plan that assesses the condition of equipment and recommends repair and replacement. However, neither plan identifies gaps in infrastructure needed to resolve water quality problems that are separate from the plants and their normal operation, such as stormwater problems that destabilize the Nogales plant s IOI pipeline and cause polluted water to be diverted around the South Bay plant. USIBWC states it has no responsibility to do so. As noted above, USIBWC s role in addressing certain transboundary stormwater flows and associated water quality problems is in dispute in ongoing litigation involving the Santa Cruz and Tijuana River Valley basins. Under OMB s capital planning principles, conducting long-term capital planning should enable USIBWC to more systematically assess its long- term needs, including its future needs and identify alternative approaches and costs to address stormwater problems in the watersheds. Furthermore, a long-term capital plan should identify the capital projects that USIBWC needs to achieve the strategic goal it seeks to accomplish in this case, improvement of water quality along the border. In February 2007, we reported that a long-term capital plan can include elements such as (1) a baseline assessment and identification of performance gaps; (2) justification of spending on proposed new assets; (3) the basis for selecting proposed assets; and (4) cost schedules and performance goals. In addition, OMB s capital planning guidance states that each capital asset should have an operations and maintenance plan that outlines the procedures and responsibilities for scheduled preventive and regular or routine corrective maintenance. Currently, USIBWC has not comprehensively developed this information into a long-term capital plan. A long-term capital plan would help USIBWC budget for capital projects and investments in the watersheds and provide justification for funds requested for capital investment in future water quality projects. OMB Circular A-11 also encourages agencies to use a summary of the capital plan for budget justification to OMB, congressional authorizations of projects, and justification for congressional appropriations. In November 2019, OMB issued a memorandum to federal agencies that reinforced the need to implement the capital programming guidance in OMB Circular A-11 that agencies develop, document, and implement a capital planning process. In its budget process, USIBWC requests funding for individual capital projects for the budget year in which the projects are needed. Specifically, for each annual budget cycle, USIBWC s Principal Engineers provide information to agency budget officials on the projects they have identified and funds needed for each plant. USIBWC budget officials use this information to prepare budget requests that are then reviewed by the State Department and OMB, and, ultimately, Congress. According to USIBWC s Administrative Officer, the agency previously provided capital needs in an attachment to the budget requested in OMB Circular A-11. The official told us preparing the information was time-intensive yet helpful. For example, the information helped the agency understand the scope and life-cycle costs of a project. However, when OMB no longer collected agencies information, USIBWC stopped providing the information in its budget. According to Department of State budget examiners, USIBWC notifies them of potential infrastructure projects and funding needs; however, this information is not included in the agency s budget request and is therefore not available to identify funding needs. According to USIBWC officials, they do not provide the information in a budget request to State because they are told to conduct agency operations within a flat budget. By conducting long-term capital planning for the Santa Cruz River Basin and Tijuana River Valley watersheds, following the principles in OMB Circular A-11, USIBWC would have more information to address the water quality problems resulting from unmanaged stormwater in either the Santa Cruz River Basin or Tijuana River Valley watersheds; and could provide the information to State, OMB, or Congress as part of annual budget deliberations. <5. Conclusions> USIBWC and the Mexican Section of IBWC have successfully developed binational solutions to water quality issues along the U.S.-Mexico border, including constructing two international wastewater treatment plants to treat raw sewage that would otherwise flow into the United States. Nonetheless, in the decades since construction of the plants, the communities along the border have experienced exponential growth in populations and development that has, exacerbated by aging and deteriorating infrastructure, resulted in ongoing transboundary flows of raw sewage, trash, and sediment. USIBWC and the Mexican Section have discussed some alternatives to deal with ongoing water quality problems at both plants and in both watersheds. However, water quality problems, including unmanaged and untreated stormwater, bring bacteria, trash, and sediment into the lower watersheds in the United States. To date, USIBWC and the Mexican Section have only studied or monitored the problems; they have not taken actions to resolve the problems by proposing and analyzing alternatives, analyzing costs, identifying solutions, or establishing time frames. The long-standing environmental and health problems associated with transboundary stormwater flows in the watersheds of both rivers continue. USIBWC officials statement that it lacks the authority to resolve the problems suggests that congressional direction may be needed to specifically authorize USIBWC to take action. This action could include identifying alternatives, cost estimates, funding, and time frames. Such action would help address the environmental and health problems associated with transboundary stormwater flows in the Santa Cruz River Basin and the Tijuana River Valley watersheds. To help address some of the infrastructure problems in Mexico that cause the transboundary flows such as pipe breaks and pump failures USIBWC has proposed the development of a binational rapid response team comprised of technical experts in both countries that would immediately respond to infrastructure problems. However, it has not taken the necessary steps to formalize the team within IBWC. By formalizing the binational rapid response team to address sewage infrastructure failures along the U.S.-Mexico border, USIBWC would have better assurance that it is able to more effectively address the urgent and recurring sewer breaks and pump failures in Mexico that contribute to raw sewage spills. In addition, USIBWC has not fully incorporated key capital planning principles that would help identify alternative approaches for the agency to address stormwater problems in the Santa Cruz River Basin or Tijuana River Valley watersheds. By conducting long-term capital planning in the Santa Cruz River Basin and Tijuana River Valley watersheds, following the principles in OMB Circular A-11, USIBWC would have better information to address the water quality problems resulting from unmanaged stormwater in either the Santa Cruz River Basin or Tijuana River Valley watersheds. USIBWC would also have capital planning information available to provide to State, OMB, and Congress, as part of the budget process, as directed in the 2019 OMB memorandum. <6. Matters for Congressional Consideration> Congress should consider providing direction and specific authorization for USIBWC to take action to resolve the long-standing water quality problems associated with transboundary stormwater flows in the Santa Cruz River Basin watershed, including identifying alternatives, cost estimates, funding sources, and time frames, in coordination with federal, state, and local partners. (Matter for Consideration 1) Congress should consider providing direction and specific authorization for USIBWC to take action to resolve the long-standing water quality problems associated with transboundary stormwater flows in the Tijuana River Valley watershed, including identifying alternatives to include cost estimates, funding sources, and time frames, in coordination with federal, state, and local partners. (Matter for Consideration 2) <7. Recommendations for Executive Action> We are making the following two recommendations to the U.S. Commissioner of the IBWC. The U.S. Commissioner of the IBWC should work with the Mexican Commissioner to formalize a binational rapid response team to address sewage infrastructure failures along the U.S.-Mexico border, including the Nogales and South Bay wastewater treatment plants. (Recommendation 1) The U.S. Commissioner of the IBWC should direct USIBWC staff to conduct long-term capital planning for the Santa Cruz River Basin and Tijuana River Valley watersheds, following the principles in OMB Circular A-11. (Recommendation 2) <8. Agency Comments and Our Evaluation> We provided a draft of this report to USIBWC, EPA, and the Departments of State and Homeland Security for comment. USIBWC provided written comments, which are reproduced in appendix V. The other three agencies did not provide written comments on our draft report; however, they provided technical comments that we incorporated as appropriate. In its written comments, USIBWC concurred with our first recommendation that it work to formalize a binational rapid response team to address sewage infrastructure failures along the U.S.-Mexico border. The agency noted that it has held extensive consultations with the Mexican Section of the IBWC, and once there is agreement on the designated responsibilities and funding of the team, USIBWC will seek to formalize the arrangement through a written agreement or exchange of letters between the U.S. and Mexican Sections, approaches we outlined in the report. USIBWC also noted that the United States and Mexico have not agreed upon each country s share of expenses and that the U.S. financial contribution is subject to legislative approval and contributions, including in-kind contributions, from domestic nonfederal entities. USIBWC partly concurred with our second recommendation that the U.S. Commissioner of the IBWC direct staff to conduct long-term capital planning for the Santa Cruz River Basin and Tijuana River Valley watersheds. The agency noted that it provided us the long-term capital planning information previously required by the Office of Management and Budget and that the practice had been useful. However, the agency also noted that to the extent our report envisions USIBWC undertaking long-term capital planning for (1) nonfederal infrastructure; (2) infrastructure that does not yet exist; and/or (3) infrastructure that the USIBWC is not yet authorized to construct or maintain, it does not concur. USIBWC stated that Congress may not view it as the lead agency, and therefore Congress does not need to provide it with the authorization to oversee cross-border pollution matters. Regardless of whether Congress considers USIBWC as the lead agency in resolving transboundary water quality, the agency is a key player in managing water quality on the border and has the infrastructure and organization that will be part of the solution. To date, the agency has been more reactive than proactive in participating in planning efforts and studies to resolve water quality problems and has told us that it does not have the authority to do so. Yet, without the information that USIBWC would generate by comprehensively assessing its long-term needs, such as through long-term capital planning efforts, Congress cannot authorize specific work that needs to be done. We recommended that the agency conduct long-term planning, including for infrastructure that does not exist and for infrastructure that is not yet authorized specifically to address this problem. We continue to believe that USIBWC should recognize its role along the border and, as we recommended, start planning for it, including by undertaking long-term capital planning for existing and potential future infrastructure and identifying alternatives to address the long-standing water quality problems. The agency also commented on our two Matters for Congressional Consideration in which we said that Congress should consider providing direction and specific authorization for USIBWC to take action to resolve long-standing water quality problems associated with transboundary stormwater flows in the watersheds. In its comments, USIBWC stated that it partly concurred with the Matters. USIBWC also stated that the phrasing of the Matters suggests that Congress should assign USIBWC specific duties and responsibilities, including identifying time frames for a comprehensive solution of pollution problems associated with transboundary stormwater flows and binational watershed management. This is correct. In our report, we highlighted the role USIBWC plays along the border and the infrastructure USIBWC manages and operates to address transboundary flows from Mexico. Given the location of the USIBWC s wastewater treatment plants, along with its expertise and role working with Mexico, the agency would need to be centrally involved in any transboundary solution. However, it is incorrect, as USIBWC s letter further stated, that our Matters imply that USIBWC would have the lead role in resolving water quality problems along the border. USIBWC s letter stated that while the Matters acknowledge that USIBWC might coordinate with a wide range of partners, the language implies that Congress would designate USIBWC as the lead agency. Further, the agency stated that such a designation may run counter to past and current congressional intent and reasoning, as evidenced in very recent developments. In our matters, we stated that Congress should authorize USIBWC to take action to resolve water quality problems because it is a central actor in managing water and water quality along the border and because, during the course of our review, USIBWC stated that it needed specific congressional authorization to manage stormwater problems and to construct and maintain new infrastructure. We included the need for USIBWC to coordinate its action with other agencies because USIBWC would not be the sole lead actor. We note that USIBWC did not state what its role would be. Moreover, USIBWC stated that Congress may be in the process of designating EPA as the lead agency in developing major new infrastructure in the Tijuana Valley watershed to mitigate problems resulting from transboundary flows from Mexico. USIBWC also cited a recent bill to show that Congress is considering, consistent with proposals from California stakeholders, an appropriation request for as much as $300 million for the EPA to build this infrastructure. The agency stated that the bill lists USIBWC as one of 11 eligible public entities with which EPA may coordinate its efforts, as opposed to identifying the USIBWC as the lead agency. It also stated that the United States-Mexico-Canada Agreement Implementation Act accompanying this bill explains that EPA s designation as the lead agency was premised on Congress s determination that EPA has the expertise and experience necessary to lead and coordinate efforts involving wastewater, stormwater, nonpoint sources of pollution, and related matters in the Tijuana watershed. At a minimum, USIBWC will be a key partner with EPA if it is given the authority to help resolve stormwater quality problems in the Tijuana River watershed. Yet, as discussed in our report, USIBWC stated it needs congressional authorization to participate in addressing stormwater issues along the border. We note that the bill to which USIBWC refers does not specifically address USIBWC s authority to develop and implement stormwater projects near the border. Our report shows that this authorization is necessary for the agency to take action, whether as a lead agency or as an eligible partner that may coordinate with others. We added a discussion of the bill in our report, as well as about the expertise that EPA and USIBWC have to address transboundary flow problems. Specifically, we described that according to EPA officials, EPA lacks the expertise to construct and maintain water infrastructure projects on its own. Further, EPA officials stated that EPA will need to carry out any work in the area through contracts with other agencies, as EPA does not have expertise in operating and maintaining water infrastructure, as USIBWC does. EPA also noted that USIBWC is one of the only federal agencies that works across the border because it has consistent communication and contacts in Mexico. Finally, USIBWC stated in its comments that the reasoning for designating EPA in the bill and the accompanying act as the lead agency for pollution reduction for the Tijuana River watershed because of EPA s unique qualifications also applies in any border area, including the Santa Cruz watershed in Arizona. Again, our report showed that USIBWC is a central actor in managing water and water quality on the border and that congressional authorization is needed for USIBWC to help address transboundary stormwater flows, including identifying alternatives for solutions, in the Santa Cruz watershed. We did not change our Matters, but added a discussion in our report of the proposed congressional legislation to address the water quality problems in Tijuana specifically and the expertise that EPA and USIBWC each bring to addressing transboundary flow problems. We are sending copies of this report to appropriate congressional committees; the Commissioner of the U.S. Section of the International Boundary and Water Commission; the Secretaries of Homeland Security and State; the Administrator of the EPA; 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. Key contributors to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology This report (1) describes the authorities and roles involved in developing, managing, and sharing costs for the International Boundary and Water Commission s (IBWC) two international wastewater plants in the United States; (2) examines factors that affect the operation of the two plants and steps IBWC has taken to address these; and (3) examines the extent to which the U.S. Section of the International Boundary and Water Commission (USIBWC) has taken steps to address water quality problems in the two watersheds, including through the use of key capital planning principles. To address these three objectives, we visited the Nogales International Wastewater Treatment Plant (Nogales plant) in Arizona and the South Bay International Wastewater Treatment Plant (South Bay plant) in California. At each facility, we interviewed USIBWC officials and toured each wastewater treatment plant and its associated infrastructure. We also met with other federal, state, and local government officials and representatives of non-governmental organizations to discuss USIBWC s management and operations of the plant. Specifically, in Arizona we met with officials from the Department of Homeland Security s Custom and Border Protection (CBP), the City of Nogales, the Arizona Department of Environmental Quality, the County of Santa Cruz, and the nonprofit Friends of the Santa Cruz River. In California, we met with officials from CBP; Environment Protection Agency Region 9; the California Water Quality Regional Control Board; the City of San Diego; the County of San Diego; the California State Parks; the City of Imperial Beach; and Surfrider Foundation San Diego Chapter, Wildcoast, and 4Walls International (all nongovernmental organizations). We visited USIBWC Headquarters in El Paso, Texas, to meet with agency officials, including the U.S. Commissioner and budget, engineering, and general counsel staff. We also met with the Mexican Commissioner of the IBWC in Ciudad Juarez, Chihuahua, Mexico. To describe authorities and roles involved in developing, managing, and sharing the costs of USIBWC s two international wastewater plants in the United States, we reviewed the 1944 treaty between the United States and Mexico, Treaty Relating to the Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande, and associated IBWC minutes. For cost-sharing of operational and maintenance expenses at the plants, we reviewed minutes between USIBWC and the Mexican Section and a memorandum of agreement between USIBWC and the City of Nogales, Arizona. We reviewed USIBWC s budget for fiscal years 2003 through 2019, including appropriated funding information for fiscal years 2003 through 2019. We also met with budget officials at USIBWC and the Department of State. To determine if these data are reliable, we interviewed a USIBWC official about the source of the data and reviewed documentation to determine that the data were sufficiently reliable for the purposes of discussing USIBWC budget and project costs. To examine factors, if any, that affect the operation of the two plants and steps IBWC has taken to address these factors, we reviewed each plant s permit from the National Pollutant Discharge Elimination System, violation notices, and USIBWC documentation, such as plans for projects to resolve the violations. We interviewed USIBWC officials about their plans and projects to resolve any water quality problems at the plants. We also interviewed Arizona and California state environmental officials responsible for developing and enforcing the permits, to discuss permit violations and water quality problems at the plants and actions to resolve them. To examine the extent to which USIBWC has taken steps to address water quality problems in the two watersheds, including using key capital planning principles, we reviewed and analyzed IBWC minutes, USIBWC s annual financial reports for fiscal years 2015 through 2019, USIBWC s most recent strategic plan covering fiscal years 2011 through 2016, the South Bay plant s 5-year and Nogales plant s 10-year equipment investment plans, and documentation from USIBWC s citizen forums in each location. In addition, we reviewed prior GAO reports on federal agency capital planning and asset management, the Office of Management and Budget s (OMB) Capital Programming Guide (Version 3.0) Supplement to OMB Circular No. A-11, and OMB s 2019 guidance on implementing agency-wide real property capital planning. We compared USIBWC s capital planning efforts against OMB s Capital Programming Guide and past GAO reports on capital planning leading practices. Further, we interviewed USIBWC officials and stakeholders at each plant, including local government officials and environmental group representatives, about the water quality problems and solutions they have discussed. We also reviewed studies conducted in the two watersheds. We conducted this performance audit from September 2018 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. Appendix II: International Boundary and Water Commission Minutes Related to the Two U.S. Wastewater Treatment Plants Appendix III: Factors that Can Affect the Operations of the Nogales and South Bay Plants This appendix provides information about some of the factors that can affect the operations of the Nogales and South Bay plants. For the Nogales plant, the factors that can affect the operations include: Lack of heavy metal pretreatment. Numerous metal treatment and plating facilities operate in Nogales, Sonora, Mexico. These facilities directly discharge their wastewater, which contains heavy metals such as chromium, zinc, and nickel, into the city s sewer system. The heavy metals are comingled with the other sewage and sent to the Nogales plant (in Arizona) for treatment. In the United States, similar types of facilities would be required to pretreat the wastewater to remove metals and other pollutants before discharging it into the public sewer system. In the United States, the mechanism used to limit industrial discharges into a sewer system is a pretreatment program that can ultimately cause dischargers to be shut off from the system or fined if they do not limit the industrial contaminants in their discharges to the system. While a municipal pretreatment program exists in Nogales, Sonora, it is designed to meet Mexico s minimum federal requirements and is insufficient to detect and respond to the dumping of industrial contaminants when they occur, according to the Arizona Department of Environmental Quality documentation and officials. According to U.S. Section of the International Boundary and Water Commission (USIBWC) officials, the Nogales plant is not designed to separate out heavy metals during its treatment processes, and as a result the heavy metals contaminate the plant s sludge. Furthermore, due to the presence of heavy metals, USIBWC disposes of the sludge at a municipal landfill, a process that is more expensive than other disposal options, which has led to increased operational costs for the plant. According to USIBWC officials, it would cost about $60 million to update the Nogales plant to a tertiary treatment system that could remove the heavy metals from the sludge. Deteriorating sewage infrastructure in Mexico. Sewage infrastructure in the City of Nogales, Sonora, is not adequately maintained, according to USIBWC officials. As a result, USIBWC officials told us that the amount of wastewater Nogales, Sonora, sends exceeds the amount agreed upon in a minute between the two sections. Although Nogales, Sonora, built a new plant the Los Alisos Plant that can treat 5.5 million gallons per day, wastewater has to be pumped uphill from Nogales, Sonora, into the plant. After the first year of operation, the Mexican government could not maintain the plant due to funding constraints, according to USIBWC officials. The pumps responsible for delivering the wastewater uphill to the Los Alisos plant continually break or fail. For example, as of July 2019, only one of the five pumps at the Los Alisos plant was operational, according to USIBWC officials. When these pumps fail, Mexico releases the 2 million to 4 million gallons per day of wastewater which normally would have been intercepted and sent to the Los Alisos plant through the International Outfall Interceptor (IOI) to the Nogales plant. Deteriorating infrastructure in the United States. The deteriorating condition of the IOI has caused untreated sewage to periodically spill into the Santa Cruz watershed and Nogales Wash. The IOI is over 45 years old, and according to USIBWC officials, the typical lifespan of a similar pipeline is 50 years. Maintenance has been deferred because of continuing disagreement between USIBWC and the City of Nogales, Arizona, regarding which entity owns the pipeline and is therefore responsible for its maintenance, according to USIBWC officials. The IOI s condition continues to worsen and requires a significant amount of rehabilitation to address structural damage. Erosion and corrosion are continuously occurring, according to a 2005 assessment of the IOI prepared for the City of Nogales, Arizona. Specifically, gases released by the sewage corrode the pipeline, and root intrusion and groundwater cause erosion. According to the 2005 assessment, half of the thickness of the pipe had been eroded and corroded For the South Bay plant, the factor that may affect the operations is: Insufficient sewage infrastructure in Mexico. According to the 2019 study of alternatives to expand or adapt diversion infrastructure, Tijuana has not built sufficient sewage infrastructure to serve the area s increasing population and urbanization, contributing to transboundary sewage flows. According to USIBWC officials, the city of Tijuana does not prioritize wastewater issues and is experiencing exponential population growth and urbanization. As a result, areas of Tijuana are not connected to the city s sewer system. A 2017 study prepared by a Mexican state agency estimated that over $340 million would be required to fix and develop adequate wastewater treatment and reuse systems for the city of Tijuana. When there are problems with Tijuana s treatment facilities, Tijuana diverts a portion of its wastewater to be treated at the South Bay plant. If the South Bay plant is not notified and does not shut down the pump and canyon collectors, it may receive additional flows. While treating the excess wastewater does not violate the plant s National Pollutant Discharge Elimination System permit, the plant is experiencing an increase in the number of days that it treats flows above capacity, according to USIBWC officials. This could eventually cause violations to occur as the plant is not supposed to operate above capacity for prolonged periods. In addition, USIBWC officials stated that the South Bay plant is not designed and operated to address some of the wastewater that flows into the Tijuana River Valley watershed. These wastewater flows are due to: Limited Tijuana Basin diversion infrastructure. The Tijuana Basin diversion system is comprised of Mexican-operated Pump Station CILA and the South Bay plant s five canyon collectors. This system captures dry-weather flows for treatment at the South Bay plant or a wastewater treatment plant in Mexico. However, it is not designed to capture high flows that result from pipe breaks or pump failures. Specifically, the system has a peak capacity of 29 million gallons per day, while Pump Station CILA can only operate at 23 million gallons per day. To avoid affecting the South Bay plant s wastewater treatment operations, during incidents of high flows, Pump Station CILA and the canyon collectors are shut off. During these events, the water bypasses the South Bay wastewater treatment plant and flows untreated into the Tijuana River and watershed. The Senate committee report accompanying the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2019 required the USIBWC to submit a report quantifying the total annual volume of transboundary flows entering the United States from Mexico in the Tijuana River watershed. USIBWC issued this report in August 2019. Lack of maintenance for existing sewage infrastructure in Mexico. A lack of maintenance for Tijuana s existing sewage infrastructure causes excess wastewater flows into the Tijuana River according to USIBWC officials. For example, in August 2019, USIBWC reported that on June 19, 2019, nearly 1.9 million gallons of wastewater were released into the Tijuana River because trash buildup at one of Tijuana s pumps caused the pump to fail. In the last 2 decades, according to a 2019 study, the local Mexican utility that operates and manages the city s sewage infrastructure has invested in expanding the city s wastewater collection infrastructure to address direct dischargers or inadequate disposal practices, according to USIBWC officials. However, the overall system has not kept pace with the region s rapid growth, nor has the existing infrastructure in Mexico received sufficient maintenance. In addition, the local utility that manages and operates Tijuana s wastewater system has a limited number of personnel. The study also reported that existing personnel were very knowledgeable, dedicated, and creative in their efforts to maintain and operate the sewage infrastructure. Nonetheless, Tijuana s existing sewage pipes consistently break and its pump stations fail. Another 2019 study also reported that the poor condition of critical wastewater infrastructure in Mexico results in approximately 30 percent of Tijuana s wastewater enters the Tijuana River or Pacific Ocean without treatment. Appendix IV: Studies of the Santa Cruz River Basin and the Tijuana River Valley Watersheds Appendix V: Comments from the U.S. Section of the International Boundary and Water Commission Appendix VI: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, Susan Iott (Assistant Director), Heather Dowey (Analyst-in-Charge), Farah Angersola, Mark Braza, Chuck Bausell, Tara Congdon, Carol Henn, Richard P. Johnson, Anika McMillon, Sara Sullivan, and Kiki Theodoropoulos made key contributions to this report.

Why GAO Did This Study Ongoing sewage spills and stormwater runoff carrying trash, sediment, and other pollutants in the Santa Cruz River Basin and Tijuana River Valley watersheds along the U.S.-Mexico border have affected public health, the environment, and local economies. Under the 1944 treaty, the United States and Mexico agreed to work together through IBWC to address these water quality problems. As part of this effort, USIBWC manages two wastewater treatment plants in Arizona and California. In 2018, the plants treated more than 14 billion gallons of sewage from Mexico. This report (1) describes the authorities and roles for developing and managing the plants and sharing their costs; (2) examines factors affecting the operation of each plant and steps taken to address them; and (3) examines the extent to which USIBWC has taken actions to address water quality problems in the watersheds. GAO reviewed U.S-Mexico treaties, IBWC minutes and permits, and planning and budget data for USIBWC. GAO also interviewed officials from IBWC and other federal agencies, local and state governments, and non-governmental groups. What GAO Found A 1944 treaty designated the International Boundary and Water Commission (IBWC) and authorized it to resolve water and boundary issues along the U.S.-Mexico border, including providing wastewater treatment. IBWC's two sections—the U.S. Section (USIBWC) and the Mexican Section, negotiated agreements to construct, manage, and operate two wastewater plants in Nogales, Arizona, and San Ysidro (South Bay), California, to resolve ongoing water quality problems stemming from sewage flowing downhill from Mexico into the United States (see figure). Several of these agreements describe each country's roles, such as sharing costs for the operation and maintenance of each plant. Several factors can affect the plants' operations, including deteriorating infrastructure in Mexico and the United States that results in raw sewage spills around the plants. USIBWC has taken steps to resolve some of these factors. For example, USIBWC proposed a binational rapid response team to address broken pipes and failing pumps that can send sewage from Mexico into the United States; however, the team has not been formalized to ensure its long-term operation. By taking steps to formalize the team, USIBWC would have assurance it can more effectively address recurring infrastructure failures contributing to sewage spills. USIBWC and others have taken some actions to address stormwater problems, such as studying stormwater flows in the Tijuana River Valley watershed and building some retention basins. However, USIBWC has not taken action, in coordination with federal, state, and local partners, to identify alternatives, cost estimates, funding sources, and time frames for implementing solutions in either watershed. USIBWC officials said without direction from Congress, it does not have specific authorization for stormwater management in the watersheds because the 1944 treaty and accompanying legislation did not authorize it to carry out such projects. The long-standing stormwater quality problems and their associated environmental and health effects suggest congressional direction is needed to authorize USIBWC to take action. Such action would include identifying alternatives, cost estimates, funding sources, and time frames. What GAO Recommends GAO believes that Congress should consider providing direction and specific authorization to USIBWC to take action to resolve stormwater quality problems in the Santa Cruz River Basin and Tijuana River Valley watersheds. GAO is also making two recommendations to USIBWC, including that it formalize the rapid response team. USIBWC concurred with that recommendation and partly concurred with the other.

gao_GAO-20-450T

gao_GAO-20-450T_0

<1. DHS Uses Multiple Information Sources to Identify Potential EEO Barriers> DHS generally uses the information sources that EEOC guidance recommends to help identify potential barriers. As directed by EEOC guidance, DHS analyzes its workforce data to help identify triggers or indicators of potential EEO barriers by comparing the racial, national origin, gender, and disability profiles of its total workforce, and for various occupational categories to relevant civilian labor workforce data. In addition to analyzing workforce data, in each of the fiscal years 2014 through 2017, DHS utilized the U.S. Office of Personnel Management s Federal Employee Viewpoint Survey and DHS s employee exit survey results to help identify and address barriers. To further help identify barriers, EEOC guidance states that agencies must solicit input from agency employee and advocacy groups, and union officials. During our small group discussions, DHS employee groups told us that through the MD-715 report development process, they helped identify and address triggers and barriers. For example, Special Emphasis Program Managers we spoke with told us that DHS components conduct climate surveys to obtain input from employees on workforce practices every 1 or 2 years. Further, several DHS components MD-715 reports referenced soliciting employee input, such as obtaining Disability Employment Program Managers input via quarterly disability employment advisory council meetings where they share best practices and discuss issues and topics including barriers. <2. DHS Reports Some Improvements in Employee Engagement and Representation of Minorities and Women, but Lacks Performance Metrics for Tracking Progress> DHS reports some improvements in employee engagement and representation of minorities and women. DHS s employee engagement scores in the Federal Employee Viewpoint Survey increased from 54 percent in 2014 to 62 percent in 2019. In addition, our review of DHS s workforce data from fiscal years 2014 through 2017 showed that every minority group as well as individuals with disabilities and individuals with targeted disabilities had been trending in a positive direction since fiscal year 2014. Further, DHS officials told us that minority representation was up 3 percent and female representation was up 2 percent from 2015 to February 2019. According to EEOC, one important tool in examining the fairness and inclusiveness of an agency s recruitment efforts is applicant flow data. EEOC guidance states that having department-wide applicant flow data could aid in analyzing differences in selection rates among different groups for a particular job. In July 2017, EEOC informed DHS that the agency s applicant flow data were incomplete, which makes it difficult to pinpoint barriers. DHS has reported challenges in collecting department- wide data because the department does not have a consolidated applicant flow data system. According to DHS, four of its components use one system (USA Staffing), while five other components use a different system (Monster Government Solutions). CRCL officials told us that DHS is developing a new system to integrate applicant flow data department-wide. However, the officials could not give us a time frame for when the system is expected to be completed. In its fiscal year 2018 MD-715 report, DHS reported that it continues to work towards developing a central repository for all applicant flow data. As a work-around, DHS officials said that it obtains these data directly from each component that uses Monster Government Solutions. In its fiscal year 2018 MD-715 report, DHS reported that it used applicant flow data to complete analyses, but it also reported a number of limitations, including that data were not available. In February 2020, CRCL officials told us that they plan to report complete applicant flow data in DHS s fiscal year 2019 MD-715 report. DHS does not have complete performance metrics or mechanisms for tracking progress towards eliminating its identified EEO barriers, such as workplace satisfaction of white females or the retention rate of women in law enforcement positions. According to CRCL officials, they are not required to establish performance metrics or mechanisms for tracking progress towards eliminating barriers beyond what is included in the department-wide MD-715 report. However, Standards for Internal Control in the Federal Government states that management should establish specific and measureable objectives, and ways to assess progress including performance metrics and milestones. Further, EEOC guidance states that agencies are not prevented from establishing additional practices that exceed its requirements. Implementing performance metrics could help DHS assess its progress in eliminating EEO barriers. Accordingly, our July 2019 report included a recommendation that the Secretary of Homeland Security should develop performance metrics for the department s EEO program including a mechanism for tracking progress towards eliminating barriers. DHS concurred with the recommendation and stated that it would implement it by April 30, 2020. In February 2020, CRCL officials told us they are working with DHS s Management Directorate to develop a potential overarching performance metric that, if approved, would be implemented beginning in fiscal year 2021. <3. DHS and Its Components Have Identified Various Deficiencies in Their EEO Programs, but in Some Cases Lack Action Plans to Address Them> Our analysis of DHS s MD-715 reports found that the department-wide EEO program did not meet about a quarter of the compliance measures for a model EEO program for each fiscal year from 2014 through 2017. For example, in each of the fiscal years 2015 through 2018, DHS reported that senior managers at DHS components did not successfully implement EEO action plans and incorporate EEO action plan objectives into agency strategic plans. In addition, our analysis of components MD- 715 reports showed that component EEO programs did not meet 9 percent of the compliance measures for a model EEO program from fiscal years 2014 through 2017. DHS components did not have action plans to address nearly half (179 out of 369) of the deficiencies self-reported by all components from fiscal years 2014 through 2017. For example, in fiscal year 2017, four DHS components did not have action plans to ensure that their EEO directors report directly to their agency heads. EEOC guidance requires that for each deficient measure, agencies are to develop an action plan for correcting the deficiency. CRCL officials told us that DHS and its components MD-715 reports met EEOC requirements for action plans for fiscal years 2014 through 2017 by providing explanations for, or briefly stating plans to address, the majority of their deficiencies rather than developing action plans identifying how each deficiency would be addressed. Developing policies and procedures to help ensure components EEO programs have action plans for addressing deficiencies could help DHS components better comply with EEOC requirements. DHS and its components lack adequate staffing to address EEO program deficiencies, in part, because CRCL and component EEO officials told us that they do not have formal staffing models to assess appropriate staffing of their EEO program sections. CRCL officials said that each component EEO program section is unique with its own assessments and measures by the leaders in charge of their funding and staffing resources. However, EEOC MD-715 guidance states that an agency must provide its EEO program with sufficient budget and staffing to be able to successfully implement various activities. Developing and utilizing formal staffing models a tool to determine the number of staff required for their EEO programs could help DHS and its components to identify, request, and obtain the staff they need. Thus, in our recently issued report, we recommended that (1) DHS component EEO Directors, in consultation with the Deputy Officer for EEO and Diversity, should develop policies and procedures to help ensure that their component EEO programs have action plans for addressing deficiencies in their MD-715 reports, and (2) the Deputy Officer for EEO and Diversity should develop a formal staffing model for its EEO program. DHS concurred with the recommendations and stated that it would implement them by April 30, 2020. In February 2020, CRCL officials told us that they are developing policies and procedures for components to consider. They also told us that they are collaborating with the DHS Management Directorate to develop a formal staffing model for DHS s department-wide EEO program. In addition, we recommended that DHS component EEO Directors, in collaboration with the Deputy Officer for EEO and Diversity, develop component formal staffing models. DHS concurred with the recommendation and stated that it would implement it by July 31, 2020. In February 2020, CRCL officials told us that the DHS Management Directorate plans to work with components to develop formal staffing models for their individual EEO programs after the agency develops a formal staffing model for the department-wide EEO program. <4. DHS Has Plans to Address the Nine Areas of EEOC Identified Noncompliance> DHS has plans to address the nine areas of noncompliance in its EEO program identified by EEOC. For example, in its July 2017 review of DHS compliance with EEOC requirements, EEOC identified that DHS did not provide complete demographic data on new hires and promotions in its fiscal year 2016 report to EEOC. In April 2019, DHS officials told us that the department plans to report the data by collecting complete data from DHS components in fiscal year 2019. In its fiscal year 2018 MD-715 report, which DHS sent to EEOC in July 2019, DHS stated that it had collected and analyzed demographic data on new hires and promotions. <5. DHS s EEO and Human Capital Offices Use a Variety of Means to Oversee and Support Components in Identifying and Addressing EEO Barriers, but Need to Strengthen Oversight Efforts> DHS s EEO and human capital offices assist and support DHS components in identifying and addressing EEO barriers. For example, CRCL meets with each component to obtain updates on their EEO efforts and provide verbal feedback as they develop their MD-715 reports. DHS components told us that they are generally satisfied with CRCL s collaboration practices to identify and address EEO barriers. For example, all nine components required to submit MD-715 reports told us that CRCL regularly meets with them and provides guidance on identifying and addressing barriers. From fiscal years 2014 through 2017, EEOC found areas of noncompliance in DHS and its components EEO programs. We found that DHS components had not responded timely and completely to areas of noncompliance identified in EEOC feedback letters. According to CRCL officials, CRCL does not have policies and procedures to ensure that components have addressed EEOC s feedback letters in a complete and timely manner. However, EEOC MD-715 guidance states that an agency s EEO Director ultimately is responsible for ensuring equal opportunity throughout the entire agency. In addition, Standards for Internal Control in the Federal Government states that management should implement control activities through policies. Developing policies and procedures for responding completely and timely to EEOC s feedback letters may help the department comply with EEOC guidance. CRCL officials said they lack authority to ensure components compliance with EEOC requirements. Standards for Internal Control in the Federal Government states that an effective management practice includes periodically evaluating the agency s organizational structure to ensure that it meets its objectives. DHS has not taken steps in consultation with EEOC and other agencies as relevant to analyze options to address EEO program management weaknesses. Specifically, it has not analyzed alternatives for granting additional authorities to the Deputy Officer for EEO and Diversity to ensure DHS components comply with MD-715 guidance, or assessed benefits and trade-offs of each alternative. Without addressing these issues, DHS may not be effectively positioned to manage its EEO program. In our report, we recommended that the (1) Deputy Officer for EEO and Diversity develop policies and procedures for responding in a complete and timely manner to EEOC s feedback letters, and (2) the Secretary of Homeland Security in consultation with CRCL and EEOC, and other agencies and components, as relevant analyze options for granting additional authorities to the Deputy Officer for EEO and Diversity to ensure DHS components comply with MD-715 guidance, including the authority of the Deputy Officer for EEO and Diversity to certify components MD-715 reports. DHS concurred with the recommendations and stated that it plans to implement them by April 30, 2020. In February 2020, CRCL officials told us they are developing policies and procedures for responding in a complete and timely manner to EEOC s feedback letters. They also told us that a cross-component working group, with input from EEOC subject- matter experts, is developing a report benchmarking best practices at similar federal agencies that it expects to complete by the end of March 2020. In conclusion, as the third largest U.S. government department, the challenges DHS has faced to fully implement effective EEO programs may result in widespread negative consequences such as (1) monetary expenses borne by the agency in connection with workplace disputes and (2) decreased morale and productivity resulting from ineffective and inefficient use of human capital resources. We found areas for improvement in DHS and its components EEO programs that could help ensure success and compliance with MD-715. The commitment of DHS s leadership is essential to successfully addressing these issues. By focusing leadership attention on developing performance metrics, policies and procedures, and staffing models, DHS and its components can help improve their EEO programs by making progress towards eliminating barriers, obtaining sufficient staffing, and addressing areas of noncompliance. Madam Chairwoman Torres Small, Ranking Member Crenshaw, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have at this time. <6. GAO Contacts and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Yvonne D. Jones at (202) 512-6806 or [email protected], or Christopher P. Currie at (404) 679-1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Clifton G. Douglas, Jr. (Assistant Director), Luis E. Rodriguez (Analyst-in-Charge), Andrew Howard, Kate Lenane, Steven Putansu, and Rachel Whitaker. 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.

Why GAO Did This Study EEOC's Management Directive 715 requires that, to attract and retain top talent, federal agencies are to identify EEO barriers in their workforces and deficiencies in their EEO programs, execute plans to address them, and report annually to EEOC. GAO reported in 2009 on DHS's opportunities to address barriers to EEO in its workforce and in 2019 on DHS's challenges to ensuring EEO in its workforce. GAO was asked to testify on the steps DHS has taken to (1) identify and address barriers to EEO in its workforce, (2) identify and address EEO program deficiencies, (3) address areas of noncompliance in its EEO program identified by EEOC, and (4) oversee and support components' EEO programs. To do so, GAO summarized the findings discussed in its July 2019 report on DHS's EEO efforts and reported on DHS's actions taken to address recommendations. To obtain updates on actions taken by DHS, GAO reviewed relevant documentation and interviewed DHS EEO officials. What GAO Found The Department of Homeland Security (DHS) uses multiple information sources to identify potential barriers to equal employment opportunity (EEO), but lacks performance metrics for tracking its progress towards eliminating identified barriers. DHS generally uses the information sources that the Equal Employment Opportunity Commission (EEOC) guidance recommends, such as employee survey results, to help identify potential barriers. While DHS reports some improvements in employee engagement and representation of minorities and women from fiscal years 2014 through 2018, it does not have complete performance metrics, such as the retention rate of women in law enforcement positions. Using performance metrics could help DHS assess its progress in eliminating barriers. DHS and its components have identified various deficiencies in their EEO programs, but lack policies and procedures for developing action plans and formal staffing models to address deficiencies. For example, in each of the fiscal years 2015 through 2018, DHS reported that senior managers at DHS components did not successfully implement EEO action plans and incorporate EEO action plan objectives into agency strategic plans. Further, DHS components lacked action plans to address nearly half (179 out of 369) of the deficiencies self-reported by all components from fiscal years 2014 through 2017. For example, in fiscal year 2017, four DHS components did not have action plans to ensure that their EEO directors report directly to their agency heads, as required by EEOC guidance. Developing policies and procedures to help ensure components' EEO programs have action plans for addressing deficiencies could help DHS components better comply with EEOC requirements. In addition, developing and using formal staffing models—a tool to determine the number of staff required—for their EEO programs could help DHS and its components to identify, request, and obtain the staff they need. For example, DHS and its components reported that staffing challenges contributed to some of their program deficiencies, and acknowledged they did not have formal staffing models for their EEO programs. DHS has plans to address nine areas of noncompliance in its EEO program identified by EEOC. In its July 2017 review of DHS compliance with EEOC requirements, EEOC found that DHS did not provide complete demographic data on new hires and promotions in its fiscal year 2016 report to EEOC. DHS reported to EEOC that it had collected and analyzed such demographic data beginning in fiscal year 2019. DHS's EEO and human capital offices assist and support DHS components in identifying and addressing EEO barriers. However, DHS's EEO office lacks policies and procedures to ensure components respond timely and completely to areas of noncompliance identified in EEOC feedback letters. Additionally, DHS EEO officials said they lack authority to ensure components' compliance with EEOC requirements. Without addressing these issues, DHS may not be effectively positioned to manage its EEO program. What GAO Recommends In its July 2019 report, GAO recommended that DHS take six actions, including develop performance metrics for the department's EEO program; develop DHS and component formal staffing models; and analyze options for granting additional authorities to the most senior official for EEO and Diversity. DHS concurred with the six recommendations and described actions the department plans to take to address them.

gao_GAO-20-84

gao_GAO-20-84_0

<1. Background> Congress provided DOD the authority to use other transactions in the late 1980s and has expanded the authority over time. In 1989, Congress provided the Defense Advanced Research Projects Agency the authority to temporarily use other transactions for research projects. These transactions were intended to spur research and development that would benefit both commercial companies and the government. In 1991, Congress allowed the military departments to use the authority as well and made the authority permanent. In 1993, Congress provided the Defense Advanced Research Projects Agency the authority to award other transactions for prototype projects. Congress expanded the authority to the military departments and other defense agencies in 1996. In 2001, Congress allowed DOD to provide for follow-on production in prototype other transactions. Further, DOD could award follow-on production other transactions, without using competitive procedures, to the participants of a successfully completed, competitively awarded prototype project, provided several conditions were met. Congress codified DOD s other transaction authority for prototype and follow-on production other transactions at section 2371b of title 10, U.S. Code, in 2015. Congress did not define a prototype project in statute. DOD s November 2018 Other Transactions Guide, however, defined a prototype project as addressing a proof of concept, model, novel application of commercial technologies for defense purposes, or a process including a business process, among other types. Under section 2371b, DOD can use other transactions for prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by DOD, or to improve those in use by the armed forces. In addition, Congress has required DOD to meet at least one of the following four conditions to use a prototype other transaction: 1. There is at least one non-traditional defense contractor or non-profit research institution participating to a significant extent in the prototype project. 2. All significant non-government participants in the transaction are small businesses or non-traditional defense contractors. 3. At least one-third of the total cost of the prototype project is to be paid out of funds provided by sources other than the federal government. 4. The senior procurement executive determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract. Section 2371b of title 10, U.S. Code, does not limit DOD to awarding prototype other transactions to non-traditional companies. DOD could award traditional defense contractors a prototype other transaction under the first, third, and fourth conditions listed above. It could also award prototype other transactions to consortiums, which may be comprised of non-traditional companies, traditional defense contractors, and others such as non-profit research institutions. These consortiums may be administratively managed by a single firm. Consortium management firms in general provide administrative support to consortium members, such as distributing requests for proposals, holding proposal writing workshops, negotiating the general terms and conditions of prototype projects with consortium members, and making payments to consortium members. For example, Advanced Technology International, a consortium management firm, reported that it represented 298 members in the Countering Weapons of Mass Destruction consortium as of September 2019, according to its website. The website also states that 87 percent of the consortium s members were non-traditional companies. Contracting offices generally designate a subset of their contracting officers to award other transactions, including prototype other transactions. In this capacity, these individuals are referred to as agreements officers. According to senior contracting officials at offices we included in this review, agreements officers are typically more experienced contracting officers that have demonstrated the ability to exercise business acumen and judgement in a less structured contracting environment and have a strong working knowledge of intellectual property. All of the contracting offices we included in this review required agreements officers to complete training courses offered by their office or the Defense Acquisition University related to the award of other transactions. The Director, Defense Procurement and Acquisition Policy, issued an Other Transaction Guide for Prototype Projects in January 2017 that included general information about planning, evaluating, and awarding prototype other transactions. The Office of the Under Secretary of Defense for Acquisition and Sustainment issued updated guidance in November 2018 that covered all types of other transactions, including case studies and lessons learned to help agreements officers when awarding other transactions. For example, the November 2018 guide states the following: An agreements officer should consider whether a company is supplying a new key technology, providing a material increase in the performance of a product, or making some other contribution when determining if a non-traditional company or non-profit research institution will be participating to a significant extent. DOD components should not establish predetermined percentages of total costs or labor hours to determine significant participation. As such, agreements officers can use their own discretion when using cost and labor hour information to determine if a non-traditional company is playing a significant role on a prototype other transaction. The Competition in Contracting Act does not apply to other transactions, but competition and fairness are still important considerations and agencies may determine how competition will be structured. Other transactions may take longer to award than FAR-based contracts due to factors such as drafting and negotiating all the terms and conditions in an other transaction. Fiscal law requirements are applicable to other transactions and the decision to use an other transaction does not expand or restrict available appropriations. Therefore, multiple funding types, including research, development, test, and evaluation; procurement; and operations and maintenance appropriations may be appropriate depending on the intent and stage of the prototype. Modifications of ongoing transaction projects are fairly common and other transactions should address how changes will be handled. <2. DOD s Use of Prototype Other Transactions Increased from Fiscal Years 2016 through 2018> DOD significantly increased its use of prototype other transactions from fiscal years 2016 through 2018, both in terms of the number of prototype other transactions awarded and the amount obligated on prototype other transactions. Most prototype other transactions involved at least one non- traditional company that was participating to a significant extent. About 71 percent of the obligations were awarded to three consortiums and two traditional defense contractors. DOD is currently preparing a report to Congress on its use of the other transaction authority and working to address certain limitations in its data collection efforts, including improving data related to consortiums. <2.1. DOD s Use of Prototype Other Transactions Grew Significantly from Fiscal Years 2016 through 2018> FPDS-NG data showed that DOD obligated a total of $7.2 billion on prototype other transactions from fiscal years 2016 through 2018. The total number of new prototype other transactions increased five-fold from 34 to 173 during this time frame. According to a Defense Pricing and Contracting official, DOD is encouraging the use of these transactions as a way to acquire innovative technology from non-traditional companies that it could not typically access. There were also modifications and orders related to these prototype other transactions and those awarded in prior years that resulted in a change in obligations, such as providing funding to members of consortiums to carry out new projects. As discussed in more detail later in the report, FPDS-NG did not identify the number of projects carried out by consortiums. Overall, obligations made on prototype other transactions nearly tripled from $1.4 billion to $3.7 billion (see fig. 1). The Army, Defense Advanced Research Projects Agency, and the Air Force accounted for 97 percent of all new awards and actions that resulted in a change in obligations from fiscal years 2016 through 2018. They also accounted for 97 percent of the total amount obligated on these new awards and actions (see table 1). Appendix I shows more detailed information. The Army was responsible for over two-thirds of the new awards and actions made from fiscal years 2016 through 2018 valued at nearly $5.3 billion but some of these were awarded on behalf of other DOD components, such as the Air Force, Navy, and Defense Innovation Unit. Officials from the Air Force Research Laboratory and Navy s Office of Naval Research told us that they relied on the Army to award prototype other transactions on their behalf because, in some cases, the Army had previously awarded a transaction, such as to a consortium, which they could leverage to meet their own components needs. The Army awarded prototype other transactions on behalf of the Defense Innovation Unit, as it did not have the authority to award prototype other transactions, until November 2018. <2.2. Majority of Awards Cited That at Least One Non- Traditional Company or Non-Profit Research Institution Was Participating to a Significant Extent> DOD reported that at least one non-traditional company or non-profit research institution participated to a significant extent one of four statutory conditions that Congress established for the appropriate use of a prototype other transaction in 88 percent of the 1,250 new awards and actions made from fiscal years 2016 through 2018 (see fig. 2). <2.3. Majority of Dollars Were Obligated to Consortiums and Traditional Defense Contractors> We found that from fiscal years 2016 through 2018, the top five recipients by obligations were either consortiums or traditional defense contractors. Awards to these five recipients accounted for $5.1 billion or 71 percent of the obligations on new awards and actions during this time frame (see table 2). Three of the top five recipients were consortium management firms Advanced Technology International, Consortium Management Group, and National Center for Manufacturing Sciences. In general, a consortium management firm does not complete the prototype, but rather helps manage consortium members. The other two companies among the top five were traditional defense contractors Lockheed Martin and Aerojet Rocketdyne. As stated earlier, according to statute, traditional defense contractors can be awarded prototype other transactions under three possible conditions: by partnering with at least one non-traditional defense contractor or non- profit research institution participating to a significant extent, paying at least one-third of the total project cost, or having the government agency s senior procurement executive determine in writing that exceptional circumstances justify the use of a prototype other transaction. Paying one-third of the project s costs is an example of cost-sharing. For the eight new prototype other transactions these two companies were awarded from fiscal years 2016 through 2018, four involved non- traditional companies or non-profit research institutions that participated to a significant extent and the remaining four involved cost-sharing arrangements. In the one prototype other transaction awarded to Lockheed Martin that we reviewed, the Army entered into the transaction, currently valued at $17.5 million, to prototype two removable sensors for unmanned aircraft. According to the Army agreements officer, Lockheed Martin was awarded an other transaction instead of a FAR-based contract because Lockheed Martin needed to collaborate with four other companies that were awarded prototype other transactions. The Army agreements officer told us he concluded that it would have been difficult for all the contractors to collaborate if some were operating under prototype other transactions and Lockheed Martin was subject to the requirements of a FAR-based contract. Since Lockheed Martin did not have a non-traditional company participating to a significant extent on the prototype other transaction it was awarded, the company was required to pay at least one-third of the cost of the project to comply with statutory requirements. Lockheed Martin used a combination of in-kind contributions, such as test articles, and independent research and development funds for its share of total project costs. <2.4. DOD Is Preparing a Report on Its Use of the Other Transaction Authority and Addressing Certain Data Limitations> In response to congressional direction, DOD expects to submit a report in November 2019 on its use of the prototype other transaction authority in fiscal year 2018. This report will include, among other elements, data on new prototype other transactions awarded in fiscal year 2018; actions made in fiscal year 2018 on these prototype other transactions and ones awarded in prior fiscal years; detailed information on the DOD organizations using the authority; the purpose and status of projects; and those prototype other transactions that led to a follow-on production other transaction. This report, which was originally due to be delivered in December 2018 was delayed, according to DOD, as FPDS-NG was not configured to capture all the data needed to prepare the report. DOD s Defense Pricing and Contracting is collecting the required data directly from DOD components. DOD and military component officials whom we interviewed acknowledged limitations in the FPDS-NG data on prototype other transactions. DOD officials stated they have addressed some of these limitations and officials are discussing how to improve the information collected in the future. For example, as noted above, we found four other transaction awards for the production of products and four procurements for experimental purposes identified as prototype other transactions in FPDS-NG. According to Defense Pricing and Contracting officials, until June 2019, DOD did not have the ability to differentiate between prototype and production other transactions in FPDS-NG; therefore, both prototype and production other transactions were reported as prototype other transactions. The General Services Administration the organization that is responsible for managing and updating FPDS-NG added an option in FPDS-NG that would allow users to identify other transactions as either for a prototype or production, as appropriate, beginning in June 2019. DOD officials stated that they are discussing the best approach for consistently identifying procurements for experimental purposes in FPDS-NG. This could include adding an option to FPDS-NG for users to identify these procurements or including unique letters in the award number. DOD officials are also working to address FPDS-NG data limitations related to consortiums that reduce DOD s management insight on the use and award of prototype other transactions. Army contracting officials noted that FPDS-NG tracks information about the base prototype other transaction that is awarded to a consortium, but does not track data about each project conducted through the consortium, such as whether a non- traditional company is participating on each project. The Army Deputy Assistant Secretary for Procurement issued a policy, effective October 1, 2019, that changes how the Army reports other transactions into FPDS- NG to improve data on projects conducted by consortium members. The policy, however, does not discuss how it will track non-traditional company participation. Further, FPDS-NG does not track the extent of competition among consortium members. DOD officials stated that, while FPDS-NG data shows DOD competitively awarded 48 percent of all prototype other transaction obligations for fiscal years 2016 through 2018, they believed this figure understates the degree of competition actually achieved. These issues are illustrated in the following examples. FPDS-NG shows that Advanced Technology International was awarded a prototype other transaction in fiscal year 2018 with a ceiling of $10 billion for the Countering Weapons of Mass Destruction Consortium. FPDS-NG also shows that, as of March 2019, the Army had obligated $116 million as modifications under the base transaction, and, according to the Army Contracting Command-New Jersey agreements officer, were for consortium members to carry out various prototype projects. FPDS-NG did not identify the number of projects that are being carried out by the consortium or which consortium members were participating on the projects. The Army Contracting Command-New Jersey agreements officer that awarded this prototype other transaction, however, maintained her own records to help her manage and oversee the consortium s efforts. According to this agreements officer, as of March 2019, all 44 projects carried out by consortium members involved non-traditional companies 37 prototype projects were carried out by non-traditional companies that served as prime contractors and seven prototype projects were carried out by traditional defense contractors with subcontractors that were non-traditional companies that participated to a significant extent. FPDS-NG shows that the base contract, as well as all the modifications, for a different prototype other transaction the Army Contracting Command-New Jersey awarded to Advanced Technology International was non-competitively awarded. These modifications accounted for 69 percent or $2.6 billion of the non-competitive obligations DOD made through new awards and actions from fiscal years 2016 through 2018. However, according to command contracting officials, during this time frame, all the obligations on modifications were associated with projects that were competitively awarded among consortium members. DOD senior contracting officials stated that FPDS-NG tracks only whether the base transaction was competitively awarded and that modifications made to transactions awarded to consortiums automatically retain the same competitive or non-competitive designation as the base contract. <3. DOD Agreements Officers Used Multiple Methods to Evaluate Non-Traditional Company Status and Participation Agreements Officers Used Various Methods to Determine Whether a Company Was a Non- Traditional Company> Agreements officers used multiple methods to determine whether and to what extent non-traditional companies were participating on the prototype other transactions we reviewed. We found that agreements officers first determined whether a company was traditional or non-traditional by reviewing government databases and consulting with subject matter experts, among other approaches; and then determined the extent to which a non-traditional company was expected to participate on a prototype other transaction. In accordance with DOD s November 2018 Other Transactions Guide, agreements officers determined whether non-traditional companies participated on nine of the 11 transactions in our non-generalizable sample that met this statutory condition. For the other two transactions, one involved a cost sharing arrangement between the Army and a traditional defense company; therefore, the agreements officer did not have to make this determination. The other instance involved the award of an other transaction to a consortium. In this instance, the consortium and agreements officer set out to negotiate general terms and conditions that would flow down to subsequent prototype projects carried out by consortium members. The agreements officer plans to make the determination about whether a non-traditional company is participating or meeting another statutory condition on a case-by-case basis for each subsequent prototype project that is funded. Agreements officers typically used more than one method to determine if a company was a non-traditional company for the nine transactions in our sample. For example, agreements officers considered, in varying combinations, a contractor s assertion, data from government information systems, subject matter expert input, or market research when making the determination (see table 3). As reflected in table 3, in none of the cases we reviewed did an agreements officer rely solely on the contractor s assertion that a company was a non-traditional company. The following two examples illustrate the type of actions agreements officers took to determine that a contractor was a non-traditional company: In a $19.3 million prototype other transaction awarded by Washington Headquarters Services for a large autonomous ship, the prime contractor stated that it and a subcontractor were non-traditional companies. This was because neither had performed work on a DOD contract or subcontract that was subject to full cost accounting standards in the preceding year, which is one of the statutory criteria to be considered a non-traditional company. To confirm that the prime contractor and the subcontractor were non-traditional companies, the agreements officer checked the System for Award Management, leveraged market research, and relied on input from technical officials from the Navy s Surface Warfare Directorate and Unmanned Maritime Systems Program Office with industry knowledge about contractors. In a $10 million Army prototype other transaction for an artificial intelligence war-gaming capability, the contractor that was to perform all the work stated that it met the statutory definition of a non- traditional company. To verify its status, the agreements officer determined that the contractor did not have a record in the System for Award Management, which would ordinarily be required if the company had previously done business with the federal government. The agreements officer also conducted market research to verify that the company was not a DOD subcontractor that was subject to cost accounting standards in the preceding year. <3.1. Agreements Officers Then Used Various Methods to Determine Whether the Non-Traditional Company Was Participating to a Significant Extent> After determining whether a company was a non-traditional company, agreements officers then used various methods to determine whether one or more non-traditional companies would play a significant role on the nine prototype other transactions before they were awarded. These methods included assessing whether the contractor was performing all the work on the prototype, evaluating whether the services or technologies provided by the non-traditional companies were critical, using input from subject matter experts, or considering the percentage of total costs or labor hours performed by the contractor (see table 4). As shown in table 4, the proportion of award values received by non- traditional companies on the prototype other transactions, which ranged from 16 to 100 percent, did not always indicate the significance of the non-traditional companies contributions. Consistent with DOD guidance, agreements officers took various factors into account when determining whether a non-traditional company is participating to a significant extent. In the transaction in which the non-traditional company was expected to receive about 16 percent of the total award value, the agreements officer considered the engineering work performed by a non-traditional company which was a subcontractor on the effort to be critical to developing the data port for a robotic satellite servicing vehicle. In another example, the agreements officer and Navy subject matter experts determined a non-traditional company that would receive less than 25 percent of a transaction s overall award value was participating to a significant extent since it was providing the vessel and crew necessary to execute testing of the large autonomous ship that was being prototyped. <4. DOD Agreements Officers Generally Followed Established Review Processes for Awarding Selected Prototype Other Transactions DOD Contracting Offices Established Processes for Reviewing Prototype Other Transactions> Agreements officers followed their commands established review processes, which involved higher level reviews by senior officials and legal reviews, in nine of the 11 transactions in our sample. Agreements officers did not obtain higher level reviews in the two remaining transactions, but senior contracting officials plan to take action to address the issues we identified. Award times for these transactions ranged from 45 to 370 days. Each of the DOD contracting offices we assessed established policies for reviewing prototype other transactions before award, though the processes differed. For example, the contracting offices we evaluated generally required other transactions to be reviewed by an official at least one level above the agreements officer and to be subject to a legal review. Some contracting offices required additional reviews at higher dollar thresholds. In addition, the officials responsible for reviewing transactions within a contracting office sometimes differed based on the expected dollar value of the transaction. For example, at the Army Contracting Command-New Jersey, the Branch Chief can review only transactions valued at less than $10 million. Transactions exceeding that amount would be reviewed by a higher ranking official, such as the Center Director. According to senior contracting officials, the review process is intended to ensure that prototype other transactions meet the statutory requirements for use of the authority before award. The review process also facilitates component efforts to obtain the best deal for the government based on decisions by the agreements officers, senior contracting and program officials, and legal advisors about factors such as whether to compete the transaction and whether to obtain technical data rights for the prototype. Table 5 provides more specific information on the review process required by the Air Force Research Laboratory, Army Contracting Command-New Jersey, Defense Advanced Research Projects Agency, and Washington Headquarters Services. <4.1. Agreements Officers Documented Various Decisions Prior to Awarding Prototype Other Transactions> Agreements officers in our review documented aspects of their decision making prior to awarding a transaction. For example, agreements officers generally documented the condition under section 2371b of title 10, U.S. Code, that was met to use a prototype other transaction, and some documented the negotiation process with the commercial companies regarding terms and conditions of the transactions. We also found that the Air Force Research Laboratory, Defense Advanced Research Projects Agency, and Washington Headquarters Services required agreements officers to document acquisition planning for prototype projects to some extent. Senior contracting officials from these organizations stated that acquisition planning helps programs manage risks and provides direction to agreements officers who are new to awarding other transactions. For an Air Force other transaction we reviewed, documentation included the purpose and objectives for the prototyping project, the anticipated cost and type of funding needed for the project, and the transaction award schedule. We found the Army agreements officer who awarded the prototype other transaction to the Countering Weapons of Mass Destruction Consortium developed an acquisition planning document, even though policy did not require her to do so. The agreements officer said she did this because the transaction had a $10 billion ceiling and she considered this a best practice. Legal counsel, several senior level contracting officials, and program officials reviewed the acquisition planning document before the agreements officer awarded the transaction. Defense Advanced Research Projects Agency also required agreements officers to document the reason for non-competitive awards in a memorandum. We previously reported that competition promotes the efficient use of taxpayer resources and establishes accountability for results by helping to drive down prices and motivate better contractor performance. We found that an Air Force Research Laboratory agreements officer also documented the reasons why a $1.2 million prototype other transaction to develop a manufacturing process to reduce a missile engine s production costs was awarded non-competitively, even though policy did not require such documentation. The agreements officer said the reason for the non-competitive award was that a non-traditional company is the manufacturer of the engine and has the experience to create cost-saving innovations to its manufacturing process. The agreements officer stated legal counsel reviewed this documentation prior to awarding the other transaction and that management was aware of the non-competitive status of this transaction during acquisition planning. Contracting officials from the Army Contracting Command-New Jersey stated that, consistent with statute, they did not require acquisition planning or non-competitive award documentation because they wanted to maintain few requirements to award prototype other transactions. <4.2. Award Times Varied Significantly for the Prototype Other Transactions We Reviewed> While senior contracting officials told us that they were able to streamline the review process for other transactions compared to the actions typically required before awarding other procurement contracts, they cautioned that the time needed to award a prototype other transaction can vary significantly. We found that, for the 11 prototype other transactions we reviewed, award times which we defined as the time a contracting office released a solicitation until the time the government awarded the other transaction ranged from 45 to 370 days. By way of reference, we recently reported that the time from solicitation issuance until the time the government awarded 129 weapon systems-related procurement contracts ranged from less than a month to over 4 years, with a median of about 9 months. For the 11 prototype other transactions we reviewed, contracting officials noted that the times varied due to factors such as prior knowledge about the contractor and the complexity of the prototype project. An Air Force prototype other transaction for improving missile engine manufacturing processes was awarded in 45 days because the agreements officer said she had extensive knowledge about the capabilities of the contractor prior to awarding this transaction and was, therefore, able to plan for and develop other transaction documentation early. The agreements officer told us that she had knowledge of this company because it had previously been a subcontractor on a technology demonstration. Conversely, the Army took 370 days to award a prototype other transaction because the government needed time to assess what contracting instrument to use to ensure multiple contractors collaborated to build an autonomous airborne network of sensors. According to the agreements officer, the government needed time to research the effects of several possible teaming arrangements, including creating a new consortium, using an existing consortium, awarding a FAR-based contract, placing all of the contractors on a single other transaction, or awarding individual other transactions to each contractor. <4.3. Agreements Officers Generally Followed Management Review Processes Prior to the Award of the Prototype Other Transactions GAO Reviewed> In nine of the 11 prototype other transactions we reviewed, agreements officers followed their contracting offices policies to have prototype other transactions reviewed before awarding the other transactions. In a $4.6 million Army prototype other transaction to develop a capability to modernize legacy hardware systems, the appropriate senior-level contracting official reviewed the transaction, such as by checking terms and conditions and ensuring that the contract file was complete. Legal counsel also reviewed the transaction prior to award, as required. In a $6.1 million Defense Advanced Research Projects Agency prototype other transaction, the agreements officer consulted the Deputy Director about this transaction before negotiations and a contracting official one level above the agreements officer reviewed the transaction, as the agency s policy required. The agreements officer also consulted legal counsel, an optional policy action, to draft and negotiate a clause that would waive specific topics of the commercial rights license that did not apply to the government. The agreements officer stated that by working with legal counsel to develop a clause, he was able to meet the program s objective to prototype a capability to emulate and validate microchip designs and accommodate the contractor s desire to use its commercial license. For the remaining two prototype other transactions, we found, and contracting officials agreed, that agreements officers did not meet policy requirements for obtaining higher level review before award. In the first case, a Defense Advanced Research Projects Agency agreements officer did not have a higher level official review a $7.8 million prototype other transaction before it was awarded. Agency policy required the agreements officer to consult with the Deputy Director of the Contract Management Office about the negotiation strategy and discuss any issues that arose during negotiations. In addition, policy required the agreements officer to have a contracting official one level above the agreements officer review the prototype other transaction before award, regardless of dollar value. The agreements officer told us that he did not consult with the Deputy Director or obtain the required review because he thought the terms and conditions were straightforward and the dollar value was too low to require a review by an official above him. Senior-level Defense Advanced Research Projects Agency contracting officials told us they were not aware that this prototype other transaction was awarded without the required consultation and review until we brought this to their attention. According to these officials, internal controls were in place that should have prevented the award of prototype other transactions without the required consultation and review such as making current policy documents readily accessible to agreements officers, communicating policy changes to agreements officers, and using a data system to track the development of other transactions prior to award. These officials stated that they plan to check compliance with the required pre-award consultation and review during their next internal file review of awarded other transactions that will be completed in fiscal year 2020. If they find instances of noncompliance, officials stated that the agency will take corrective actions, such as providing additional training for agreements officers. They also stated that they subsequently reviewed the $7.8 million prototype other transaction and determined that no changes needed to be made to the other transaction in this instance. In the second case, the Army Contracting Command-New Jersey agreements officer who was also the Center Director had his Branch Chief review a $10 million prototype other transaction prior to award. Command policy, however, generally requires the Center Director to review prototype other transactions valued at or greater than $10 million. The Center Director stated that he did not serve as the reviewer on this transaction because he would have been reviewing his own work. Army Contracting Command-New Jersey officials stated that the management review should have been conducted by another Center Director or a higher contracting official, but noted that this was an atypical situation not addressed in the command s policies. As such, Army Contracting Command-New Jersey officials plan to revise their management review policy by fall 2019 to address who should be responsible for conducting a higher level management review when someone who is designated to conduct the management review serves as the agreements officer for the transaction. The officials stated that they reexamined the prototype other transaction and found that there were no issues with the terms and conditions and, therefore, no changes needed to be made to the transaction. Based on the stated intent of Defense Advanced Research Projects Agency and Army Contracting Command-New Jersey contracting officials to address issues we identified in our review, we are not making recommendations at this time but will monitor their actions to address the issues. <5. Agency Comments> We provided a draft of this product to DOD for comment. DOD provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Secretary of Defense; the Acting Principal Director of Defense Pricing and Contracting; the Secretaries of the Air Force and Army; and the Directors of the Defense Advanced Research Projects Agency and the Washington Headquarters Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Department of Defense (DOD) Use of Prototype Other Transactions by Command Appendix II: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Cheryl Andrew, Assistant Director; Carmen Yeung, Analyst-in-Charge; Pete Anderson; Lorraine Ettaro; Kurt Gurka; Daniel Glickstein; Julia Kennon; Roxanna Sun; and Leanne Violette made key contributions to this report.

Why GAO Did This Study In 2015, Congress granted DOD permanent authority to use agreements known as other transactions to acquire prototype projects that, among other things, demonstrate whether technologies and products can be adapted for DOD's use. This contracting approach can help DOD attract companies that do not typically do business with DOD—such as commercial science and technology firms. This is because other transactions are not subject to certain federal contract laws and requirements. GAO was asked to review DOD's use of other transactions for prototype projects. For the purposes of this report, GAO refers to these instruments as prototype other transactions. This report examines, among other issues, (1) DOD's use of prototype other transactions for fiscal years 2016 through 2018 and (2) the extent to which agreements officers followed established review processes before awarding selected transactions. GAO analyzed Federal Procurement Data System-Next Generation data and examined relevant documents from a non-generalizable sample of 11 prototype other transactions. These transactions represented various dollar values from the four DOD components that had the highest obligations through prototype other transactions in fiscal year 2018. GAO also examined DOD and component policies and interviewed DOD officials. What GAO Found The Department of Defense (DOD) significantly increased its use of agreements known as other transactions for prototype projects from fiscal years 2016 through 2018 (see figure). DOD data shows that companies that typically did not do business with DOD participated to a significant extent on 88 percent of the transactions awarded during this time. The Army awarded the most transactions; some of which were on the behalf of other DOD components that wanted to leverage transactions the Army previously awarded to meet their own components' needs. In nine of the 11 prototype other transactions GAO reviewed, DOD contracting officials, known as agreements officers, followed their components' established review policies before awarding the transactions. Agreements officers did not obtain higher level reviews on the two remaining transactions. In both cases, agency officials reviewed the transactions after GAO brought these situations to their attention and found no issues with the awarded transactions. A Defense Advanced Research Projects Agency agreements officer did not have a higher level review of a $7.8 million transaction before it was awarded, as required. An Army Contracting Command-New Jersey Center Director served as the agreements officer on a $10 million transaction. The Director, who would typically review transactions of this value, had his Branch Chief review this transaction prior to award. The Defense Advanced Research Projects Agency also plans to complete an internal file review of awarded transactions to check compliance with its review policy in fiscal year 2020 and take corrective actions, if necessary. The Army Contracting Command-New Jersey plans to clarify who should review transactions in such situations. What GAO Recommends GAO is not making recommendations based on the stated intent of senior contracting officials to address these issues.

gao_GAO-19-506T

gao_GAO-19-506T_0

<1. Background> <1.1. Child Nutrition Programs> According to USDA, beginning with NSLP s authorization in 1946, the federal government has gradually built an array of nutrition assistance programs designed to help the most vulnerable populations meet their food needs. Currently, eight of USDA s nutrition assistance programs are targeted to providing food to children, as noted in table 1. USDA oversees the child nutrition programs at the federal level, and state agencies and local organizations play key roles in program administration and implementation. <1.2. Improper Payments> The Improper Payments Information Act of 2002 (IPIA), as amended, requires agencies to estimate improper payments for programs and activities identified as being susceptible to significant improper payments, implement corrective actions, and report on their results for these programs, among other things. An improper payment is any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. It includes any payment to an ineligible recipient, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received (except for such payments where authorized by law), and any payment that does not account for credit for applicable discounts. Reducing improper payments such as payments to ineligible recipients or duplicate payments is critical to safeguarding federal funds. The Office of Management and Budget (OMB) provides guidance to federal agencies on effectively measuring, reporting, and reducing their improper payment rates. USDA reports annual improper payment estimates for four child nutrition programs: the school meals programs NSLP and SBP as well as WIC, and CACFP. IPIA, as amended, requires agencies to review all programs and activities at least once every 3 years and identify those that may be susceptible to significant improper payments. Federal law also requires agencies Inspectors General to annually assess and report on whether agencies complied with six criteria listed in the Improper Payments Elimination and Recovery Act of 2010 (IPERA), as amended, related to improper payments. These criteria are (1) publish an agency financial statement in the form required by OMB guidance; (2) conduct program- specific improper payment risk assessments, if required; (3) publish improper payment estimates, if required; (4) publish corrective action plans for programs and activities deemed susceptible to significant improper payments; (5) publish and meet annual improper payment reduction targets; and (6) report an improper payment rate of less than 10 percent for each program and activity for which an improper payment estimate was published. Federal law requires agencies with 3 or more consecutive years of noncompliance findings by their Inspectors General to submit to Congress a reauthorization proposal or a proposal for statutory changes necessary to bring programs into compliance. <2. FNS Has Taken Steps to Address Several Issues Affecting Program Integrity in the Child Nutrition Programs> FNS has taken various actions to improve the integrity of the child nutrition programs in response to findings from our prior work. Over the last 6 years, we issued five reports on the school meals programs, WIC, and SFSP, which included recommendations to FNS intended to improve the integrity of these programs. In response, FNS has addressed many of these recommendations, though additional actions are needed. <2.1. FNS Took Steps to Improve Oversight of School Meals> In 2014, we issued two reports on school meals that found multiple opportunities for FNS to improve school meals program integrity and oversight, all of which FNS has since acted on. Specifically, in January 2014, we recommended that FNS take two different actions aimed at providing assistance to improve state oversight of local school food authority (SFA) administration of the programs; and in May 2014, we recommended that FNS take multiple actions to improve oversight and enhance verification processes that ensure only children who meet income requirements receive free and reduced price school meals. In January 2014, we reported that FNS had provided a significant amount of guidance and training to help states with oversight of local SFAs that directly provide meals to children in schools, but that certain aspects of the guidance may have hindered state oversight of program compliance. (See fig. 1 for entities involved in school meals oversight.) For example, we found evidence indicating that FNS s guidance allowing states to focus their oversight on providing technical assistance to SFAs, rather than documenting instances of noncompliance and requiring corrective actions to address them, may have resulted in some SFAs that were not fully meeting requirements being certified as in compliance. According to Standards for Internal Control in the Federal Government, federal agencies should have policies and practices in place to provide reasonable assurance that programs are operating in compliance with applicable laws and regulations. Without documentation of noncompliance and requirements for corrective actions, SFAs may not have adequate information on the types of ongoing compliance issues and the need to take corrective actions. Further, FNS may lack information on areas that are problematic across SFAs, which could be the focus of future technical assistance efforts. In 2014, FNS substantially revised and updated the process through which states conduct program oversight the administrative review and in our January report, we also found that states reported a need for more information and training related to monitoring SFA financial management. Specifically, we reported that, previously, states had not been required to assess SFA financial management during monitoring reviews, but that states were now responsible for reviewing several aspects of SFA financial management, such as their nonprofit food service accounts and indirect costs. We surveyed all of the states, and over three-fourths reported the need for additional guidance or training from FNS on SFA financial management. We found that while FNS had provided some assistance to states on the new requirements related to SFA financial management, FNS officials had not collected information from all states on their needs in this area. Because state reviews are the key tool used to ensure the integrity of the school meals programs, if state reviewers are unable to effectively review SFA financial management, the federal government will lack assurance that SFAs are complying with federal requirements in this area. In our January 2014 report, we recommended that the Secretary of Agriculture direct the Administrator of FNS to (1) clarify to states the importance of documenting compliance issues found during administrative reviews and requiring corrective actions to address them, and (2) assess all states needs for information to improve their ability to oversee SFA financial management and provide assistance to meet identified needs. FNS officials generally agreed with our recommendations and have since addressed them. For example, FNS issued a memo on July 11, 2014, to all regional and state directors reiterating the importance of documenting review findings and any resulting technical assistance and corrective actions. Also in that month, FNS completed its initial efforts to systematically assess all states needs for information to improve their ability to oversee SFA financial management. Further, in 2015 and 2016, FNS discussed financial management issues with states during a national meeting and held three national training sessions and a webinar focused on reviewing SFA financial management. In our May 2014 report on school meals, we found that FNS had taken steps to help identify and prevent children ineligible for free or reduced price meals from receiving those benefits, but additional opportunities existed to enhance the application verification process and strengthen program integrity. For example, we reported that school districts are required to verify applications for free and reduced price meals if they are deemed to be questionable, known as for-cause verification. Some school districts were not conducting any for-cause verifications and FNS guidance did not provide indicators or describe scenarios that could assist school districts in identifying questionable applications. Further, FNS s data on the outcomes of applications verified for cause were combined with data on the outcomes of applications verified for other reasons, limiting FNS s ability to use these data to assess the effectiveness of for- cause verifications. Standards for Internal Control in the Federal Government direct agencies to design control activities to ensure management s directives are carried out. Without FNS analysis of data on the outcomes of for-cause verifications, or provision of additional guidance on applications that may merit for-cause verification, some school districts may have continued to overlook these applications, potentially hindering program integrity. In our May 2014 report, we recommended that the Secretary of Agriculture take multiple actions to improve integrity of the school meals programs through additional verification of applications, including that USDA evaluate the data collected on for-cause verification outcomes, and, if appropriate, provide additional guidance for conducting for-cause verification that includes possible indicators of questionable or ineligible applications. FNS took actions in response to all of our recommendations. For example, FNS reported in March 2017 that it analyzed the data on verification outcomes and did not find that any benefit in integrity and oversight would be gained by requiring the reporting of for-cause verification outcomes separately. However, FNS also reported that it disseminated additional guidance in August 2014 for conducting for-cause verifications, which included criteria for identifying possible indicators of questionable or ineligible applications. <2.2. FNS Took Steps to Improve WIC Program Integrity and Oversight> In 2013 and 2014, we issued two reports on WIC that found multiple opportunities for FNS to improve program integrity and oversight, many of which FNS has since addressed. Specifically, in February 2013, we recommended that FNS review federal monitoring reports on state WIC program administration to assess program risks at a national level, and in December 2014, we recommended that FNS take multiple actions to improve federal WIC oversight and assist states efforts to prevent and address online sales of WIC formula. In our February 2013 report, we found that FNS regularly assisted and monitored states administration of WIC but needed to improve agency oversight of states policies and procedures for determining WIC applicants income eligibility for the program. We reported that while federal regulations define criteria that must be used to determine applicants income eligibility for WIC, state and local agencies are also given some discretion. We found that FNS generally had not focused its assistance to states on key income eligibility requirements for which states have discretion, such as determination of family size and the time period of income assessed, in the years preceding our report. However, through its monitoring reports, FNS had identified problems with, or concerns about, income eligibility determination policies or procedures in one-third of the states reviewed. Standards for Internal Control in the Federal Government indicate that management should identify, analyze, and respond to risks related to achieving defined objectives and note that risk identification methods may include consideration of deficiencies identified through audits and other assessments. At the time of our review, FNS officials said that they planned to begin regularly reviewing monitoring findings at the national level to identify areas of program risk and target assistance to states accordingly; however, officials did not indicate when those reviews would begin. Without conducting a complete review of its state monitoring findings, FNS lacked information it could potentially use to target additional assistance and clarification on income eligibility determination to states and help ensure overall program integrity. In our February 2013 report, we recommended that the Secretary of Agriculture direct FNS to develop a timeline for reviewing its federal monitoring reports on state WIC program administration to assess program risks at a national level and target assistance to states. FNS officials concurred with our recommendation, and FNS has since addressed it. Specifically, in that year, FNS staff developed a process to use an automated report to identify areas in need of correction or improvement that were found during its monitoring reviews of WIC conducted across the country. The report went into production on November 1, 2013, and FNS reported that staff would review the reports quarterly to assess the frequency of findings in each policy and program area and respond by providing policy clarification, training, or other corrective actions to states. A posting from late June 2014 included the container size in the title and stated: I am looking to sell 5 [brand name] 12.5oz cans (NOT OPENED) because is super picky and does not want to drink it no matter what i do. will drink the kind for some reason. I told my WIC office to switch me to another brand but they say it might take 3 months. Im asking 35$ but best offer will do since the brand I buy is from so Im not looking to make a profit here if you consider each can is 16$ at the store. please text if interested!! A posting from early July 2014 included the brand, type, and container size in the title and stated: I have 7 powder cans of they dnt expire for another year at least just got them from my wic n we ended up switching formulas so its $65.oo for pick up all 7 cans or $70 if i have to drive. In December 2014, we reviewed the online sale of infant formula provided to WIC participants, a practice prohibited by WIC program rules, and concluded that FNS had provided limited assistance to states in preventing and addressing these sales. We found that FNS had not conducted any nationwide studies on the extent of online sales of WIC formula by program participants, though information gathered from state WIC officials and our own limited monitoring suggested that some WIC formula was offered for sale online. (See sidebar.) The use of the internet as a marketplace had substantially increased in the years preceding our report; therefore, actions needed to ensure WIC participants did not inappropriately use infant formula had changed as well. Yet, we found that FNS had not studied cost-effective techniques for monitoring potential online sales of WIC benefits. Standards for Internal Control in the Federal Government note that agencies should identify, analyze, and respond to significant changes that could impact the internal control system. However, FNS had not directed states to inform participants that selling WIC formula, including online, is against program rules, which could lead to participants making these sales and unknowingly using program resources inappropriately. Further, we noted that although states are responsible for controlling participant violations including sales of WIC benefits FNS is responsible for determining compliance with the WIC statute and regulations. However, we reported that FNS had not required states to describe procedures for controlling these violations in their WIC state plans, leaving the agency without assurance that efforts were taking place nationwide. Through interviews with state and local WIC agency officials from 12 states for our December 2014 report, we found that states varied in their approaches and the amount of resources devoted to monitoring attempted WIC formula sales, and some expressed concerns about the return on investment for these efforts. Because WIC participants purchase the same brands and types of infant formula from stores as non-WIC customers, monitoring attempted online sales of WIC formula can present a challenge. State officials we spoke with cited additional challenges to monitoring online sales, including the difficulty of identifying WIC participants in online posts that allow sellers to remain relatively anonymous, and as a result, some expressed concerns about the return on investment for these monitoring efforts. Standards for Internal Control in the Federal Government suggest that agencies consider both benefits and costs when designing and implementing internal controls. However, because FNS had not assessed the nationwide extent of online sales of WIC formula by program participants, nor determined cost-effective approaches for identifying and addressing these sales, FNS and the states were poorly positioned to strike the appropriate balance of costs and benefits when determining how to target their resources to ensure program integrity. In our December 2014 report, we recommended that the Secretary of Agriculture direct the Administrator of FNS to (1) instruct states to inform participants that they are not allowed to sell WIC food benefits, including online; (2) require states to inform FNS of their procedures for identifying attempted sales of WIC food benefits and analyze the information to ascertain the national extent of state efforts; and (3) collect information to help assess the national extent of attempted online sales of WIC formula and determine cost-effective techniques states can use to monitor online classified advertisements. FNS agreed with our recommendations and took several steps to address them, though the agency has yet to fully address the third. Specifically, FNS promulgated final regulations that were effective in May 2016 requiring state agencies to inform applicants and participants about the prohibition against the sale of WIC food benefits, including online. Further, in April 2015, FNS issued guidance directing states to articulate their policies and procedures for identifying and monitoring online sales of WIC benefits in their state plans; and in July 2018, an FNS contractor completed a study analyzing state efforts in this area. Also in that month, an FNS contractor completed a study intended to provide information to help FNS address our third recommendation that the agency assess the prevalence of online sales of WIC formula and identify cost-effective techniques states can use to monitor and prevent them. However, FNS indicated that it would not be releasing the study to states, in part because it included information that was investigative in nature. In April 2019, FNS officials indicated that they are currently developing guidance on best practices and cost-effective techniques identified in the report to disseminate to WIC state agencies later in 2019. Informing states of cost-effective techniques for monitoring and preventing online WIC formula sales would address our recommendation. <2.3. FNS Is Planning Steps to Address Our SFSP Recommendations> In May 2018, we reviewed the SFSP, which generally provides food to children in low-income areas during periods when schools are closed for vacation, and assessed several aspects of the program, including participation. (See fig. 2 for an SFSP breakfast we observed during a site visit to one of three states we visited.) We found that nationwide, the total number of meals served to children in low-income areas through the SFSP increased from 113 to 149 million (about 32 percent) from fiscal year 2007 through 2016. FNS directs states to use the number of meals served, along with other data, to estimate the number of children participating in the SFSP. However, we found that participation estimates had been calculated inconsistently from state to state and year to year. Recognizing this issue, in 2017, FNS clarified its instructions for calculating participation estimates to help improve their consistency, noting that these estimates are critical for informing program implementation and strategic planning. However, we determined that the method FNS directed states to use would continue to provide unreliable estimates of participation, hindering the agency s ability to use them for these purposes. Standards for Internal Control in the Federal Government state that agencies should maintain quality data and process it into quality information that is shared with stakeholders to help achieve agency goals. In our May report, we made four recommendations to FNS to improve the integrity of the SFSP, including that FNS take steps to improve its estimate of children s participation in the SFSP by addressing, at a minimum, identified issues that continued to limit the reliability of the estimate. FNS officials generally agreed with our recommendations, and the agency has since provided information on actions it has planned, or begun to take, to address them. For example, in March 2019, FNS reported that it plans to complete an evaluation of how SFSP participation is calculated by summer 2020. We will continue to monitor FNS s progress in addressing our SFSP recommendations. <3. Child Nutrition Programs Estimated $1.8 Billion in Improper Payments in Fiscal Year 2018 and Have Consistently Been Reported as Noncompliant with Improper Payment Requirements> In fiscal year 2018, USDA reported improper payments for the child nutrition programs totaling an estimated $1.8 billion, or just over 1 percent of the $151 billion in improper payments federal agencies estimated government-wide in that year. GAO has reported improper payments as a material weakness in internal control in its reports on the U.S. government s consolidated financial statements, noting that improper payments have consistently been a government-wide issue and reducing these payments is critical to safeguarding federal funds. Since fiscal year 2013, the school meals programs have consistently reported the highest improper payment rate estimates across the child nutrition programs. For example, in recent years, USDA reported annual improper payment rate estimates of about 15 percent and 24 percent for the NSLP and SBP, respectively, compared to about 5 percent and 1 percent for WIC and CACFP, respectively. The estimated total amount of improper payments in the school meals programs are also high, and these programs, along with WIC, are included on OMB s list of programs with over $100 million in annual monetary losses. The USDA Office of Inspector General s (OIG) most recent report on the department s compliance with improper payment requirements, which assessed fiscal year 2017, found that the four child nutrition programs for which USDA estimates improper payments were noncompliant with improper payment requirements. The reasons for noncompliance varied, as the OIG noted that USDA has yet to develop a methodology to report a complete improper payment estimate for CACFP, and corrective actions taken in the other child nutrition programs have not yielded the desired reductions in estimated improper payments. According to our 2018 report, the four child nutrition programs contributed to the government-wide total of 58 programs in 14 federal agencies that agency inspectors general found were noncompliant with improper payment requirements in fiscal year 2017. Further, the four child nutrition programs had been reported as noncompliant for 7 years. We also noted that USDA was one of three federal agencies with programs reported as noncompliant for 3 or more consecutive years that had not notified Congress of their noncompliance, as required, despite prior recommendations that we, and the OIG, had made to USDA to do so. However, USDA submitted a letter to Congress in June 2018 that reported these programs noncompliance and described the agency s planned actions to bring them into compliance. Over time, USDA has undertaken a variety of corrective actions aimed at reducing improper payments in the child nutrition programs, yet the estimated improper payment rates for these programs remained generally steady until fiscal year 2018. For that year, USDA changed what it considers to be an improper payment in the school meals programs, resulting in improper payment estimates that are substantially lower than, and not comparable to, those from prior years. According to USDA, FNS made this change after evaluating its definition of improper payments for the school meals programs and determining that the agency would no longer include a previously identified source of error in its estimates. According to FNS officials, FNS implemented this change after consultation with OMB, and FNS also briefed the USDA OIG on the change in advance of implementation. The USDA OIG has not yet released its report assessing USDA s fiscal year 2018 compliance with improper payment requirements. To help ensure that annual estimates are produced for all child nutrition programs susceptible to significant improper payments, a 2018 USDA OIG report recommended that FNS complete an SFSP risk assessment for improper payments taking into account all of the risk factors identified by OMB as likely to contribute to improper payments. Although FNS s 2017 SFSP risk assessment concluded that the program was at low risk for significant improper payments, the OIG found that FNS s assessment was insufficient because it did not consider multiple risk factors regarding program vulnerabilities and improper payments that OMB requires be taken into account. The OIG reviewed SFSP s payment structure, monitoring results, and investigations and media cases regarding fraud, and found that these suggest the program is vulnerable to significant improper payments. FNS concurred with the OIG s recommendation. In April 2019, a senior FNS official indicated that the agency completed a risk assessment for SFSP in response to the OIG s recommendation, determined that the program is at a high risk of improper payments, and is currently developing a methodology for measuring improper payments in the program. Chairman Roberts, Ranking Member Stabenow, 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. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Kathryn A. Larin, Director, Education, Workforce, and Income Security Issues 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 key contributions to this testimony include Rachel Frisk (Assistant Director) and Theresa Lo (Analyst in Charge). In addition, key support was provided by David Barish, Daniel Flavin, Alex Galuten, Sheila R. McCoy, Jean McSween, Almeta Spencer, and Matt Valenta. 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.

Why GAO Did This Study In fiscal year 2018, the federal government provided about $30 billion for USDA's child nutrition programs, including the school meals programs, WIC, and SFSP, among others. In that year, the federal government spent almost $14 billion on the largest of these programs, the National School Lunch Program, which supported the provision of meals to about 30 million children. Federal, state, and local entities play important roles in administering the child nutrition programs and ensuring program integrity. For example, USDA annually estimates improper payments in these programs, which are an indicator of program integrity, and states monitor implementation of the programs by local organizations that directly provide food and services to participants. This testimony discusses (1) actions USDA has taken to address GAO's prior recommendations related to program integrity in the child nutrition programs and (2) improper payments in these programs. This testimony is based on prior GAO reports on child nutrition programs issued from 2013 through 2018, recent GAO and USDA reports on improper payments, and updates GAO obtained in March and April 2019 from USDA officials on actions related to GAO's prior recommendations and improper payments in child nutrition programs. What GAO Found The U.S. Department of Agriculture (USDA) has taken steps, or is planning steps, to improve the integrity of the child nutrition programs in response to recommendations from GAO's prior work. For example: School meals. In 2014, GAO identified several opportunities for USDA to improve school meals oversight and integrity. For example, through GAO's survey of states, over three-fourths reported a need for USDA guidance on monitoring the financial management of local entities that provide meals to children in schools—an area we reported states were newly required to review. GAO recommended that USDA assess states' needs for information in this area. USDA did this assessment and provided related guidance and training to states. Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). In 2013 and 2014, GAO identified several ways that USDA could improve program integrity and oversight in WIC, which provides food benefits to individuals who are low-income. For example, GAO found that USDA had not used its own monitoring findings on state policies for determining applicants' income eligibility to target assistance to states, and recommended that USDA do so. In response, USDA developed a process for reviewing and acting on its monitoring results. Summer Food Service Program (SFSP). In 2018, GAO identified several opportunities for USDA to improve program integrity in the SFSP, which provides food to children in low-income areas when schools are closed for vacation. For example, GAO found that USDA did not collect reliable data on children's participation in the program and that estimates were calculated inconsistently from state to state and from year to year. GAO recommended that USDA take steps to improve the reliability of these estimates and take additional actions to improve program integrity. USDA recently reported plans to address GAO's recommendations. USDA reported improper payments for four child nutrition programs totaling an estimated $1.8 billion in fiscal year 2018, or just over 1 percent of the $151 billion in improper payments that agencies estimated government-wide. GAO has reported that reducing improper payments—which generally include payments that should not have been made or were made in an incorrect amount—is critical to safeguarding federal funds. Since fiscal year 2013, the school meals programs have consistently reported the highest improper payment rates across the child nutrition programs. Over time, USDA has taken a variety of corrective actions aimed at reducing improper payments in child nutrition programs, yet estimated improper payment rates for these programs remained generally steady until fiscal year 2018. For that year, USDA changed what it considers to be an improper payment in the school meals programs, resulting in improper payment estimates that are substantially lower than those from prior years. The Office of Management and Budget (OMB) provides guidance to federal agencies on measuring and reporting improper payment rates, and USDA reported that it made this change after consultation with OMB. What GAO Recommends GAO made 14 recommendations to USDA in its prior reports on child nutrition. USDA generally concurred with the recommendations and has addressed nine, taken some steps to address one, and is planning to address the remaining four.

gao_GAO-19-557

gao_GAO-19-557_0

<1. Background> <1.1. Medicare s Physician Fee Schedule> CMS uses the Medicare Physician Fee Schedule to pay physicians and other providers for services delivered to beneficiaries. Physicians and other providers bill Medicare for their services using various five-digit billing codes based in part on codes developed by an AMA panel. Each year, the panel receives proposals from provider groups and others to revise existing billing codes or create new codes. The panel requires those who submit proposals to develop a clinical vignette that describes the typical patient who would receive the service, the diagnosis and relevant conditions, and estimates of time that physicians might spend in providing the service for the typical patient. The panel applies several criteria in reviewing these proposals. For example, a new code should represent a unique, well-defined procedure or service clearly identified and distinguished from existing procedures and services; should not fragment an existing procedure or service represented by one or more existing codes; should reflect the typical (not extraordinary) circumstances related to the delivery of the service; should be performed by many physicians or other qualified health care professionals across the United States; and should be consistent with current medical practice. CMS pays providers a fixed amount known as the Medicare fee for each code. The fees are based on relative values estimates of resources for the physician s work (time, skill, and level of training), and practice expenses (the costs of running a practice such as salaries of non- physician employees, rent, and overhead) required to provide a service relative to all other services. In setting fees, CMS also does not allow certain codes to be billed together if it deems that payment for one code is already included in another. CMS establishes and updates relative values annually. By law, the effect of any changes to its payment rates generally must be budget neutral. That is, if total spending increases by more than $20 million each year, including due to the creation of new billing codes, fees for all services would have to be reduced accordingly. Services billed under the physician fee schedule may be provided in a variety of settings, including physicians offices and institutional settings such as hospitals, skilled nursing facilities and hospices. Non-physicians may also bill or be reimbursed by Medicare for services under certain circumstances. For example, some types of non-physicians practicing independently such as physician assistants and nurse practitioners may bill Medicare for certain services that they are legally authorized to perform under their respective state laws. In other instances, physicians may bill as if they had furnished services that were provided by non- physician staff that they employ or with whom they have a contractual relationship as long as the physician has an established relationship with the beneficiary, and is on the premises to provide supervision if necessary. <1.2. Care Planning Services in Medicare> Providers and other stakeholders have noted that they care for an elderly population with increasingly complex medical conditions who receive care from multiple providers across different sites of care including physicians offices, hospitals, nursing homes, and hospices. As such, the focus of primary care has shifted from treating specific medical conditions to increased care coordination and planning. CMS also noted that a new trend in care planning is the use of shared care plans between the beneficiary and the provider rather than those created solely by the provider. These jointly developed care plans can be particularly important to improving overall beneficiary outcomes for beneficiaries with serious illnesses and also allow other providers involved in the beneficiary s care access to timely information that supports planned care. However, stakeholders have suggested that Medicare s payment system does not fully reimburse providers for such care planning services. For example, some note that the E/M billing codes that primary care physicians generally use to bill for their services were developed at a time when care coordination and planning was not part of the standard practice of medicine; as such, these codes do not reflect time spent on activities that do not require a face-to-face encounter with the beneficiary, including medical conferences with other physicians, or telephone calls to coordinate care with other providers. Some primary care physicians have requested that CMS conduct a comprehensive review of existing E/M codes to ensure they account for time spent on these services, or develop new codes that primary care physicians may exclusively use to bill for these services. However, others have noted that E/M codes have been reviewed and valued by the AMA, and the codes account for the time spent on these services. Moreover, they have stated that care coordination and planning services are delivered by multiple specialties, not just primary care physicians. <2. Medicare s Physician Fee Schedule Contains at Least 58 Billing Codes That Providers May Use to Bill for LCCP-Type Services> Our analysis identified at least 58 Medicare Physician Fee Schedule billing codes that providers may use to bill for LCCP-type services. These 58 billing codes generally contain components we determined to be equivalent to the five key components of the LCCP service as defined in the 2018 BBA. For example, all 58 codes included a provision for the development of a care plan that addresses the beneficiary s goals, values, and preferences, and a provision for coordination with other providers, which is equivalent to the LCCP component related to interdisciplinary care. Providers may choose a single code or a combination of these codes to account for the time, skill, and resources needed to deliver the service based on the unique health needs of each patient. (See app. IV for more information on the 58 codes and the LCCP components they contain as defined in the 2018 BBA.) The 58 billing codes for LCCP-type services include 45 longstanding, broadly-defined codes and 13 narrowly-defined codes that were more recently introduced starting in 2013. Broadly-defined codes. Of the 45 broadly-defined codes, 39 are E/M codes that have existed for decades. E/M codes are broadly defined to include services provided to treat a variety of illnesses (for example, treatment of a particular medical complaint), but they may also be used to bill for LCCP-type services. In general, the E/M codes range in complexity from low to high depending on the amount of time the provider spends with a patient as well as the complexity of the medical condition(s) being treated. E/M codes may also be billed if more than 50 percent of the time allotted for the service is spent on counseling and care coordination for example, explaining treatment options and ways to mitigate the patient s health risks which are key components of the LCCP service as defined in the 2018 BBA. The E/M codes we identified as representing LCCP-type services were the more complex codes that had estimates of time that may be spent providing the service to a typical patient ranging from 30 to 120 minutes of physician time and 3 to 71 minutes of non-physician time. While the majority of E/M codes have existed for decades, CMS added six new E/M codes starting in 2008 referred to as prolonged E/M codes allowing payment for additional time for care planning and care management services for complex conditions. Narrowly-defined codes. Starting in 2013, CMS added 13 narrowly- defined LCCP-type codes to better account for the time spent coordinating care for patients with complex treatment needs. CMS implemented these more narrowly-defined care planning codes largely in response to provider complaints that E/M codes did not sufficiently account for extensive care management/coordination of care that was required across multiple providers and settings. Unlike broadly-defined codes, these narrowly-defined codes can only be used for LCCP-type services. The 13 narrowly-defined LCCP-type codes fall into four types: transitional care management (TCM), chronic care management (CCM), advance care planning (ACP), and behavioral health integration (BHI). (See table 1.) While some pertain to patients with specific types of health conditions or in certain settings, others are more general and may be used for a range of health conditions. The estimates of physician and non-physician time that may be spent on the broadly-defined and narrowly-defined codes vary, as does Medicare s 2019 fees for these billing codes see examples of commonly used LCCP-type billing codes in table 2 and see appendix IV for related information on all 58 LCCP-type billing codes. For example, some stakeholders told us they might bill a complex E/M code (99214) along with a CCM code (99487). As our analysis shows, this combination could result in the provider spending 66 minutes of physician time and 113 minutes of non-physician time for a typical beneficiary, and receiving total Medicare fees of about $203 in 2019. <3. Medicare Spending Increased for All LCCP-Type Services and Increased More Rapidly for New Narrowly-Defined Services That Were Furnished to More Beneficiaries by More Providers> <3.1. Medicare Spending on All LCCP-Type Services Increased by 11 Percent from 2013 through 2017, While Spending on Narrowly-Defined Services Grew More Rapidly> Overall Medicare spending on LCCP-type services represented by the 58 billing codes we identified increased from $26 billion in 2013 to $29 billion in 2017, an 11 percent increase. The vast majority of this spending about $28.3 billion in 2017 was on services represented by the 45 broadly-defined codes we identified earlier (henceforth we refer to these services as broadly-defined services. ) By comparison, Medicare spending on LCCP-type services represented by the 13 narrowly-defined codes (henceforth referred to as narrowly-defined services ) was about $467 million in 2017. Though smaller in terms of total dollars, spending on narrowly-defined services grew at a higher rate than spending on broadly-defined services, from about $2 per beneficiary in 2013 to $14 per beneficiary in 2017. This higher rate in growth can mostly be attributed to these four new types of services being introduced during this 4 year period. For example, as Table 1 shows, two TCM codes were introduced in 2013 and four CCM codes were introduced from 2015 to 2017. In contrast, spending growth for broadly-defined services was much smaller, increasing from about $785 per beneficiary in 2013 to $844 per beneficiary in 2017. For all other Medicare Physician Fee Schedule services combined, per-beneficiary spending decreased from about $1,488 in 2013 to $1,426 in 2017. Spending on CCM and TCM services accounted for most of the total spending on narrowly-defined LCCP-type services from 2013 to 2017. (See fig. 1.) For example, in 2017, TCM services accounted for almost half ($213 million of the total spending of $467 million), while spending on CCM services accounted for over a third ($162 million of the $467 million). The growth in spending on narrowly-defined services was driven by increased utilization that can be attributed in part to the development of new codes for these services rather than increases in Medicare fees for these services. Specifically, utilization of narrowly-defined services increased from about 9 services per 1,000 beneficiaries in 2013 to about 177 services per 1,000 beneficiaries in 2017. Average Medicare fees for these services remained flat during this period. <3.2. More Beneficiaries Received and More Providers Billed for Narrowly-Defined LCCP- Type Services, with a Small Share of Beneficiaries and Providers Accounting for Most of the Services> The number of beneficiaries receiving narrowly-defined LCCP-type services increased substantially from 2013 to 2017, as more of these Medicare billing codes were added and began to be utilized during this time. Specifically, in 2017, about 2.5 million beneficiaries received narrowly-defined LCCP-type services, representing an 839 percent increase from about 267,000 beneficiaries in 2013. (See fig. 2.) While the overall number of beneficiaries receiving narrowly-defined services increased, these services were concentrated among a relatively small share of Medicare beneficiaries. Specifically, one-quarter of beneficiaries who received any of the narrowly-defined services in 2017 received 62 percent of the approximately 6 million services that were provided that year. (See fig. 3.) In 2017, of the total 2.5 million beneficiaries that received narrowly- defined services, 90 percent received only one type of narrowly-defined LCCP-type service. (See fig. 4.) In contrast, only 10 percent of beneficiaries received multiple types of narrowly-defined LCCP-type services, the most common combination being CCM and ACP. Mirroring beneficiary trends, the number of Medicare providers billing for narrowly-defined LCCP-type services also increased significantly from 2013 through 2017, as these Medicare billing codes were established and began to be utilized during this time. In 2017, a total of about 100,000 providers billed for narrowly-defined services, representing a 227 percent increase from about 31,000 providers in 2013. (See fig. 5.) As with beneficiary trends, while the overall number of providers billing narrowly-defined services grew from 2013 to 2017, billing for these services was also increasingly concentrated among a small share of providers. Specifically, in 2017, 10 percent of providers who billed for any narrowly-defined services billed about 76 percent of the approximately 6 million services that were provided in that year. (See fig. 6.) Each year from 2013 through 2017, physicians specializing in internal medicine accounted for the largest share of spending on narrowly-defined LCCP-type services. In 2017, internal medicine accounted for 45 percent of the $467 million in total Medicare spending on narrowly-defined services. (See fig. 7.) Family practice and nurse practitioners were the other specialties accounting for the greatest shares of spending. In terms of the setting in which narrowly-defined LCCP-type services were provided, the majority were provided in nonfacility settings such as physicians offices. Specifically, in 2017, 94 percent of narrowly-defined services were provided in nonfacility settings. This trend was consistent over each of the 5 years from 2013 to 2017. <4. Stakeholders Had Mixed Views on Whether a New Billing Code for an LCCP Service Is Needed> <4.1. Six Stakeholders Did Not Support Creating a New Billing Code for an LCCP Service> Six of the 19 stakeholders we interviewed did not support the creation of a new billing code for an LCCP service as defined in the 2018 BBA. Two of these representing physician specialties that together accounted for almost one-fifth of total spending on LCCP-type services in 2017 stated that the existing billing codes were sufficient for them to provide and bill for the full range of the LCCP service. They stated that billing either a single code or a combination of an E/M code and one or more of the 13 narrowly-defined LCCP-type codes we identified allowed them to account for the full range of the LCCP service as defined in the BBA. As such, the two stakeholders said, there was no need for a new billing code. The remaining four stakeholders expressed concerns about creating a new billing code for an LCCP service. These concerns included the following: Overlap with existing codes that require the development of care plans: While not explicitly stating that existing codes were sufficient, some stakeholders said that if a new billing code were created for the LCCP service as defined in the 2018 BBA, it would overlap with or duplicate existing billing codes. For example, three stakeholders noted potential overlap with existing billing codes, such as the ACP and CCM. Three stakeholders said that the care plan that would be required under the new LCCP code would duplicate existing care plans that are required by law for beneficiaries in hospices or skilled nursing facilities. In addition, two stakeholders noted that providers in their specialty already prepare detailed care plans as a standard practice of care when evaluating their patients and billing for these services using existing E/M billing codes. They stated that these care plans exceed the components of the care plan specified in the 2018 BBA. Stakeholders noted that the existence of multiple overlapping codes that include the development of a care plan could create confusion for providers in choosing the most appropriate billing code. Concerns about code proliferation or code fragmentation: Several stakeholders were concerned that adding another code to Medicare s billing system could result in increased Medicare spending and less, rather than more, care coordination. Specifically, two stakeholders stated that having multiple billing codes for care planning and care management, respectively, would have the potential to increase spending because multiple providers could start billing the new codes even though one provider may have primary responsibility for the beneficiary. (In contrast, under the existing billing codes a single code that encompassed both types of services could be billed.) For example, one of these stakeholders said that primary care physicians generally referred beneficiaries with complex treatment needs to a surgeon or specialist who then both planned and managed the beneficiary s care, yet the primary care physician might also bill the care planning billing code. In addition to the potential for increased Medicare spending, three stakeholders said that code fragmentation splitting existing billing codes into multiple codes for services that were previously bundled together was contrary to the comprehensive patient-centered model of care that Medicare was moving towards. Specifically, one provider stated that under such a model, rather than billing multiple different codes for care planning and coordination, a primary care practice is paid a monthly management fee to (among other things) improve care coordination for patients who receive most of their primary care services from that practice. <4.2. Thirteen Stakeholders Stated That a New LCCP Code Could Address Concerns Regarding Interdisciplinary Care Reimbursement and Other Limitations They Identified in Existing Billing Codes> While six of the stakeholders we interviewed did not support creating a new LCCP code, the remaining 13 stakeholders told us that such a billing code is needed. According to the stakeholders, a new LCCP code as defined in the 2018 BBA could address several concerns they identified in Medicare s existing billing codes related to the provision of the LCCP service. However, some of these concerns could be addressed under the current Medicare billing framework, as shown by our analysis of available data. For example, stakeholders identified the following limitations that could be addressed by a new LCCP code: Inadequate reimbursement for time spent on interdisciplinary care: The 13 stakeholders stated that Medicare s existing billing codes either did not require or did not sufficiently reimburse them for the time spent on interdisciplinary care. They stated there should be a separate code to reimburse this type of care. However, stakeholders representing two specialties told us they had proposed such a code to the AMA but the AMA had rejected their proposals because interdisciplinary care is already accounted for in the existing billing codes. Moreover, as our analysis of the 58 billing codes shows, the majority of these codes include a provision for consultation and coordination among providers that is equivalent to input from an interdisciplinary team. With regard to inadequate reimbursement, as another stakeholder noted, providers may bill a complex E/M service along with a narrowly-defined LCCP-type service such as CCM. The total reimbursement for such a combination of codes would be about $203 as of 2019. (See table 2.) Insufficient physician time for care planning: Six stakeholders representing a mix of primary care and medical specialties stated the existing billing codes (including the more complex E/M codes) had insufficient physician time to provide both care planning and care management, which they maintained are separate and distinct activities. They stated a new code could include the appropriate time needed. One stakeholder said that care planning requires at least 30 minutes of time, and the complex E/M codes do not allow providers to bill for the time it takes to provide both the care management of a complex patient as well as care planning for the patient. According to the stakeholder, for example, if a provider bills a complex E/M code that allows for 40 minutes of physician time, that is insufficient to provide both types of services. While CMS has recently established new prolonged E/M codes (which allow for an additional 60 minutes of time), the stakeholder noted that they do not address the problem of insufficient time because a prolonged E/M code may only be billed with a companion E/M code, and the threshold of time needed to bill the two codes together is now too high specifically 40 minutes for the complex E/M code plus 60 minutes for the prolonged E/M code. However, our review of CMS guidance on billing of prolonged E/M codes shows that providers do not have to meet the full 60 minutes of time in order to bill a prolonged E/M code; they may bill it as long as the total time spent on the visit exceeds the typical time for the E/M visit plus 30 minutes. Documentation requirements: Three stakeholders, largely representing primary care and medical specialties, stated that burdensome documentation requirements for the more complex E/M codes hampered their ability to bill these codes. They suggested that a new billing code could be structured similar to the new ACP or CCM codes which do not have the same documentation requirements. While these stakeholders expressed concern regarding documentation as a discouraging factor, our analysis of 2017 Medicare claims data showed that certain specialties, including some that had expressed this concern, billed the more complex codes at a significantly higher rate than the average across all specialties. This may indicate that these documentation requirements do not necessarily preclude providers from billing these codes. For example, 83 percent of all the E/M new patient visits billed by geriatricians in 2017 were billed using the more complex E/M codes, compared to 48 percent on average. Similarly, 80 percent of all the E/M established patient visits billed by clinical psychologists in 2017 were billed using the more complex E/M codes compared to 50 percent on average. See appendix V for details on billing patterns for all medical specialties. Inability of non-physician staff to independently bill for care planning: Seven stakeholders expressed concerns that non-physician staff such as nurses and social workers cannot independently bill the existing Medicare billing codes that we identified as being LCCP-type services. As one stakeholder explained, non-physician staff may spend time providing coordination and care planning services separately rather than concurrently with the physician, but they cannot bill for this time independently because the physician was not present. These stakeholders stated that a new LCCP code that could be billed by physicians and non-physicians that participated in the care planning process could address this issue. However, other stakeholders expressed concerns about the effect on Medicare spending if multiple providers billed for an LCCP service. Moreover, reimbursement for non-physicians is built into Medicare fees. Specifically, Medicare s fee for each billing code includes reimbursement for physician s time as well as their practice expenses (which cover the costs of non-physician staff), and when the AMA panel develops resources estimates for each billing code (upon which Medicare fees are based), it considers the amount of non-physician time spent on that code. Certain non-physician practitioners, such as nurse practitioners and physician assistants, may also independently bill services under the Medicare Physician Fee Schedule subject to certain requirements, and as specified in their scope of practice under state law. Stakeholders generally concurred that if a new LCCP code were implemented, the definition of interdisciplinary care should be flexible and not require a social worker. Currently, the LCCP billing code as defined in the 2018 BBA requires that the interdisciplinary team providing care planning services include a social worker. However, 13 stakeholders stated that a typical practice did not include a social worker, but rather included a nurse who might perform the functions of a social worker. They stated that smaller office-based medical practices could not afford to hire a social worker. The stakeholders concurred that social workers were generally available in larger integrated practices (such as a single or multiple groups aligning with each other or with a larger hospital system) and in facility settings such as hospitals or skilled nursing facilities. (Stakeholders also provided other comments on the structure of a potential new billing code for the LCCP service should such a code be established by CMS, which we summarize in app. VI.) <5. Agency Comments> We provided a draft of this report to HHS for review and comment. HHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Health and Human Services, 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 major contributions to this report are listed in appendix VII. Appendix I: Example of an American Medical Association Vignette Appendix II: Longitudinal Comprehensive Care Planning Service Components in the Balanced Budget Act of 2018 Appendix II: Longitudinal Comprehensive Care Planning Service Components in the Balanced Budget Act of 2018 Pub. L. No. 115-123, 50342(c)(4), 132 Stat. 211. Appendix III: Stakeholder Groups Interviewed by GAO Appendix IV: Medicare Physician Fee Schedule Billing Codes for Longitudinal Comprehensive Care Planning (LCCP)-Type Services We identified 58 billing codes in Medicare s physician fee schedule that may be used to bill for LCCP-type services as defined in the Balanced Budget Act of 2018 (2018 BBA). Figure 9 shows relevant information on these billing codes including the short descriptor, beneficiary eligibility criteria, our analysis of whether the billing code s components are equivalent to the components of an LCCP service as defined in the 2018 BBA, and Medicare s 2019 fee. Appendix V: Specialty Billing of Complex Evaluation and Management Codes in 2017 Medicare s physician fee schedule contains evaluation and management (E/M) codes that providers may use to bill for face-to-face visits in their offices or other settings such as hospitals. These codes range in complexity from low to high depending on the amount of time the provider spends with a patient as well as the complexity of the medical decision- making and the medical condition(s) being treated. Table 4 shows the percentage of each specialty s E/M visits that were billed as complex visits (moderate or high complexity). In general, primary care and medical sub-specialties tended to bill complex visits at a higher rate than the all- specialty average, while surgical specialties tended to bill complex visits at a lower rate than the all-specialty average. Appendix VI: Longitudinal Comprehensive Care Planning (LCCP) Services: Stakeholder Perspectives on Potential New Billing Code We interviewed 19 stakeholders including national umbrella groups of physicians and other providers to obtain their perspectives on the structure of a new billing code for LCCP-type services as defined in the Balanced Budget Act of 2018 (2018 BBA), regardless of whether they supported the creation of a new code. Stakeholders were generally in agreement that a new billing code for LCCP-type services as defined in the 2018 BBA, if implemented, should be broadly defined. Specifically, stakeholders stated that it should not be tied to a specific condition, should allow for both in-person and non-face-to-face services performed when the beneficiary was not present, should be billable more than once, should be available for billing by both primary care physicians and specialists, and should have restrictions to avoid duplicative billing with existing billing that provided overlapping services. However, stakeholders had more mixed views about what these specific restrictions should be. Stakeholder views about the various structural components or restrictions included the following: Applicable medical conditions: The majority of stakeholders (13 of the 17 who responded to this question) stated that the new code should be broadly defined although they differed in their opinions of what broadly-defined meant; one stakeholder cautioned against an overly broad definition, and one suggested pilot testing with a discrete list of conditions. Of the 13 stakeholders in favor of a broad definition, 12 stated that the new billing code should not be tied to any particular specific illness or medical condition but should be flexible in structure. Three stakeholders stated that the extent of beneficiaries daily functioning or quality of life should also be considered when defining applicable medical conditions. For example, a beneficiary who is not necessarily suffering from a life-threatening illness but is unable to perform the functions of daily living (such as bathing and eating) needs extensive care planning and should therefore be covered under the new LCCP-type service. Three stakeholders stated that the new code should be billable if a beneficiary s existing diagnosis of a serious illness changed. Three stakeholders stated that a potential new code could be modeled along the lines of existing billing codes specifically the advance care planning (ACP) or chronic care management (CCM) codes which do not specify any particular medical condition. Two stakeholders said that a new code should not be so broad that it could apply to a vast majority of beneficiaries. For example, one stakeholder stated that the American Medical Association would likely not approve a code for a generic serious condition because it would be difficult to differentiate that code from an existing billing code, such as an evaluation and management (E/M) code, which may be used for any medical condition including serious, life-threatening conditions. One stakeholder suggested pilot testing the code with a discrete list of conditions, with the intention of expanding the list afterwards. In-person or non-face-to-face: The majority of stakeholders (12 of the 15 that responded to this question) stated that a potential new code should allow for both in-person and non-face-to-face activities (such as virtual or telehealth providing clinical care remotely by two-way video, phone calls with the beneficiary or to arrange referrals or coordinate care with other providers when the beneficiary was not present); three said it should only include face-to-face activities. Twelve stakeholders stated that the visit should include both types of activities. For example, one stakeholder said the initial visit for LCCP-type services should be in-person, and follow up activities such as updating a care plan or remote patient monitoring (monitoring of patients outside of conventional settings) could be non-face-to-face. Three stakeholders said it should only include face-to-face activities either because of concerns about the potential for overbilling if the new code included non-face-to-face activities which might be difficult to verify or because other existing codes, such as CCM, already cover non-face-to-face activities. Frequency of billing: All of the 16 stakeholders responding to this question concurred that the new code should be billable more frequently than on a one-time basis, although opinions varied on the exact frequency. Nine stakeholders said the code should be billable on an ongoing basis as the beneficiary s condition changes. For example, one said that the new code should be on-going because the care planning and treatment would continue to evolve over time as the beneficiary s condition changes. Seven other stakeholders said that while it should not be an ongoing service, it should be billable more frequently than once. For example, one stakeholder specified that it could be billed once per month or over every three months, but that a target end date must be specified; otherwise, it would be too similar to existing billing codes such as the CCM code that may be billed monthly. Two other stakeholders said it could be billed up to 4-5 times a year. Other billing restrictions: All 12 stakeholders responding to this question indicated that restrictions would be necessary to avoid overlap with existing billing codes. For example, three stakeholders suggested that the new code could be billed along with an E/M code for additional services not covered by the E/M code as long as it does not overlap with other existing codes that account for additional time beyond an E/M visit (such as the prolonged E/M visit billing codes). One suggested that it should not be billed along with any of the existing narrowly-defined LCCP-type codes, including CCM, transitional care management, or the ACP codes. One did not specify any particular code with which the new code should not be billed, but cautioned that care should be taken to ensure that time spent with the beneficiary was reported only once. Providers eligible to bill the code: The majority of stakeholders (13 of the 15 that responded to this question) stated that both primary care physicians and specialists should be eligible to bill the new code. Two of these stakeholders said that there should also be a requirement that the billing physician has an established relationship with the beneficiary. Two stakeholders said that only specialists should bill since they are generally the ones attending to the beneficiary s serious illness. Two stakeholders stated that non-physicians (including social workers) should also be able to bill the code as long as they are currently allowed to bill separately under the Medicare Physician Fee Schedule. Appendix VII: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Karen Doran, Assistant Director; Iola D Souza, Analyst-in-Charge; Sarah Belford; Krister Friday; John Lalomio; and Daniel Ries made key contributions to this report. Also contributing were George Bogart and Muriel Brown.

Why GAO Did This Study Medicare's physician fee schedule contains over 8,000 billing codes for office visits, surgical procedures, or other services provided to beneficiaries. Some provider groups have concerns that these codes do not sufficiently account for the LCCP-type services they provide to Medicare beneficiaries with complex medical needs. The BBA included a provision that GAO examine billing codes that may be used for LCCP-type services for beneficiaries with a serious or life-threatening illness. GAO identified, among other things, (1) existing Medicare physician fee schedule billing codes that can be used to bill LCCP-type services; and (2) trends in Medicare spending on these services from 2013 through 2017. GAO reviewed Centers for Medicare & Medicaid Services (CMS) billing code manuals and American Medical Association (AMA) code descriptors to identify existing codes containing key components of LCCP-type services; analyzed Medicare Part B claims data from 2013 to 2017 (the most recent available at the time of GAO's review); and interviewed officials from CMS and 19 stakeholders, including the AMA, national physician groups, and other provider groups that had previously given input on the topic to Congress. GAO provided a draft of this report to the Department of Health and Human Services (HHS). In response, HHS provided technical comments, which GAO incorporated as appropriate. What GAO Found The 2018 Bipartisan Budget Act (BBA) defined longitudinal comprehensive care planning (LCCP) as services involving an interdisciplinary team of providers who develop and communicate a care plan to Medicare beneficiaries diagnosed with a serious or life-threatening illness. GAO identified at least 58 billing codes in Medicare's physician fee schedule that could be used by providers to bill for services that cover some or all of the LCCP service components as defined in the 2018 BBA —referred to by GAO as LCCP-type services. The 58 billing codes may be used individually or in combination, depending on a beneficiary's medical needs. Stakeholders representing providers told GAO their members generally use one or a combination of these codes to bill for LCCP-type services. Forty-five of the 58 codes are broadly-defined longstanding codes that can be used for LCCP-type services as well as other services such as the treatment of a specific medical complaint. The remaining 13 codes are more recent narrowly-defined codes introduced starting in 2013 that only cover LCCP-type services. They include transitional care management services introduced in 2013, chronic care management starting in 2015, advance care planning in 2016, and behavioral health integration in 2017. GAO found that overall Medicare spending on LCCP-type services that were billed to the 58 codes increased from $26 billion in 2013 to almost $29 billion in 2017. While narrowly-defined services accounted for a small share of this total spending ($467 million in 2017), spending on these narrowly-defined services such as chronic care management increased rapidly. Moreover, spending growth on narrowly-defined services was driven by increased use of these services rather than increases in reimbursement rates. From 2013 through 2017, more beneficiaries received and more providers billed for narrowly-defined services. The number of Medicare beneficiaries receiving these services grew from about 267,000 to about 2.5 million. The number of providers billing these services grew from about 31,000 to about 100,000.

gao_GAO-20-161

gao_GAO-20-161_0

<1. Background> This section provides an overview of the Hanford Site, including DOE s progress cleaning up the site, and DOE s requirements and organizational structure for managing and overseeing cleanup and S&M activities at the site. <1.1. Overview of Hanford Site and Cleanup Progress> Located in southeastern Washington State, the Hanford Site is one of the most contaminated nuclear waste sites in North America. The site covers 586 square miles upriver from the cities of Richland, Pasco, and Kennewick. The Columbia River flows through about 50 miles of the site. The River Corridor and Central Plateau represent the two main geographic areas for cleanup work. See Figure 1 for a map of the Hanford Site. DOE s primary goal for cleaning up Hanford is to protect the Columbia River from contamination now and in the future and to restore groundwater. Since cleanup began in 1989, DOE has made progress towards these goals, including remediating 1,342 of 2,032 waste sites, demolishing 889 of 1,715 excess facilities, removing 18.5 million tons of contaminated soil and debris from areas along the Columbia River, and treating 20 billion gallons of contaminated groundwater. DOE s most recent schedule estimate for completing cleanup of the Hanford Site is 2078, although final decisions for many cleanup actions have not yet been made. RL s current overarching set of near-term cleanup goals and priorities outlined in its 2020 Vision include initiating the transfer of radioactive sludge from the K basin, cleaning up highly contaminated soils underneath the 324 building, and completing demolition of the Plutonium Finishing Plant, which is among Hanford s most contaminated nuclear facilities. <1.2. Hanford Contaminated Excess Facilities Selected for Our Review> Table 1 includes a list and summary descriptions for each of the contaminated excess facilities we selected for our review. A more detailed discussion of the scope for our review is presented in appendix I. <1.3. DOE Requirements for Surveillance and Maintenance of Hanford s Contaminated Excess Facilities> The objectives for conducting S&M of contaminated excess facilities are to ensure adequate containment of any contaminants left in place; provide physical safety and access controls; and maintain the facility in a manner that will minimize risk to human health and the environment. S&M requirements are derived primarily from nuclear facility safety regulations and DOE orders concerning occupational safety, environmental protection, security, and emergency response planning. DOE orders also require that nuclear facility maintenance plans address aging degradation and obsolescence and that surveillance inspections be conducted to detect malfunction and deterioration and determine whether the structural integrity of contaminated excess facilities is threatened. Under the TPA Action Plan, DOE has established an S&M plan for each of the key excess facilities. The S&M plan identifies the facility and associated structures covered by the plan and the specific inspection activities and frequencies to be conducted. For the other excess facilities, S&M requirements are established through provisions of the cleanup contract which require that the contractor perform the S&M activities necessary to maintain them in a safe and compliant condition. Due to the wide variation in types of contaminated excess facilities and associated hazards and risks, RL uses a graded approach that allows for differences from facility to facility regarding the frequency and extent of inspections and associated structural integrity engineering evaluations. Structural integrity engineering evaluations are conducted to determine the adequacy, structural integrity, and soundness of structures and their components. Inspections are conducted using a procedural checklist comprising a list of functional areas from the facility s inspection plans or procedures, which personnel performing inspections are to evaluate. Inspection checklists can include, among other things, structural integrity (an integral part of excess facility inspections), animal and water intrusion, electrical hazards, and ground subsidence. The S&M plans for contaminated excess facilities require interior walk-through inspections generally on an annual basis but that can vary depending on the facility. Typically, these inspections follow a designated path intended to represent conditions that might be present in areas of the facility that are not visually inspected. In addition, a qualified structural engineer conducts an inspection of the roof integrity recognized as the most likely risk of failure for the contaminated excess facilities and other associated structures at those facilities. The frequency, extent of future inspections, and recommendations resulting from these periodic inspections are to be documented by the structural engineer. <1.4. DOE Framework for Oversight of Hanford Cleanup and S&M of Contaminated Excess Facilities> The program offices at DOE headquarters, RL, and Hanford contractors have overlapping roles and responsibilities for managing and overseeing the cleanup and S&M of Hanford excess facilities. These include: Office of Environmental Management: DOE established EM in 1989 to address the environmental legacy of 50 years of nuclear weapons production and government-sponsored nuclear energy research across the country. EM is responsible for the cleanup of large amounts of radioactive wastes, spent nuclear fuel and nuclear material, contaminated soil and groundwater, and the decommissioning and demolition of contaminated excess facilities at various sites. EM offices involved with oversight of contaminated excess facilities cleanup and S&M activities include: Field Operations Oversight/Chief of Nuclear Safety Office. This office has responsibility for strengthening federal oversight of EM s cleanup mission, including maintaining operational awareness of field office sites operations oversight and implementation of nuclear safety requirements, including requirements for S&M. The Standards and Quality Assurance Office. This office assists with headquarters review of deactivation and decommissioning project planning documents, configuration management and controls, and S&M programs. Office of Enterprise Assessments. This independent office, which reports directly to the Office of the Secretary, is responsible for implementing DOE s Independent Oversight Program for safety and security in accordance with various DOE policies and orders. Through this program, the office conducts appraisals of the adequacy of DOE policy and requirements and the effectiveness of DOE and contractor line management performance in safety and security. The Office of Environment, Safety, and Health Assessments. This office is responsible for conducting assessments to provide information on programs and performance in protecting DOE workers, the public, and environment from hazards present at DOE sites and operations. It also conducts special reviews and studies of safety and emergency management topics and activities where warranted based on circumstances or performance or as directed by DOE management. Hanford Site. RL is responsible for managing and overseeing non- tank waste cleanup activities at Hanford including S&M of excess facilities in the Central Plateau area and for completion of some remaining cleanup work in the River Corridor. RL management and oversight includes verification that work is performed in a safe, secure, and quality manner that protects the public, the worker, and the environment and complies with contractual requirements. Project and Facilities Division. This division is responsible for managing and overseeing the cleanup and S&M of Hanford s excess facilities. Operations Oversight Division. This division has primary responsibility for day-to-day oversight to ensure cleanup work is performed in compliance with requirements for safety, quality assurance, and quality control. This includes ensuring that S&M activities follow approved plans and procedures and that the contractor corrects any deficiencies identified during facility inspections. Site Stewardship Division. This division manages the Long Term Stewardship Program that includes overseeing S&M of the six cocooned reactors. Cleanup Contractor. Private firms under contract to DOE perform the cleanup and S&M work at Hanford. Central Plateau Cleanup. Since 2008, cleanup and S&M of most of the contaminated excess facilities discussed in this report have been performed under the Plateau Remediation Contract by C2HM HILL Plateau Remediation Company. The S&M activities for excess facilities, including how often and what parts of the facility are inspected, are determined by the contractor as necessary to meet contract requirements. Mission Support. Mission Support Alliance is the contractor for the Long Term Stewardship Program and is responsible for ongoing S&M activities for the six cocooned reactors; these activities are expected to last for at least 75 years. <2. DOE Did Not Assess the Programmatic Causes or Fully Implement Key Recommendations Following the PUREX Tunnel Collapse> DOE has taken some actions to evaluate the causes of the PUREX tunnel 1 collapse, but has not determined the programmatic causes that contributed to the tunnel collapse, such as by completing an accident investigation or a root cause analysis. In addition, DOE headquarters recommendations to improve S&M of contaminated excess facilities and the availability of information on the condition of at-risk areas within these facilities have not been fully implemented. <2.1. DOE Did Not Conduct a Root Cause Analysis of the Tunnel Collapse> RL has taken some actions to evaluate the physical causes that contributed to the PUREX Tunnel 1 collapse, but has not determined the programmatic causes that led to the collapse, such as by completing an accident investigation or a root cause analysis, among other things. Specifically, after the collapse, RL took several actions to comply with a 2017 Washington State Department of Ecology Administrative Order. In this order, the Washington State Department of Ecology determined that RL and the Hanford cleanup contractor were not operating and maintaining the PUREX Tunnel 1 to achieve compliance with the site s hazardous waste permit and failed, among other things, to keep the operation of the tunnel undisturbed until closure of the facility. The Administrative Order required RL to take several corrective actions to address violations outlined in the Administrative Order, including determining the cause of the PUREX Tunnel 1 collapse. To fulfill the 2017 Administrative Order corrective action, the cleanup contractor performed an engineering evaluation to determine the structural conditions that led to the collapse of PUREX Tunnel 1. However, the contractor noted in the evaluation that due to the risks of exposure to high radiation levels and urgency to seal the collapsed area, there was insufficient information available to determine the causes of the collapse. Instead, the evaluation identified three potential causes of the collapse, with the most likely cause being deterioration and decay of the tunnel s timber structure. The state accepted these findings from the engineering evaluation as satisfying the requirements in the Administrative Order corrective action that RL identify the causes of the collapse. Notably, the 2017 structural engineering evaluation of Tunnel 1 conducted after the tunnel collapse did not include a root cause analysis to determine the underlying programmatic causes that contributed to DOE not performing previously recommended structural assessments or detecting through regular S&M activity the imminent collapse of PUREX Tunnel 1 collapse. DOE had been aware of concerns with the structural integrity of Tunnel 1 since the 1970s. These concerns lead to the completion of structural assessments in the late 1970s, early 1980 s, and in 1991, when it was recommended that the tunnel be reassessed again in 10 years. Due to elevated risk of contamination and radiation exposure to inspectors, subsequent structural integrity assessments were completed using existing information from prior evaluations, including testing of tunnel structural material, instead of collecting updated information through physical inspections to determine if the PUREX tunnels were structurally sound for continued use, according to RL officials. Figure 2 illustrates the timeline of events related to the tunnels, showing that while the structural integrity of Tunnel 1 was raised several times over the last 40 years and it was recommended in 1991 to assess the tunnel again by 2001, an assessment did not occur until after the May 2017 PUREX Tunnel 1 collapse as part of the corrective actions required by the state. DOE s order on accident investigations contains requirements to initiate an investigation into both the individual and organizational (programmatic) root and contributing causes of events resulting in, but not limited to, a fatality of an employee or member of the public or serious injury requiring hospitalization; loss of control of radioactive material or environmental release of hazardous material; or at least $2.5 million in damage to property or in costs for cleaning, decontaminating, renovating, replacing or rehabilitating. According to RL officials, RL did not initiate such an investigation into programmatic causes because management concluded that the PUREX Tunnel 1 collapse did not reach these threshold requirements. However, according to RL officials written responses to our questions about incident, the costs of responding to the PUREX Tunnel 1 collapse and stabilizing the tunnel exceeded $10 million. DOE Order 232.2A, Occurrence Reporting and Processing of Operations Information, also requires the investigation, categorization, and analysis of reportable occurrences by facility representatives and contractors using a graded approach in accordance with locally approved procedures for implementing the requirements of this order. For an occurrence such as the May 2017 PUREX tunnel collapse, which constituted noncompliance with regulatory requirements that created the potential for actual harm, DOE s order and related guidance indicates that a causal analysis should have been performed to identify the root causes, including the programmatic causal factor or factors that, if corrected, would prevent similar future occurrences. According to the cleanup contractor s condition report on the PUREX tunnel collapse, the contractor initially classified the incident as a significant event because it was categorized as an operational emergency and significant by default. According to this report, under the contractor s reporting procedures, such a classification requires the performance of a root cause analysis to determine the causes and corrective actions with the intent of preventing recurrence. The contractor s condition report related to the incident notes that RL waived the performance of a root cause analysis in favor of a less rigorous apparent cause analysis to determine the structural factors that led to the collapse of PUREX Tunnel 1. According to a written explanation provided to us by RL management, while the tunnel collapse was due to structural degradation, RL s first priority was stabilizing the tunnel to mitigate the potential for further collapse, and a programmatic root cause analysis to determine the cause was not warranted. In this written response, RL did not provide any explanation for why a programmatic root cause analysis was not warranted. In an email, RL s Operations and Oversight Division facility representative granted the cleanup contractor s request for a waiver from conducting a root cause analysis and concurred with their assertion that an apparent cause analysis was more appropriate. Based on this direction, a root cause analysis was not performed. A root cause analysis, performed by either DOE headquarters or RL in accordance with the requirements of DOE s orders on accident investigations and occurrence reporting, would have included an assessment of the underlying programmatic factors that contributed to the collapse of PUREX Tunnel 1. For example, a root cause analysis would determine why PUREX facility inspections that only include visual observations of the surface areas around the tunnels were insufficient in identifying the likelihood of the imminent collapse of PUREX Tunnel 1; why a recommendation made in 1991 for an engineering evaluation to be completed by 2001 to determine if the tunnel was still structurally sound for continued use was not completed; or why RL did not make stabilization or cleanup of the tunnel a higher priority. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the collapse of PUREX Tunnel 1, and taking action to address any identified weaknesses, DOE would have greater assurance that another, similar event will not take place at Hanford. <2.2. DOE Has Not Fully Implemented 2017 Extent of Condition Review Recommendations> In June 2017, shortly after the PUREX Tunnel 1 collapse, EM initiated an Extent of Condition Review to investigate program weaknesses and risks in regard to contaminated excess facilities at three DOE sites, including Hanford. Although EM s 2017 Extent of Condition Review concluded that, overall, the S&M processes for excess facilities were adequate in mitigating risks, EM s review identified some weaknesses and made four recommendations to improve the S&M of contaminated excess facilities and availability of information on these facilities condition. Specifically, two of these four recommendations addressed weaknesses in inspections of facilities and improving information about the condition of excess facilities: A comprehensive review should be conducted to identify high-risk areas within excess facilities where inspections have not been conducted for over 5 years. The results of the review should be used to inform the risk management process used to prioritize actions and projects. For excess facilities for which limited areas may be used for ongoing operations or storage of nuclear materials, the S&M of the unused areas should be reviewed to assure long-term integrity and stability that is comparable to facilities that are excess. RL has not fully implemented these two recommendations. RL has taken some actions, including commissioning an engineering team to evaluate the structural integrity of some facilities similar to the PUREX tunnels that may pose a future threat of collapse. However, this evaluation of the structural integrity of Hanford s contaminated excess facilities was not comprehensive and did not include an evaluation of the structural integrity of all excess facilities of concern that may be at risk of structural failure. For instance, the scope of the evaluation was focused on 27 underground waste storage structures in the Central Plateau, such as cribs, tanks and trenches, which were constructed prior to PUREX Tunnel 1. In addition, this evaluation was largely based on old data and did not include any physical or non-physical inspection and testing to verify if a facility or part of a facility needed to be stabilized or prioritized for cleanup, according to RL officials. In addition, although recommended in EM s 2017 Extent of Condition Review, to date, RL has not taken action to direct the cleanup contractor to carry out comprehensive inspections at all contaminated excess facilities, and there are areas of some facilities that still have not been entered, either physically or by remote means, to conduct internal inspections. RL officials told us that they generally agree that inspections of aging facilities should include evaluations of their structural integrity. According to these officials, there have been ongoing discussions about such inspections, including how often and in what areas to conduct them. Officials said these decisions would need to be determined on a case-by- case basis depending on the safety consequences of potential incidents. They also stated that RL has prioritized removing hazards to reduce potential threats to human health and the environment to reduce future surveillance and maintenance costs and preparing the canyon areas and other facilities for final cleanup. According to EM headquarters officials, the 2017 Extent of Condition Review recommendations were intended to be considered as opportunities for improvement which site management could incorporate as deemed appropriate. EM officials explained that there is no requirement for sites to take action to implement the review recommendations or track their progress. However, by not taking actions to implement the Extent of Condition Review recommendations, RL will continue to lack information about the condition of high-risk areas within contaminated excess facilities where inspections have not been conducted for several years and will miss opportunities to identify and address any deteriorating conditions that could lead to the collapse of another contaminated excess facility. <3. Most Contaminated Excess Facilities Are Inspected as Required, but Some Inspections Are Not Comprehensive> The Hanford contractor is generally conducting surveillance inspections of most contaminated excess facilities as required. However, EM s 2017 Extent of Condition Review and our review found that the cleanup contractor did not conduct comprehensive inspections at all contaminated excess facilities and that there are areas of some facilities that personnel infrequently or never enter, physically or by remote means, to conduct interior inspections. In addition, although EM s 2017 Extent of Condition Review team noted that they observed examples where appropriate S&M activities were taking place at contaminated excess facilities, the team also acknowledged that such activities do not assure the EM sites S&M programs are adequate to prevent mishaps, as evidenced by the collapse of PUREX tunnel. Further, DOE headquarters offices responsible for the evaluation of DOE site activities have not conducted any specific assessments or audits focusing on management and oversight of Hanford S&M activities since 2013. <3.1. DOE Conducts Inspections of Most Contaminated Excess Facilities, but Some Facilities Are Not Comprehensively or Regularly Inspected> According to EM s 2017 Extent of Condition Review and our review of inspection reports at selected facilities, routine surveillance inspections of Hanford s contaminated excess facilities are being conducted and the EM review concluded that Hanford s surveillance inspections were generally adequate. However, this same EM review, as well as our review, identified weaknesses in Hanford s inspection program. DOE orders require sites to clearly address aging degradation and obsolescence and to conduct surveillance inspections at contaminated excess facilities to detect malfunction and deterioration and determine whether the structural integrity of contaminated excess facilities is threatened. Once DOE determines that a facility is excess to mission needs, the disposition phase of a contaminated excess facility s life cycle usually includes deactivation, decommissioning, and S&M activities, followed by decontamination and demolition. According to RL officials, a graded approach taking into account the risks posed at each contaminated excess facility can be used to tailor S&M activities, including the frequency of facility inspections. In addition, S&M plans and procedures are prepared by DOE and implemented by the contractor, who determines the frequencies and areas of contaminated excess facilities included in surveillance inspections. EM s 2017 Extent of Condition Review found that at three EM sites, including Hanford, contaminated excess facilities surveillance inspections were adequate and overall ensured that the S&M programs were mitigating risks. Additionally, the review found that the sites were giving appropriate attention to roof integrity through the S&M process. Roof structural integrity is a key concern at contaminated excess facilities, as the roof serves as protection against spread of contamination and represents the most likely failure risk and safety risk for workers. Further, in our review of selected contaminated excess facilities, we found that the Hanford cleanup contractor has conducted annual surveillance inspections of most of these facilities and has taken action to ensure the structural integrity of some contaminated excess facilities. For example, RL s responses to our questionnaire indicated that for 16 of the 18 contaminated excess facilities we selected for our review, the contractor conducts interior inspections of structural integrity on a periodic basis. In addition, we found that between 2008 and 2018, the contractor annually inspected three of the four contaminated excess facilities we selected for our in-depth reviews. However, RL responses to our questionnaire revealed concerns with completeness of structural integrity evaluations and the structural integrity of some facilities. For five of 18 facilities, RL officials identified structural integrity or degradation which could lead to the potential release of hazardous or nuclear materials, such as the May 2017 partial collapse of PUREX Tunnel 1, as a concern. RL responses also indicated that engineering analyses to evaluate structural integrity had been conducted for 13 of the 18 facilities; however, at 10 of these facilities some areas were not included in the evaluation due to concerns about worker safety from radiological or other hazards. Further, EM s 2017 Extent of Condition Review, other recent DOE reports, and our review of inspection reports for selected contaminated excess facilities found several instances in which the cleanup contractor did not conduct comprehensive surveillance inspections at all excess contaminated facilities, including infrequently or never entering portions of some facilities, either physically or by remote means, to conduct interior structural integrity evaluations. REDOX. According to the 2015 Canyon Risk Mitigation Plan, the REDOX canyon is not accessed during routine S&M activities. This report also notes that the canyon deck area is expected to be highly contaminated, is not inspected, has not been entered in more than 50 years, and structural conditions are unknown. The canyon deck is located in the central portion of the canyon building and is isolated from other areas of the facility by thick reinforced concrete walls and floors. It is located above the facility process cells that were used to extract plutonium. According to RL officials, these process cells and other parts of the main canyon building are not accessed during routine walkthrough inspections due to high levels of radioactive contamination. Furthermore, in the contractor s 2016 annual inspection of the REDOX facility complex, the contractor did not evaluate three annexes of the canyon facility for structural integrity, according to RL s response to our questionnaire. According to RL officials, the contractor did not carry out these evaluations of the annexes because RL plans to complete their final cleanup in the near term. However, according to a 2016 DOE planning document, the schedule for conducting the cleanup of the annexes is unknown, and RL officials told us it may be several more years before cleanup begins. Because these annexes are not inspected for structural integrity, RL and the cleanup contractor may not have sufficient information regarding their condition for planning purposes, such as assessing if immediate maintenance is required to stabilize a structure or prioritizing an annex for immediate cleanup. In addition, according to a 2012 DOE report, because the canyon was not deactivated after shutdown in the 1960s, information is very limited and there is a significant level of uncertainty about the conditions inside the building. According to the EM s 2017 Extent of Condition Review, despite ongoing S&M activities, if facility deterioration continues and is left unaddressed, the condition of the facility could present a threat to human health and the environment, as well as increase the costs of S&M in the near term. PUREX. According to EM s 2017 Extent of Condition Review, parts of the main PUREX facility are not physically inspected, including the canyon deck. The canyon deck is in the central portion of the main canyon building and is isolated from the surrounding areas of the facility by thick, reinforced concrete walls and floors and has not been entered in more than 10 years, according to the Hanford cleanup contractor s 2015 Canyon Risk Mitigation Plan report. According to this report, conditions within this space are unknown, and high contamination levels are expected. Due to lack of information and concerns about this area, the 2015 Canyon Risk Mitigation Plan recommended for data-gathering and planning purposes inspecting this area either physically or remotely, if physical entry is not possible due to high levels of radiation. This report also stated that future cleanup work could not be initiated in this area without sufficient information related to the condition of the canyon deck. In addition, a 2019 engineering evaluation of the facility determined that degradation may not be fully addressed by S&M activities and the risk of release of hazardous substances will increase as degradation continues or goes undetected. Figure 3 shows the main PUREX plant and auxiliary facilities. 216-Z-9 Crib. According to the EM s 2017 Extent of Condition Review, due to the highly contaminated nature of 216-Z-9 Crib, inspections of this facility are limited to external surveillance of the roof and looking down the facility stairwell to the trench area of the crib. However, a 2006 inspection of the interior of the crib utilized a remote controlled device to inspect and determine that the structural integrity of the facility s roof was suspect. This inspection recommended that the roof be inspected for structural integrity every 5 years; however RL did not direct the contractor to inspect the facility until 2016. Furthermore, according to RL officials, when the facility was inspected in 2016 and then again in 2018, the inspections did not include an engineering evaluation or use of non-physical engineering or robotic tools to inspect the structural integrity of the roof, as was done in 2006, to determine if the facility was safe for continued use. Despite the lack of an engineering evaluation or interior inspection of the roof, the 2016 and 2018 inspection reports gave the facility a passing grade for structural integrity raising questions about both the basis and reliability of this assessment. RL officials told us they did not instruct the contractor to conduct such an evaluation because recent visual surveillance inspections of the outside of the crib roof did not indicate that structural failure was imminent. However, in its January 2019 structural integrity assessment of contaminated excess facilities at risk of collapse, the contractor reported that this facility was among 11 facilities needing further evaluation. Plutonium Finishing Plant 241-Z-361 Settling Tank. According to RL s response to our January 2019 questionnaire, the interior of the Plutonium Finishing Plant 241-Z-361 Settling Tank is not inspected. RL s response noted that although there are concerns regarding the structural integrity of the facility, the facility is safe for continued use. However, RL s response is not consistent with prior studies on the condition of the tank. To support the questionnaire response, RL referred to the 2018 Documented Safety Analysis and a 1997 Structural Integrity Assessment for Plutonium Finishing Plant 241-Z- 361 Settling Tank. The 2018 Documented Safety Analysis concludes that the tank is in a structurally degraded condition but is not considered at risk of imminent failure. However, the 1997 Structural Integrity Assessment that DOE used to support the conclusion in its Documented Safety Analysis determined it was not possible to accurately assess the condition of concrete in the facility and there were uncertainties associated with the strength of its structural steel. The 1997 report also concluded that deteriorating conditions of the facility could lead to the leakage of radioactive waste material, further accelerating the degradation through corrosion and conditions that could result in the collapse of the tank. Notably, a subsequent 1999 video inspection revealed cracking in the interior roof, dissolving of the interior steel liner, and deterioration of the concrete sidewall of the tank. Despite these documented concerns about the structural integrity of the facility, RL officials that we spoke with could not provide a specific reason for why the interior of this facility has not been inspected. Most recently, a structural integrity initial assessment performed for the contractor in January 2019 identified the Plutonium Finishing Plant 241-Z-361 Settling Tank as the top priority among 11 contaminated excess facilities needing further evaluation to determine if the facility is structurally sound for continued use. This report stated that the facility is currently in a structurally degraded condition, with severe deterioration of the construction materials supporting the structure. 224B Concentration Facility. This facility is contaminated from past operations and parts of the facility are not physically inspected, according to the 2015 Canyon Risk Mitigation report. In addition, according to a 2015 RL briefing report, the facility s roof is aging and will likely require replacement within 5 years. According to RL officials, the roof of this facility has not been replaced, and according to RL s response to our questionnaire, no significant maintenance or structural work has been conducted since 2008 and none is needed or planned based upon the current condition of the facility. However, RL s response to our questionnaire indicates that RL has not conducted a structural integrity engineering evaluation of the facility to support this conclusion. According to RL officials, they are currently in the process of developing a plan to complete decommissioning and decontamination of the facility. Under the TPA, the plan is to be submitted by the end of September 2020. However, RL officials told us that even with regulatory approval of the plan, DOE likely will use additional funding to pursue other near-term cleanup priorities rather than clean up the 224B Concentration Facility. According to EM s 2017 Extent of Condition Review, other recent DOE reports, and our review of inspection reports for selected contaminated excess facilities, gaps in S&M activities are, in some cases, due to access challenges at the facilities. According to the EM 2017 Extent of Condition Review, not all facility areas are inspected regularly due to difficulty of access or elevated risk of contamination or exposure, or because those areas are in such a degraded condition they are not safe to enter. However, the contractor has demonstrated the capability to use engineering or robotic evaluations to inspect or determine the structural integrity of the facility, or parts of the facility, and verify whether it needs to be stabilized or prioritized for cleanup. For example, such analyses were done at the PUREX tunnels and at the 216-Z-9 Crib, as noted above. Despite this capability, RL management has not directed the cleanup contractor to perform such inspections for some of Hanford s contaminated excess facilities or parts of facilities. According to RL officials, decisions on regularity and types of inspections and structural evaluations will depend on the known risks associated with the facility. Without directing the contractor to routinely conduct comprehensive inspections to gather crucial information on the condition of contaminated excess facilities, RL cannot ensure that it is meeting all of DOE s S&M requirements such as addressing aging degradation and obsolescence of facilities and preventing other potential events similar to the PUREX tunnel collapse. <3.2. DOE Headquarters Has Conducted Some Assessments of RL Cleanup Work but Has Not Conducted Oversight Reviews of S&M Activities at Hanford> DOE headquarters offices have conducted some assessments of RL cleanup work but have not conducted any assessments or audits focused on RL s oversight of the cleanup contractor s S&M activities since 2013. EM s Field Operations Oversight/Chief of Nuclear Safety Office and DOE s Office of Enterprise Assessments are required to conduct independent oversight to the extent necessary to evaluate the effectiveness of DOE field office oversight of contractor activities, including activities needed to maintain contaminated excess facilities in a safe and compliant condition pending their final cleanup. We reviewed 21 DOE HQ oversight reports on RL activity from the past 5 years and determined that none of these assessments or audits focused on RL s management and oversight of the contractor s S&M activities for contaminated excess facilities. We spoke with DOE officials from two headquarters offices responsible for independent oversight of DOE field offices the EM Field Operations Oversight/Chief of Nuclear Safety Office and the Office of Enterprise Assessments. Officials with both headquarters offices confirmed that neither office has conducted a specific assessment or audit focusing on RL s management and oversight of S&M activities for contaminated excess facilities in the last 5 years. Officials with the Office of Enterprise Assessments told us that, given the limited resources available to conduct oversight, they have to prioritize and be selective about the reviews they plan to conduct in a given year, and conducting an in-depth assessment of RL s oversight of Hanford S&M activity has not been a priority with that office. In December 2018, the office considered whether to conduct a formal assessment of RL oversight of Hanford S&M activity, but decided that such an assessment was not needed. However, the projected overall time in S&M mode underscores the importance that S&M be adequate to maintain facility safety during the final stages of cleanup operations through a seamless transition to the final disposition of the facility to protect human health and the environment. We found that S&M requirements for selected contaminated excess facilities will continue for decades. Specifically, our review of 18 contaminated facilities at Hanford found that many of these facilities were determined to be excess between the 1960s and the late 1980s and transitioned into S&M status at that time. Notably, our review of these facilities shows that several of them do not have planned cleanup completion dates and for those with cleanup completion dates, cleanup is scheduled to be completed between 1 and 6 decades in the future. Table 2 shows the dates for when the 18 contaminated excess facilities transitioned into S&M mode and how long RL will need to continue S&M activities until cleanup is completed. As S&M of Hanford s contaminated excess facilities is expected to continue for many decades, conducting an effective S&M program is essential to minimize the risks of potential releases of contamination that could harm the environment or human health before cleanup is completed. Notably, RL has not established final cleanup dates for several of the 18 contaminated excess facilities included in our review. DOE, however, has not conducted independent reviews of S&M oversight activity necessary to determine whether weaknesses exist in RL s management and oversight of the Hanford Site contractor s S&M activities for these facilities. Without prioritizing and conducting periodic assessments or audits focused on RL s management and oversight of the Hanford Site contractor s S&M activities for contaminated excess facilities, DOE does not have assurance that RL is overseeing S&M activity in a way that ensures contaminated excess facilities are being inspected and maintained in a safe and compliant condition pending final cleanup. <4. DOE Seeks to Balance Risks with Other Factors to Establish Hanford Site Cleanup Priorities> RL seeks to balance risks with other factors, such as legally enforceable milestones, available budget, and stakeholder interests, to prioritize cleanup activities that support achieving its overarching Hanford Site cleanup goals, according to RL officials and planning documents. While EM has overall responsibility for managing DOE s cleanup program, including deactivation and demolition of excess facilities, it has delegated prioritization of cleanup activities to the sites through the annual budget process. As part of the process, EM requests sites develop and submit a site-specific Integrated Priority List to EM management. The Integrated Priority List is based on a number of site-specific factors, including regulatory commitments, agreements with EPA and states, and risks to worker safety and the environment. According to RL officials, EM does not provide specific written guidance for the sites to follow in developing their priority lists, other than a list of seven general factors. RL officials told us that more specific guidance is not necessary because site management needs the flexibility in setting and adjusting cleanup priorities to reflect changes in site conditions and other evolving circumstances as they arise. Since 2017, RL and the Hanford cleanup contractor have been using a new site-wide risk-informed tool, known as the Project Evaluation Matrix, to help inform decisions on which cleanup priorities to include in the Integrated Priority List. The matrix is used to produce a prioritized listing of the stabilization, waste removal, and other activities that need to be completed as part of the deactivation and decommissioning of the contaminated excess facilities and their associated buildings, structures, and waste sites. RL and cleanup contractor officials described the matrix as a broad, overarching tool to aid in establishing a qualitative basis by which they can determine and agree on cleanup priorities that are planned to be executed within the next 1 to 5 years. Neither the Washington State Department of Ecology nor the Environmental Protection Agency is directly involved in the development of the rankings in the matrix. The contractor s guidance document explains that the risk evaluation process used to develop the matrix rankings involves a number of steps. It starts with the data collection phase, during which RL and the contractor collect information on site conditions from a variety of sources, such as historical records, safety assessments, subject matter experts, and S&M activities. This information is then used to develop relative ranking scores for the various cleanup and S&M activities using weighted scores for three criteria: (1) risk reduction; (2) mortgage reduction/cost avoidance; and (3) TPA milestones/regulatory drivers. The initial scores also take into consideration other factors such as potential consequences of failure and overall project lifecycle costs. After developing an initial risk ranking of cleanup projects and activities, the contractor works with RL management to evaluate the initial results and make adjustments as necessary to reflect comments, changes in conditions, or new work scope. The risk rankings are then updated and used by RL to inform decisions on which projects to prioritize in its Integrated Priority List budget submission to EM. As funding decisions are made and cleanup work proceeds, risks are reassessed and the process starts again. RL officials explained that planned cleanup priorities established in the Integrated Priority List can be adjusted as necessary to reflect information learned through S&M activities and changes in site conditions. For example, routine annual S&M inspections at one facility identified concerns with the integrity of the roof. Based on these concerns, a structural analysis was performed by the cleanup contractor, and RL adjusted its priorities for fiscal year 2016 to include replacing the facility s roof. Similarly, RL may also modify its planned cleanup priorities to reflect changes in site conditions, such as completing cleanup of a facility or taking actions to stabilize a facility pending its final disposition. For example, based on structural evaluations completed after the partial collapse of Tunnel 1 in May 2017, RL elevated interim stabilization of both PUREX tunnels as among its top priorities in fiscal years 2018-2019. The ability of RL management to establish and adjust cleanup priorities depends on the availability of quality information on site conditions that is reliable, complete, and current. One source of information for this process is annual and routine S&M activities for Hanford s contaminated excess facilities. These activities, such as facility inspections, structural integrity evaluations, and radiological monitoring, help provide management with updated information on potential changes in site conditions that may lead to an adjustment in previously planned priorities. As discussed above, however, both EM s 2017 Extent of Condition Review and our review found that parts of certain contaminated excess facilities that may be at risk for structural deterioration such as the REDOX annexes are not included in the routine surveillance inspections and have not been inspected within the past 5 years, or longer. We also identified instances where structural integrity evaluations for some facilities, such as for the 216-Z-9 crib and the Plutonium Finishing Plant 241-Z-361 Settling Tank, appear to have relied on outdated information and reached determinations seemingly inconsistent with the contractor s more recent analyses and conclusions. By conducting comprehensive surveillance inspections of Hanford s contaminated excess facilities, DOE would have greater assurance that RL and the contractor s process for identifying cleanup priorities reflects the current status of the potential human health and environmental risks present at such facilities. <5. Conclusions> At Hanford, RL has made progress in cleaning up approximately 800 excess facilities, and six major plutonium production reactors are now cocooned and waiting final dispositioning. Despite efforts to mitigate risks and cleanup excess facilities, significant vulnerabilities remain at Hanford due to, among other things, the degrading state of hundreds of contaminated excess facilities still requiring cleanup. Given the pivotal role of the S&M program in ensuring that aging and degrading contaminated excess facilities do not collapse or fail to contain radioactive or hazardous material, it is important that this program is functioning effectively and that any weaknesses are addressed in a timely manner. The partial collapse of PUREX Tunnel 1 was a clear signal that there are flaws in the S&M program at Hanford. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the causes of the PUREX Tunnel 1 collapse, and taking action to address any identified weaknesses, DOE will have greater assurance that another, similar event will not occur at Hanford. Additionally, the PUREX Tunnel 1 event demonstrates that RL and the cleanup contractor need complete and updated information regarding the condition of aging contaminated excess facilities to determine if facilities should be stabilized to prevent structural failure or prioritized for cleanup. This information can only be acquired by routinely completing comprehensive surveillance inspections, to include, if necessary, engineering evaluations including the use of remote controlled probes. Without directing the contractor to conduct routine and comprehensive inspections to gather crucial information on the condition of contaminated excess facilities, RL cannot ensure that it is meeting all of DOE s S&M requirements such as addressing aging degradation and obsolescence of facilities and preventing other potential events similar to the PUREX tunnel collapse. Furthermore, because DOE headquarters offices have not prioritized and conducted any assessments or audits focused on RL s oversight of the cleanup contractor s S&M activities within the past 5 years or since the PUREX Tunnel 1 collapse, they are missing an opportunity to identify and address any Hanford S&M program weaknesses that may have led to the collapse. <6. Recommendations for Executive Action> We are making the following three recommendations to DOE: The Assistant Secretary of DOE s Office of Environmental Management should direct RL to conduct a root cause analysis to identify any programmatic causes that may have led to the collapse of PUREX Tunnel 1. (Recommendation 1) The Assistant Secretary of DOE s Office of Environmental Management, while ensuring the protection of DOE workers, the public, and the environment, should ensure that RL directs the Hanford Site cleanup contractor to explore using robotic or other means to routinely complete comprehensive surveillance inspections of contaminated excess facilities to identify aging degradation and obsolescence of facilities and take timely action as warranted. (Recommendation 2) The Secretary of Energy should ensure DOE headquarters offices responsible for the oversight of EM sites field offices conduct an assessment of RL s management and oversight of the Hanford Site contractor s surveillance and maintenance activity for contaminated excess facilities. Based on the results of this assessment, DOE headquarters offices should consider whether such assessments should be conducted on a periodic basis. (Recommendation 3) <7. Agency Comments> We provided a draft of this report to the Secretary of the Department of Energy. In its written comments, reproduced in appendix III, DOE agreed with the report s findings and concurred with our recommendations. In addition, DOE described ongoing and planned actions to address our recommendations by December 31, 2020. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees; the Secretary of Energy; the Director, Office of Management and Budget; and other interested parties. In addition, the report will be available at no charge on the GAO website at www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report reviews issues related to the cleanup, inspection and maintenance of Hanford s contaminated excess facilities, such as the Plutonium Uranium Extraction Plant (PUREX), and how the Department of Energy (DOE) and the Richland Operations Office (RL) prioritizes and schedules cleanup and ensures that the Hanford Site contractor inspects and maintains these facilities. The objectives of our review were to (1) examine actions DOE has taken to evaluate the causes of the PUREX Tunnel Collapse, 2) examine the extent to which DOE ensures that the contractor s surveillance and maintenance of Hanford s contaminated excess facilities meet DOE requirements, and (3) describe how DOE determines the priority ranking and schedule for cleanup of Hanford s excess facilities. To examine actions DOE has taken to address the PUREX Tunnel Collapse and the extent to which DOE ensures that the contractor s surveillance and maintenance (S&M) of Hanford s contaminated excess facilities meets DOE requirements, we reviewed DOE orders, policies, RL procedures, and documents that describe DOE s S&M requirements. We also obtained and reviewed DOE evaluation reports and assessments of S&M activities and operations at Hanford facilities; these include the Office of Environmental Management s (EM) 2017 Extent of Condition Review for Excess Facilities and historic S&M assessment reports on PUREX tunnel structural stability. To describe how DOE determines the priority ranking and schedule for Hanford cleanup work of Hanford s contaminated excess facilities, we reviewed federal environmental regulations, legal agreements, planning documents from DOE and the Hanford cleanup contractor, DOE directives and guidance, and reports by the Consortium for Risk Evaluation with Stakeholder Participation and others on ways to consider risk in making cleanup decisions. These include, but are not limited to, the Tri-Party Agreement (TPA) and associated Action Plan; EM s Fiscal Year 2020 budget request; RL s 2015 Vision and 2020Vision, which include high-level cleanup priorities and goals; the Hanford cleanup contractor s Project Evaluation Matrix and its associated guideline; and RL s Integrated Priority List. For all objectives, we also interviewed DOE officials with RL, the DOE Office of Inspector General at Hanford, and DOE headquarters offices, including the Office of Enterprise Assessments and EM s Office of Safety, Security, and Quality Assurance. In addition, we interviewed Hanford cleanup contractors, officials from the Washington State Department of Ecology, and officials from the Defense Nuclear Facilities Safety Board. Due to the large number of Hanford contaminated excess facilities requiring cleanup (approximately 800), we focused our review on 18 contaminated excess facilities. These contaminated excess facilities represent the majority of the excess facilities cleanup effort and include some of the most challenging of the non-tank waste cleanup efforts remaining at Hanford, according to DOE officials. We chose key excess contaminated facilities as identified in the TPA because, among other things, DOE and its regulators identify these facilities in Section 8 of the agreement as presenting sufficient potential environmental concern that coordination of the decommissioning process with cleanup activities under the agreement was deemed necessary. We also selected the five other contaminated excess facilities because DOE identified them as having 1) high risks to the environment, workers, and public safety, 2) high annual S&M costs, and 3) high disposition costs. See Table 1 in the report for summary descriptions of each facility we selected. To gather information about RL s planning on S&M activities at Hanford and estimated costs for fiscal year 2019, we administered a questionnaire to RL facility representatives responsible for overseeing the cleanup contractor s implementation of S&M for contaminated excess facilities. For each facility, the representatives were asked whether there was an S&M plan for the facility, when it was developed, and when it was most recently updated. We also asked about the type and frequencies of facility inspections, whether the facility included areas where structural integrity was a concern, if any structural integrity evaluations had been conducted, and whether any significance corrective or preventative maintenance had been performed. We also asked them to explain the facility representative s role in overseeing that the contractor was conducting S&M activities in accordance with the applicable plan and DOE requirements. A copy of the complete questionnaire is included in appendix II. We conducted two pretests of the questionnaire with RL officials in November and December 2018, and we revised it in response to their comments. During this process, we sought to ensure that (1) the questionnaire questions were clear and unambiguous, (2) terminology was used correctly, (3) the questionnaire did not place an undue burden on respondents, and (4) respondents had sufficient information to answer the questions. For the questionnaire we identified an initial set of 21 contaminated excess facilities based on the following criteria: (1) whether they were a key facility identified by DOE and its regulators in Section 8 of the Tri- Party Agreement Action Plan and (2) whether we considered them to be a contaminated excess facility that poses high risks to the environment, workers, and public safety; (3) whether it has potentially high annual surveillance and maintenance costs; and (4) whether it has high final disposition costs based on information we gathered from DOE. After further correspondence with RL officials, we agreed that three of the contaminated excess facilities on our list could be deleted because they were not in S&M mode, as cleanup was completed for one facility, one was undergoing active cleanup, and the other was in operational status. We sent the questionnaire by email in a password-protected Word document to which respondents could return electronically after marking checkboxes or entering responses into open-answer boxes. We sent the questionnaire with a cover letter to DOE officials on January 10, 2019, with a request to complete and return it by January 31, 2019. By February 25, 2019, we received completed questionnaires for each of the 18 selected contaminated excess facilities. In addition, to provide further context for all objectives, we conducted in- depth reviews regarding S&M of selected Hanford facilities. For these reviews, we selected four high-risk facilities: PUREX, REDOX, the 224B Concentration Facility, and the 216 Z-9 Crib. We used a judgmental (non-probability) sample to select four contaminated excess facilities for in-depth review. These facilities have been identified by DOE, the DOE Office of Inspector General, or the Consortium for Risk Evaluation with Stakeholder Participation as contaminated excess facilities with concerns regarding high risks to the environment, workers, and public safety and risk of potential release of radioactive material and other hazardous materials due to aging degradation and weakening structural integrity. In addition, these contaminated excess facilities are moderate- to high-risk priority facilities for cleanup, according to the contractor s June 2018 Project Evaluation Matrix, but not scheduled to start cleanup for at least 5 years. For these reviews, we examined DOE documents, including inspection records dating back to the start of fiscal year 2008 through the end of fiscal year 2018 to determine if inspections were occurring, and interviewed RL officials. We conducted this performance audit from March 2018 to January 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. Appendix II: Questionnaire Appendix III: Comments from the Department of Energy Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the individual named above, Ned Woodward, Assistant Director; Tara Congdon; Justin Fisher; Richard Johnson; Michael Meleady; Peter Ruedel; Sara Sullivan; and Roxanne Sun made key contributions to this report.

Why GAO Did This Study DOE's Hanford site in Washington State contains thousands of contaminated excess facilities and waste sites that remain to be cleaned up. In May 2017, a partial roof collapse at a waste storage tunnel facility for one of the former plutonium nuclear processing plants raised questions about the S&M of Hanford's excess facilities and how RL prioritizes cleanup of these facilities. GAO was asked to review DOE's cleanup of Hanford's contaminated excess facilities, including how DOE ensures that the Hanford Site contractor inspects and maintains facilities. This report examines, among other things, (1) DOE's actions to evaluate the causes of the PUREX tunnel collapse, and (2) the extent to which DOE ensures that S&M of Hanford's contaminate excess facilities meet DOE requirements. GAO reviewed DOE documents, administered a questionnaire to collect S&M information about 18 selected facilities representing the majority of the Hanford facilities cleanup effort, conducted in-depth reviews of selected Hanford facilities, and interviewed DOE and Hanford cleanup contractor officials. What GAO Found The Department of Energy (DOE) has taken some actions to evaluate the physical causes that contributed to the May 2017 partial collapse of the Plutonium Uranium Extraction (PUREX) Tunnel 1, but has not determined the programmatic causes that led to the collapse, such as by completing an accident investigation or a root cause analysis, among other things. For example, although an engineering evaluation of the tunnels was completed at the request of the State of Washington, Richland Operations Office (RL) officials told GAO an accident investigation was not initiated because the event did not meet threshold requirements in a DOE order that includes, among other things, damages or costs exceeding $2.5 million. However, GAO's analysis shows that the costs of responding to the event and stabilizing the tunnel were about $10 million. At the contractor's request, RL also waived performance of a root cause analysis, which DOE guidance states is typically required for such a significant event, and agreed to a less rigorous analysis of the potential physical causes of the event. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the collapse of PUREX Tunnel 1, and taking action to address any identified weaknesses, DOE will have greater assurance that another, similar event will not take place. According to a DOE report and GAO's review, although the Hanford contractor is generally conducting routine surveillance inspections of contaminated excess facilities, these inspections have weaknesses and GAO found that DOE has not ensured requirements are fully met. Specifically, DOE orders require that processes be in place to ensure that inspections are conducted to detect deterioration and determine whether the structural integrity of facilities is threatened. A December 2017 DOE report and GAO's review found that the surveillance and maintenance (S&M) inspections at several facilities were not comprehensive and that there are areas of some facilities that personnel infrequently or never enter—physically or by remote means—to conduct inspections. For example, parts of the Reduction-Oxidation Facility have not been entered in more than 50 years and structural conditions are unknown. Without conducting comprehensive inspections, RL cannot ensure that it is meeting all of DOE's S&M requirements, such as addressing aging degradation and obsolescence of some facilities, and preventing other potential events similar to the PUREX tunnel collapse. In addition, GAO's review of oversight reports since 2013 by DOE headquarters offices responsible for evaluating field office operations found that none of these assessments focused on RL's management and oversight of the contractor's S&M activities. DOE's Oversight Policy requires DOE to conduct independent oversight to the extent necessary to evaluate the effectiveness of DOE field office oversight of contractor activities. Without conducting periodic assessments or audits focused on RL's management and oversight of the contractor's S&M activities for contaminated excess facilities, DOE does not have assurance that RL is overseeing S&M activity in a way that ensures these facilities are inspected and maintained in a safe and compliant condition pending final cleanup. What GAO Recommends GAO recommends that DOE (1) analyze the programmatic root causes of the tunnel collapse, (2) routinely conduct comprehensive inspections of contaminated excess facilities and take timely action as warranted, and (3) assess RL oversight of S&M of Hanford excess facilities. DOE agreed with GAO's recommendations and stated that it is taking steps to implement all of them by December 2020.

gao_GAO-19-260T

gao_GAO-19-260T_0

<1. DOT Has Not Finalized a National Maritime Strategy but Plans to Do So by New February 2020 Deadline> In 2014, Congress issued two separate mandates to DOT to develop strategies related to challenges facing the U.S.-flag fleet, specifically: The Secretary of Transportation was directed to develop a national maritime strategy with recommendations to, among other things, help U.S.-flag vessels remain competitive. The Secretary of Transportation and the Maritime Administration (MARAD) within DOT were directed to develop, in collaboration with DOD, a national sealift strategy to ensure the long-term viability of U.S.-flag vessels and U.S.-citizen mariners. As we reported in August 2018, according to MARAD and DOD officials, MARAD has been working on a single draft maritime strategy to meet both mandates because the broader national maritime strategy would need to encompass the national sealift strategy, as well. While there is no statutory deadline for the completion of the national sealift strategy, in the John S. McCain National Defense Authorization Act for Fiscal Year 2019, the statutory deadline for the national maritime strategy was extended from February 2015 to February 2020. In our August 2018 report, we noted that MARAD officials had completed a draft strategy in 2016, but they told us that the strategy was subject to the new administration s review. At that time, MARAD and DOT officials told us that they viewed the existing draft strategy as pre-decisional and could provide no timeline for when they planned to move the strategy forward. In our report, we concluded that the delay in submitting the strategy to Congress had resulted in decision-makers not having the information they needed and recommendations from the agency to inform policy-making in this area. We recommended that DOT complete the national maritime strategy and establish time frames for its issuance. DOT concurred with our recommendation. In our recent discussions with DOT officials after passage of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, they told us that DOT now plans to meet the new statutory deadline and issue the strategy by February 2020. <2. Stakeholders Identified Two Primary Challenges to Supporting the U.S.-Flag Fleet for Defense Needs, and DOT Has Identified Various Options to Address Them> Stakeholders we spoke with for our August 2018 report identified two primary challenges to ensuring that the U.S.-flag fleet would continue to meet DOD s national defense needs. First, they described maintaining the financial viability of U.S.-flag vessels participating in MSP as a challenge. Second, stakeholders identified a potential shortage of U.S. citizen mariners available to crew the government-owned reserve fleet during a military activation as a challenge, in part due to the declining numbers of U.S.-flag vessels that employ these mariners. In our August report, we noted that MARAD had identified some options to address the competitiveness of U.S.-flag vessels and the long-term viability of the U.S.-citizen mariners issues that are very similar to the key challenges identified by stakeholders. However, DOT and MARAD officials had stated that they were not yet ready to address the feasibility of these options, or formally propose them. <2.1. Maintaining Financial Viability of the U.S.-Flag Fleet> According to MARAD officials, the relative cost of operating a U.S.-flag vessel compared to a foreign-flag vessel has increased in recent years, making it more challenging for vessel operators to remain economically viable under the U.S. flag. In our August report we found that financial support to U.S.-flag vessels through both the MSP stipend and the government cargo preference requirements has helped ensure a sufficient number of internationally trading U.S.-flag vessels are available to meet DOD s most recently stated cargo capacity needs from such vessels. On the other hand, according to MARAD officials, the additional cost of operating a U.S. flag vessel compared to a foreign-flag vessel has increased from about $4.9 million annually in 2009 and 2010 to about $6.2 to $6.5 million currently making it harder for such vessels to remain financially viable. This cost differential results primarily from the rising relative costs of employing U.S. versus foreign mariners as crew. Compounding the increasing costs of operating U.S. flag vessels, the volume of government cargo a key source of revenue for many U.S.- flagged vessels has fallen in recent years as the international military presence of the United States and funding for food aid overseas have both declined. In response to these challenges, Congress increased the MSP stipend from $3.5 million to $4.99 million per vessel from fiscal year 2016 to 2017. MARAD officials said this increase has temporarily stabilized the financial situation of MSP vessel operators. However, they added that trends in operating costs and government cargo suggest that the ability to retain an adequate number of financially-viable U.S.-flagged vessels will remain an ongoing challenge. MARAD officials identified the following options as having potential to reduce the costs of operating a U.S.-flag vessel which would in turn make U.S.-flag vessels more competitive in the international cargo market: MARAD is part of a U.S. Registry Working Group looking at a range of actions to decrease the time and cost of bringing vessels under the U.S. flag, including the cost of meeting Coast Guard requirements. For example, the group is looking at a recommendation for the broader application of internationally recognized vessel standards to U.S.-flag vessels to meet Coast Guard requirements. In the current strategic plan for 2017 through 2021, MARAD identified two areas of reform mariner income-tax relief and liability insurance reform that could reduce the crew costs of operating under a U.S. flag. According to MARAD officials, some stakeholders have recommended that MARAD consider requesting the elimination of a tax on U.S.-flag vessels receiving maintenance overseas to reduce maintenance costs for U.S.-flag vessels. In general, maintenance and repairs on U.S.-flag vessels not conducted at U.S. shipyards are subject to a statutory 50 percent ad valorem tax on the cost of maintenance performed in a foreign country. According to 12 of the 14 MSP vessel operators we spoke with for our August report, U.S. shipyards are typically more expensive than foreign shipyards or may not be close to the vessel s location or route, so they typically choose to pay the tax and have the maintenance performed overseas. Four MSP vessel operators we spoke to stated that they send U.S.-flag vessels to U.S. shipyards for maintenance when it makes sense from a logistical and financial perspective. MARAD officials we spoke to said they are considering the effect of eliminating the tax, a step that would reduce costs for vessel operators but would potentially negatively affect the financial viability of U.S. shipyards, which the law was designed to assist. However, MARAD officials stated that they have not yet evaluated these trade-offs. MARAD and DOD s Transportation Command (Transportation Command) officials have also identified but not officially proposed several options to address the decline in government cargo carried on U.S.-flag vessels, which would also make U.S.-flag vessels more competitive by providing more revenues. In our August 2018 report, Transportation Command officials and ship operators to whom we spoke told us that they consider access to U.S. government cargo to be a critical means of sustaining U.S.-flag vessels. Transportation Command and MARAD officials stated that one way to increase the amount of commercial cargo on U.S.-flag vessels would be to require that certain energy export commodities, such as oil or liquefied natural gas, be carried on U.S.-flag vessels. While this option has been considered in the past, it would require new legislation and would potentially have a negative impact on the export market for liquefied natural gas. In 2015, we analyzed the potential effects of a requirement that U.S. liquefied natural gas exports be carried on U.S.- built and -flagged vessels. We found that such a requirement could potentially increase the number of U.S.-flag vessels by 100 over the course of many years; however, due to their higher operating costs, this would increase the cost of transporting liquefied natural gas from the United States, decrease the competitiveness of U.S. liquefied natural gas in the world market, and in turn, reduce demand for U.S. liquefied natural gas. MARAD officials stated that another option would be increasing the percentage of other cargo, such as food aid, that civilian agencies are required to transport on U.S.-flag vessels. This would also require an amendment to existing legislation and would also have trade-offs, since cargo requirements such as these can result in higher shipping costs that can negatively affect the missions of civilian agencies, in particular food aid agencies. Another option identified by MARAD officials to address declining government cargo volumes would be to increase the MSP stipend to replace some of the government support previously provided through cargo preference requirements, as was done for fiscal year 2017. <2.2. Potential Shortage of U.S.- Citizen Mariners> The second challenge identified by stakeholders related to maintaining adequate sealift for defense needs is the potential shortage of U.S.- citizen mariners available to crew the government-owned reserve fleet during a crisis. The government s reserve fleet vessels are held in reduced operating status with minimal crew in peacetime. When put into full operating status such as for a surge related to a wartime effort these vessels need additional crew, and DOD counts on mariners working on oceangoing U.S.-flag vessels to meet this need. MARAD and DOD have raised concerns about the sufficiency of U.S.-citizen mariners to meet this need. For example, in January 2018, in a statutorily mandated report, MARAD s Maritime Workforce Working Group estimated a shortage of over 1,800 mariners in the case of a drawn-out military effort, although it also recommended data improvements to increase the accuracy of the count of available mariners. Specifically, in this report, the working group estimated approximately 11,768 qualified and available U.S.-citizen mariners as of June 2017 1,839 less than the 13,607 mariners the working group estimates would be needed for sustained operation of the reserve and commercial fleet. The working group based its identification of 11,768 existing qualified U.S.-citizen mariners on the number of U.S.-citizen mariners actively sailing on U.S.-flag commercial and government-owned oceangoing vessels. For the vessels in full operating status, the working group accounted for 2 mariners employed for each crew position. The double crew, which according to MARAD officials is typical for a commercial U.S.-flag vessel operating in international trade, allows each mariner, over the course of a year, to work for 6 months on the vessel and take 6 months of earned leave. The working group assumed that during a military activation, commercial operations would continue at the same level as during peacetime but that some U.S-citizen mariners currently working on commercial vessels would be willing to reduce the amount of earned leave they took in order to work on government-owned reserve vessels. The working group analyzed this scenario by changing the ratio of crew positions to crew from 2 to 1.75. As illustrated in figure 1, under this scenario, with an average of 26 crew positions per vessel, between 6 and 7 mariners per existing commercial oceangoing U.S.-flag vessel are made available to crew the reserve fleet. According to the working group s methodology, given the size of the current U.S.-flag oceangoing fleet and the number of currently employed mariners on this fleet, there are enough U.S.-citizen mariners to crew the reserve fleet during an initial surge, but not for a sustained activation, during which the working group estimated that the reserve vessels themselves would need a double crew to allow for crew rotations. This need for crew rotations on the reserve vessels led the working group to estimate a shortage of 1,839 U.S.-citizen mariners. Moreover, the working group s report found that the shortage of mariners may be understated if some of the estimated available mariners are unable or unwilling to continue sailing during times of national emergency, as available mariners are not required to crew the reserve fleet. Although the working group concluded that there is a shortage of mariners for sustained operations, its report also details data limitations that cause some uncertainty regarding the actual number of existing qualified mariners and, thus, the extent of this shortage. The working group s approach driven, in part, by limitations of the U.S. Coast Guard s database that tracks mariner credentials did not count any qualified mariners who are no longer employed on U.S.-flag oceangoing vessels or who are employed on other types of vessels but may have the required credentials. In fact, according to the working group s analysis, over 15,000 mariners listed in the U.S. Coast Guard s database have unlimited credentials but are unaccounted for, as they are neither currently employed on large, oceangoing vessels nor serving as civil- service mariners committed to government-owned vessels. The working group stated that the availability and continuing proficiency of these mariners remains unknown. MARAD officials emphasized to us, however, that mariners who have not worked on the right types of vessels for more than 18 months are likely to need additional training before they would be qualified to crew the reserve fleet during a military activation. The working group s report contains several recommendations related to improving information on the number of available and willing mariners. These recommendations include replacing the Coast Guard database with one that would enable a more accurate account of available mariners, and establishing a periodic survey of the U.S.-citizen mariner pool to allow MARAD to determine, with reasonable certainty, how many qualified mariners would be available and willing to sail on U.S.- government reserve vessels if called upon to do so. The report concluded that until these agencies improve the tracking of licensed mariners who may be available to crew the government-owned reserve vessels when activated into full operating status, the extent to which there is a shortage of mariners for defense needs will remain unclear. The lack of information on the extent to which there is a shortage of mariners limits the U.S. government s ability to effectively plan for such needs. In January 2018, MARAD s administrator testified that MARAD is working with the Coast Guard and the maritime industry to better track licensed mariners who may no longer be sailing but could serve in a time of crisis, and in March 2018, MARAD officials told us they are taking steps to initiate a new survey of mariners, as recommended in the working group s report. In its report, the working group also identified options to address the challenge of ensuring a sufficient number of U.S.-citizen mariners for defense needs. It identified two actions that could help increase the number of U.S.-citizen mariners one focused specifically on mariners and the other focused more broadly on the merchant marine, which encompasses U.S.-flag vessels and U.S.-citizen mariners. However, the working group s report did not discuss specific costs or trade-offs related to either action or elaborate any further on them. The report identified the following actions: MARAD should develop a broad-based reserve program that would identify and support qualified mariners willing to sail in commercial and government-owned vessels during an emergency. MARAD would provide limited financial assistance in training mariners and maintaining credentials, in turn for which mariners who participate would be obligated to sail in the event of a defense need. MARAD and other U.S. government agencies should support a healthy merchant marine (which encompasses U.S.-flag vessels and U.S.-citizen mariners). The government should fully support programs including MSP, requiring the government to ship certain cargo on U.S flag vessels, the Jones Act, and government chartering of privately owned vessels. If DOD determines that national needs require more mariners and vessels than can be provided through current programs, those programs should be expanded to meet such needs. In conclusion, the U.S.-flag fleet is increasingly facing challenges that threaten its ability to meet future defense needs. In response to congressional mandates, MARAD has been working on a national maritime strategy and plans to issue one by February 2020. However, until such a strategy is in place, decision-makers will have limited information to make important policy choices that consider all the relevant tradeoffs associated with this complex issue. Chairman Mast, Ranking Member Garamendi, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions. <3. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Andrew Von Ah, Director, Physical Infrastructure, 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 statement. GAO staff who made key contributions to this testimony are Alwynne Wilbur (Assistant Director), Stephanie Purcell, (Analyst in Charge), Bonnie Ho, Christopher Jones, and Amy Rosewarne. Other staff who made key contributions to the report cited in the testimony are identified in the source product. 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.

Why GAO Did This Study The U.S. government relies on U.S.-flag vessels to transport cargo and provide a pool of U.S.-citizen mariners who could be called upon to support defense needs in times of war or crisis. Through financial support and by requiring government agencies to ship certain cargo on U.S. flag vessels, the United States has supported the viability of the U.S.-flag fleet. However, concern has grown about the fleet's future sustainability. In 2014, Congress mandated that DOT develop national strategies to address this issue. This statement summarizes GAO's August 2018 report on challenges in sustaining the U.S. flag fleet for defense purposes and DOT's efforts to draft a national maritime strategy that addresses these challenges. Specifically, it discusses: (1) the status of the mandated national strategies and (2) challenges that stakeholders identified related to sustaining the U.S.-flag fleet and options DOT has considered for addressing them. For the August 2018 report, GAO reviewed relevant laws, regulations, reports, and studies. GAO also analyzed data on international government cargo and interviewed officials from DOT and DOD, vessel operators, and other stakeholders. For this statement, GAO spoke to DOT officials for an update on the status of the strategy. What GAO Found The Department of Transportation (DOT) is still finalizing the national maritime strategies that were called for in two separate mandates by Congress in 2014. According to DOT officials, DOT has been working on a single draft maritime strategy to meet both mandates. This strategy is intended to address how to make vessels registered to the United States (U.S.-flag vessels) more competitive in the international cargo market. It is also intended to address how to ensure the long-term viability of U.S.-flag vessels and U.S.-citizen mariners. The Department of Defense (DOD) counts on U.S.-citizen mariners that work on U.S.-flag vessels to crew the government-owned reserve fleet during a crisis. In an August 2018 report, GAO concluded that by not completing the strategy or establishing a timeline for completing it, DOT had delayed providing decision-makers the information they needed to address challenges facing the U.S. flag fleet. Subsequently, with the passage of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, Congress extended the deadline for the strategy to February 2020. According to DOT officials, DOT will issue the strategy by the new deadline. Stakeholders GAO spoke with for its August 2018 report identified two primary challenges to ensuring that the U.S.-flag fleet would continue to meet DOD's national defense needs: (1) maintaining the financial viability of the U.S.-flag fleet, which is threatened by the increasingly higher costs of operating U.S. vessels compared to foreign flag vessels and a decrease in government cargo being shipped internationally; and (2) a potential shortage of U.S. citizen mariners available to support defense needs, in part due to the declining numbers of U.S.-flag vessels that employ these mariners. For example, the number of U.S. flag vessels involved in international trade declined from 199 vessels at the end of 1990 to just 82 vessels by the end of 2017. DOT officials have identified some options to make U.S.-flag vessels more competitive, increase the amount of commercial cargo on U.S. flag vessels, and address a potential shortage of U.S.-citizen mariners, although they are not ready to assess their feasibility or formally propose these options. To address the challenge of maintaining the financial viability of U.S.-flag vessels, DOT has identified options such as changing regulations to decrease the costs of bringing a ship under the U.S. flag and requiring that certain energy export commodities, such as oil or liquefied natural gas, be carried on U.S.-flag vessels. To address the potential shortage of U.S.-citizen mariners, DOT convened a working group to determine how many mariners would be needed to meet defense needs. The working group estimated a shortage of over 1,800 U.S.-citizen mariners in the event of a sustained military activation, although it also recommended data improvements to increase the accuracy of the count of available mariners. In addition, the working group identified two actions that could help increase the number of U.S.-citizen mariners: (1) developing a reserve program to identify and support qualified mariners willing to sail to support defense needs during an emergency and (2) expanding programs and requirements that support U.S.-citizen mariners, such as requirements that government agencies must ship certain cargo on U.S. flag vessels. What GAO Recommends In the August 2018 report, GAO recommended that DOT complete the national maritime strategy and establish time frames for its issuance. DOT concurred with the recommendation.

gao_GAO-20-650T

gao_GAO-20-650T_0

<1. Key Considerations for Federal Workers Reentry to Workplaces> We have previously reported on how federal agencies were planning to protect their federal workers during a pandemic, as well as lessons learned from the H1N1 pandemic, the most recent pandemic experienced by our nation prior to COVID-19. Based on these lessons, and further informed by more recent events, we have identified key issues for federal agencies to consider as their employees reenter the workplace. <1.1. Maintain Continuous Communication with Employees> Agencies should maintain continuous communication with employees, and their representatives, during a pandemic. In particular, agencies should identify employee concerns and communicate human capital guidance such as pay, leave, staffing, and other human capital flexibilities to employees to help to ensure the continuity of agencies operations and mission essential functions. It is important that employees understand the policies and requirements of their agencies, and the alternatives, such as telework, that may be available to them. Continuous communication will also help agencies to provide real-time information to employees as conditions evolve. <1.2. Identify Mission-Essential Functions and Employees, and Classify Their Exposure Risk Level> Employees who must work onsite during a pandemic will face varying levels of exposure risk. The level of risk depends, in part, on whether or not they will be in close proximity to people potentially infected with the virus. As a first step, it is important that agencies identify mission essential functions that cannot be performed remotely, as well as the related number of employees who will perform those functions and their risk of exposure. Agencies should consider how they will continue to update their determinations and monitor the associated risks, as these factors could affect decisions on reentry as conditions evolve. <1.3. Make Decisions about Reentry Based on Local Conditions> It is important for federal agencies to factor-in local conditions of the pandemic at the component and facility level in their determinations regarding workforce reentry rather than applying across-the-board decisions based on agencies headquarters locations. Agencies should consider making decisions about reentry, including precautions and safeguards agencies take, based on the local prevalence of the pandemic at each site. As agencies consider local conditions for reentry, they should share information and cooperate with other agencies located in the same area. These reentry decisions could change over time as the pandemic progresses, such as if there is a second or third wave of outbreaks. It is important that agencies plans to protect their workforce for a pandemic are operational at all levels of the organization; particularly for those workers who have to perform mission-essential functions onsite. <1.4. Have Appropriate Protection Measures in Place to Protect Employees> To protect employees as they reenter their workplaces, agencies should have appropriate protection measures in place, by exposure risk level. For example, an agency could make changes to the work environment to reduce workplace hazards, such as by installing sneeze guards as a barrier between employees who must have frequent contact with other employees or the public. Additionally, an agency could provide personal protective equipment (PPE), such as surgical masks, gloves, and N-95 respirators, to employees which, if used correctly, can help prevent some exposures. Agencies will want to ensure that they have an adequate supply of hygiene supplies, such as hand sanitizers, and a plan for distributing those supplies within the agency. Some basic hygiene precautions, such as encouraging employees to wash their hands or use a hand sanitizer after they cough, sneeze, or blow their noses, can be implemented in every workplace. Agencies will also want to provide supplemental cleaning programs for common areas. <1.5. Implement Social Distancing Strategies> Avoiding crowded settings through social distancing strategies is one of the best ways to prevent infection during an influenza pandemic. Agencies can implement various social distancing strategies to avoid situations that increase workers risk of exposure to a pandemic virus. For those functions that can be performed remotely, agencies may consider maximizing the use of telework, which is discussed in greater detail later in this statement. Other strategies agencies should consider include avoiding unnecessary travel, restricting in-person meetings and gatherings, and allowing flexible schedules to reduce the number of employees in the building at the same time. Agencies should also consider workplace reconfiguration (such as building walls or partitions between workstations), office-specific protocols (such as limiting personal contacts among staff), and making decisions about reopening office fitness and childcare centers as part of separate risk-based decision processes. <1.6. Establish Protocols to Prioritize and Distribute Antivirals and Vaccines> When medical countermeasures such as antivirals and vaccines are developed, it will be important for agencies to decide the extent to which these countermeasures will be provided to employees. In cases where countermeasures are going to be provided to employees, agencies should consider actions necessary to procure them, and establish clearly- defined, well-documented, and consistently-applied protocols to prioritize and allocate their distribution. <2. Decennial Census Considerations Made as Area Offices Resume Field Operations> The Bureau presents an illustrative example on continuity of operations and decision making for resumption of operations. The Bureau has both permanent staff in headquarters and a large local field infrastructure of 248 Area Census Offices (ACO) with short-term staff to implement the decennial census. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, just a day before invitations to respond to the 2020 Census were scheduled to arrive in mailboxes across the country, and as peak census operations were set to begin. In March and April 2020, the Bureau suspended operations until June 1 and extended key operations. Since that time, the Bureau announced it would resume operations at additional ACOs each week, and as of June 11 all ACOs had resumed operations. Key aspects of reopening Bureau ACOs included (1) a phased approach to resuming operations, (2) operational changes in response to challenges related to COVID-19, (3) addressing worker safety concerns, (4) communicating pandemic plans to ensure continued operations, and (5) contingency planning for risks. <2.1. Phased Approach to Resuming Operations> The Bureau took a phased approach to resuming operations at its ACOs. To make these decisions, the Bureau considered multiple factors including whether the state in which each ACO was located had begun phased reopening, whether data on federally established health criteria supported the decision to restart, and whether the Bureau could meet the safety needs of ACO employees and the public. In our late May survey of ACO managers, responses on the Bureau s efforts to reopen offices varied. For example, 66 percent of ACO managers responding to our late May survey reported satisfaction with the process of recalling office staff, 68 percent with readiness to conduct field operations, and 75 percent with readiness to conduct office operations. Operations resumed in a phased manner not only by office, but also by function. As the Bureau resumed operations, it was able to resume operations that required less physical interaction, such as Update Leave, in which field staff deliver questionnaires to homes that might not receive mail delivered to their doors. Operations that require interviewing residents, such as Non-Response Follow Up, were delayed until August. <2.2. Operational Changes to Maintain Social Distance in Response to Challenges Related to COVID-19> The Bureau has also made a number of changes to its 2020 Census operations to minimize face-to-face interactions. The Bureau modified its Update Leave operation, directing field staff to update the addresses by observation when delivering a questionnaire, instead of knocking on doors to speak with residents. To reduce in-person contact for the Group Quarters operation, which enumerates facilities such as prisons, nursing facilities, and college dormitories, Bureau officials told us they were contacting facilities to encourage them to shift from in-person enumeration to electronic responses. In late April, the Bureau also authorized its ACOs to call those facilities that had previously opted to respond by providing a paper listing of residents. Census staff asked the facilities to mail the listing back to the ACO rather than having the ACO send staff to pick up the paper listing. <2.3. Addressing Worker Safety Concerns> The Bureau stated that it will coordinate with federal, state, and local health officials to put appropriate protocols and procedures in place and ensure adequate PPE and cleaning supplies. In early May, the Bureau announced that it had ordered this equipment for all field staff and that these materials would be secured and provided before resumption of operations. Bureau officials told us they are distributing PPE and cleaning supplies to its 248 ACOs on a rolling basis, prioritizing delivery to those ACOs that were resuming major field operations, such as Update Leave. In our late May survey, ACO manager satisfaction was relatively high regarding PPE for staff conducting Update Leave (66 percent), the largest field operation being conducted at the time. In contrast, managers at that time reported some of their lowest satisfaction rates when asked about PPE adequacy for their office and field workers more generally (34 and 43 percent, respectively). ACO managers reported higher satisfaction in late May than in early April with their ACO s ability to safely manage employees and operations during the pandemic (increasing from 55 to 65 percent on average across three questions on this topic). Despite this increase in confidence, managers expressed concerns regarding worker safety in open-ended comments. For example, in late May managers expressed concerns regarding how fingerprinting of large numbers of staff necessary to fulfill the census mission could be conducted safely under conditions of social distancing. In addition, more than 15 comments in early April and 11 in late May expressed concerns about the ability of the ACO management teams to telework. These included concerns about the inadequate number of laptops and who was expected to report to their local office. <2.4. Communicating Pandemic Plans to Ensure Continued Operations> The Bureau created a COVID-19 Internal Task Force to create a communications plan and appropriate workforce flexibilities. The Bureau sent emails to regional staff with updated information on delaying field operations and prepared documents to answer questions about the delays, office operating status, payroll, hiring, and training. Responses to our surveys of ACO managers highlighted the need for the Bureau to ensure open lines of communications. Between early April and late May, respondent satisfaction increased regarding the timeliness and clarity of Bureau communication about its pandemic plan; however, satisfaction in these areas remained relatively low. Specifically, reported satisfaction increased for communication timeliness (from 35 to 45 percent) and clarity (from 42 to 51 percent). More than 50 ACO managers commented about communication challenges such as conflicting direction from different sources and guidance received shortly before the implementation date. <2.5. Contingency Planning for Risks Including an Epidemic> In May 2019, we reported that the Bureau did not have contingency plans for many identified risks including for major disasters such as an epidemic and recommended that it develop contingency plans for all risks that did not have one. The Bureau updated its risk register for major disasters to include a contingency plan. According to the Bureau s March 2020 risk register, the contingency plan for any major disaster including an epidemic is rapid response, meaning the Bureau would develop a plan to address the risk once it was realized. Bureau officials told us that, depending on the type of major disaster, response would vary widely and even if they had a more detailed contingency plan for a pandemic it would have never addressed the magnitude of the current national emergency that is taking place across the country. <3. Key Practices for Ensuring Telework Contributes to Continuity of Operations during the Current Pandemic and Provides an Expanded Workforce Option in the Future> We have identified key practices in telework-related literature and guidelines that federal agencies should implement in developing telework programs. Also, in 2011, we reported that the Office of Personnel Management, the General Services Administration, and the Federal Emergency Management Agency had suggested several practices to federal agencies, in various telework or emergency-related guidance documents, for how to ensure telework is part of continuity of operations planning. These practices generally align with those we previously identified. Based on this prior work, we have identified several practices that may be especially useful for agencies to help ensure telework programs contribute to continuity of operations during COVID-19 and other major emergencies. These practices may be especially important if substantial numbers of employees remain out of their workplaces for an extended period or if agencies need to reverse their reentry decisions based on changing public health circumstances. In addition, agencies experiences with telework during the current pandemic may suggest opportunities to increase the availability of telework in the future. These practices can be grouped into four general categories: (1) policies and guidance related to telework; (2) technology; (3) performance management; and (4) program evaluation. <3.1. Policies and Guidance Related to Telework> Major emergencies, such as a pandemic, underscore the importance of establishing and updating clear policies and guidance related to telework as agencies continuity of operations may depend on employees working remotely for extended periods. Agencies should assess whether their policies and guidance were sufficient to ensure that their workforces were telework ready and understood the agency s expectation of employees regarding teleworking during this emergency. The current crisis presents an opportunity for agencies to assess their established policies or requirements to ensure that they (1) balance employees personal circumstances and work responsibilities, and (2) effectively facilitated communication and engagement among teleworkers, managers, and coworkers. Agencies should institute processes for communicating human-capital guidance for emergencies (e.g., pay, leave, benefits) to ensure they worked effectively. For example, agencies should consider whether emergency employees (including COOP employees) knew in advance about their mission critical status. If not, agencies should ensure that, in case of future emergencies including a potential resurgence of COVID-19, employees are notified about requirements to report for work, remain at work, work at home, or report to an alternative work site when government operations are disrupted. Similarly, agencies should consider whether their guidance on workplace health and safety issues was adequate to ensure that teleworkers had safe and adequate places to work off-site, and whether information- security training was provided to all individuals, or managers of individuals, who teleworked during the current pandemic. It is important for agencies to correct any identified deficiencies in the guidance and training to improve the use of telework going forward, including for future emergency situations that may again require telework. <3.2. Technology> We have reported that technology concerns are frequently cited barriers to telework. To effectively use telework as a tool to continue operations during major emergencies, agencies must have an appropriate information technology infrastructure in place that allows large numbers of employees to telework simultaneously. As such, it is important for agencies to assess the extent to which their telework infrastructure was adequate to support increased telework, especially during peak periods, including whether technical support was sufficient, and address any access and security issues they identify. <3.3. Performance Management> Ensuring established organizational performance standards are met is important to maintaining agency operations whether employees are physically present in the office or working remotely. During extended periods of remote work, this could include setting expectations and preferences for how employees communicate with supervisors before telework arrangements begin. Agencies should consider whether their existing procedures and standards meet the needs of employees who teleworked and whether they ensured that telework did not diminish employee and organizational performance. <3.4. Program Evaluation> Evaluation of telework may help agencies better understand the impact their increased use of telework had on their ability to achieve goals and accomplish missions, and could allow them to make adjustments to telework moving forward as employees are expected to return to their duty stations. As part of such an evaluation, agencies should assess whether their processes, procedures, and tracking systems to collect data provided the information needed to evaluate telework. In conclusion, federal agencies have a responsibility to provide safe workplaces for employees to perform their jobs. The evolving and growing challenges from the COVID-19 pandemic present critical workforce safety issues for federal agencies to assess and address as they seek to continue their operations. As I have discussed today, agencies should consider a number of factors when making decisions about employees reentering workplaces. Lessons learned from previous pandemic emergencies, as well as from telework use to ensure continuity of operations, can be helpful as agencies navigate ongoing workforce safety and productivity challenges. Consideration of these factors and lessons learned from agencies current experiences may better prepare agencies to address and respond to challenges from ongoing and future emergencies. Chairman Connolly, Ranking Member Hice, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions you may have. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact J. Christopher Mihm at (202) 512-6806 or [email protected], or Michelle B. Rosenberg at (202) 512-6806 or [email protected]. Individuals making key contributions to this testimony include Clifton G. Douglas, Jr., Alexandra Edwards, Sarah E. Veale (Assistant Directors), Keith O Brien (Analyst-in-Charge), Ulyana Panchishin, Maya Chakko, Karin Fangman, Steven Putansu, and Jacqueline Chapin. Key contributors for the earlier work that supports this testimony are listed in each product. 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.

Why GAO Did This Study Federal employees perform critical functions across multiple mission areas, from those vital to the long-term well-being of the country to those directly charged with aspects of public safety. Major emergencies, such as the COVID-19 pandemic, can pose threats to employees' safety and conditions may ebb and flow over an extended period. During these situations, federal agencies have a responsibility to provide an environment for employees to perform their jobs safely and effectively. This statement provides (1) key considerations based on GAO's prior work for federal agencies as federal workers reenter the workplace; (2) an illustrative example of how the Census Bureau was forced to suspend major Decennial Census field operations and the process it used to resume operations; and (3) key practices for ensuring telework contributes to continuity of operations. This statement is based on a large body of GAO work on pandemic preparedness, reviews of the Decennial Census, and federal human capital management issued from July 2003 through June 2020. What GAO Found The rapidly escalating challenges from the Coronavirus Disease 2019 (COVID-19) global outbreak present critical workforce issues for federal agencies to assess and address. GAO's prior work on pandemics and human capital issues has shown that agencies should consider a range of factors to carry out their missions while protecting their workforce and the members of the public with whom they interact. Key considerations for federal workers' reentry to workplaces . As federal agencies manage operations during the COVID-19 pandemic and plan for their employees to safely return to workplaces, GAO's prior work has shown that it is important for agencies to identify mission essential functions that cannot be performed remotely when deciding who needs to return to the office. Agencies should also consider the exposure risk level and local conditions when deciding whether to reopen offices across the country. To protect employees as they reenter the workforce, it will be important for agencies to have appropriate protection measures in place. For example, agencies should consider how they can ensure adequate distribution of hygiene supplies. They should also consider changes to the work environment to reduce workplace hazards, and implement social distancing strategies. How the Census Bureau decided to resume Decennial Census operations. The U.S. Census Bureau offers an example of how an agency suspended and resumed operations under the current pandemic. In March 2020, the U.S. Census Bureau suspended field operations of the Decennial Census and took a phased approach to resuming operations at its area census offices. As of June 11, all area census offices had resumed operations. Key aspects of resuming operations at area census offices included: (1) taking a phased approach to restarting operations, such as resuming operations that required less physical interaction first; (2) making operational changes to minimize face-to-face interactions; (3) addressing worker safety concerns; and (4) communicating pandemic plans to ensure continued operations. Key practices for ensuring telework contributes to continuity of operations. Several key practices GAO previously identified are useful for agencies to help ensure telework contributes to continuity of operations during the current pandemic and in the future. Specifically, agencies should consider based on their current experiences whether: (1) their policies and guidance related to telework are sufficient to ensure that their workforces are telework ready and balances are struck between employees' personal circumstances and work responsibilities; (2) the extent to which their telework infrastructure, including technical support and security, is adequate to support increased telework; (3) procedures and standards are in place that ensure telework does not diminish organizational and employee performance; and (4) the processes, procedures, and tracking systems to collect data provide the information needed to evaluate the use of telework. These assessments will assist agencies in considering broader changes to their policies and procedures related to telework as employees are called back to their duty stations.

gao_GAO-20-400T

gao_GAO-20-400T_0

<1. Background> DOD requires each Military Service to establish its own EFMP for active duty servicemembers. According to DOD guidance, EFMPs are to have three components identification and enrollment, assignment coordination, and family support. Identification and enrollment: DOD requires servicemembers to enroll in their Military Service s EFMP once eligible family members are identified by medical and educational personnel at each installation. Assignment coordination: Before finalizing a servicemember s assignment to a new location, DOD requires each Military Service to consider any family member s special needs, including the availability of required medical and special educational services at a new location. Family support: DOD requires each Military Service s EFMP to help families with special needs identify and gain access to programs and services at their current, as well as proposed locations. As required by the NDAA for Fiscal Year 2010, DOD established the Office of Community Support for Military Families with Special Needs (Office of Special Needs or OSN) to develop, implement, and oversee a policy to support these families. Among other things, this policy must (1) address assignment coordination and family support services for families with special needs; (2) incorporate requirements for resources and staffing to ensure appropriate numbers of case managers are available to develop and maintain services plans that support these families; and (3) include requirements regarding the development and continuous updating of a services plan for each military family with special needs. OSN is also responsible for monitoring the Military Services EFMPs and collaborating with the Military Services to standardize EFMP components as appropriate. For example, as part of its guidance for monitoring the Military Services EFMPs, DOD requires each Military Service to certify or accredit its family support services provided through the EFMP. In addition, DOD states that each Military Service must balance the need for overarching consistency across EFMPs with the need for each Military Service to provide family support that is consistent with their specific mission. Table 1 provides an overview of the procedures each Military Service must establish for the assignment coordination and family support components of the EFMP that we identified in our May 2018 report. <2. Key Aspects of Assistance for Families with Special Needs Vary Widely Across DOD Which Leads to Potential Gaps in Support> In May 2018, DOD reported that each Military Service provides family support services in accordance with DOD guidance, as well as Military Service-specific guidance. However, we found that, the type, amount, and frequency of assistance families with special needs receive varied by Military Service, which could lead to gaps in assistance (see table 2). For example, in our May 2018 report, we found that the Marine Corps is the only Military Service that specifies a minimum frequency (quarterly) with which families with special needs should be contacted by their family support providers. The other Military Services either do not have requirements for regular contact with these families (Air Force and Army) or require contact only for selected families (Navy). In addition, we reported that unlike the Marine Corps, the Air Force, Army, and Navy choose not to employ special education attorneys. For example, Marine Corps attorneys may represent families with special needs who fail to receive special education services from local school districts, as specified in their children s individualized education programs (IEP). Officials from the Air Force, Army, and Navy told us that they find other ways to help families with special needs resolve special education issues. For example, Army officials said EFMP managers could refer families with special needs to other organizations that provide legal support. <2.1. Services Plans> As we reported in May 2018, services plans are an important part of providing family support during the relocation process because they describe the necessary services and support for a family with special needs and provide a record for the gaining installation. However, we found that every Military Service had created relatively few services plans compared to the number of servicemembers or the number of family members enrolled in the EFMP (see table 3). The Military Services and OSN provided a number of reasons as to why they do not develop and maintain a services plan for each family with special needs. For example, Air Force officials said they first consider whether a services plan will help each family receive the required services. In addition, Army and Marine Corps officials said they may not develop a services plan if a family does not request it. According to a Navy official, some families also lack the required services plans because installations may not have the staff needed to develop them. Finally, OSN officials said the Military Services may not have developed many services plans during fiscal year 2016 because DOD had not yet approved a standardized form that all of the Military Services could use, and because some families circumstances did not require a services plan. In our May 2018 report, we recommended that DOD assess the extent to which each Military Service is developing a services plan for each family with special needs. DOD concurred with our recommendation, but as of January 2020, we determined that DOD has not fully implemented the recommendation because it has not yet assessed the extent to which each Military Service is developing services plans for each family with special needs. In its annual report to the congressional defense committees in April 2019, DOD stated that it was exploring legislative changes to the law that would require a services plan to be developed and updated only for those families who request services. A senior official from DOD stated that although this proposal received Office of Management and Budget approval, it was not included in the NDAA for fiscal year 2020. Also, in April 2019, in response to our recommendation, DOD reported to us that the Military Services had begun using a standardized form to develop services plans. In January 2020, a senior DOD official said its standardized form provides an option for a family to decline a services plan, and that the Department began collecting data related to services plans in the last quarter of 2019. <2.2. Resources> To meet requirements of the NDAA for Fiscal Year 2010, in April 2017, DOD stated that it issued to the Military Services guidance that directed them to rogram, budget, and allocate sufficient funds and other resources, including staffing, to meet DOD s policy objectives for the EFMP. We reported in May 2018 that DOD relies on each Military Service to determine what level of funds and resources are sufficient and what constitutes an appropriate number of family support personnel. To determine the appropriate number of family support providers and staffing levels, the Military Service officials with whom we spoke said they consider a number of factors, including the number of families with special needs enrolled in the EFMP at any given installation. See Table 4 for a summary of EFMP family support providers and other key personnel at CONUS installations. In May 2018, based on our analysis of EFMP family support providers and other key personnel at CONUS installations, we found that DOD had not developed a standard for determining the sufficiency of funding and resources each Military Service allocates for family support. As a result, the Military Services may not know the extent to which their funding and resources for family support comply with DOD s policy. Federal internal control standards require that agencies establish control activities, such as developing clear policies, in order to accomplish agency objectives, such as those of the Military Services EFMPs. Because DOD had not identified and addressed potential gaps in family support across the Military Services EFMPs, such as those we identified in types of assistance, services plans, and resources, we concluded that some families with special needs may not get the assistance they require, particularly when they relocate. We recommended in our May 2018 report that DOD assess the extent to which each Military Service is providing sufficient resources to staff an appropriate number of family support providers. DOD concurred with our recommendation. In April 2019, the most recent update DOD provided on this recommendation, DOD officials said they were planning to pilot a staffing tool to help the Military Services determine the number of family support providers needed at each installation; the pilot is expected to last 2 years before it can be implemented across the Military Services. <3. DOD Described Plans to Improve EFMP Oversight, but Lacks a Way to Fully Assess Performance across the Military Services and a Process for Evaluating Their Monitoring Activities> We reported in May 2018 that OSN had several efforts underway to improve its oversight of the EFMP. For example, to help provide a more consistent EFMP screening process across the Military Services and improve the collection of comparable assignment coordination data, OSN had planned for each Military Service to use standard screening forms for family members with special medical or educational needs prior to making new assignments. In January 2020, DOD told us that the forms were approved, but related guidance had not yet been developed for implementation across all of the Military Services. In addition, OSN planned to centralize the management of EFMP data across the Military Services. In April 2019, DOD reported that 82 percent of the EFMP related data terms were collectable across the Military Services which can improve OSN s monitoring and reporting capabilities of the EFMP. Despite OSN s initial efforts, we found that DOD lacked common performance measures for assignment coordination and family support, and therefore is unable to fully assess EFMP performance across the Military Services. In our May 2018 report, we recommended that DOD direct OSN to develop common performance metrics for assignment coordination and family support, in accordance with leading practices for performance measurement. DOD concurred with our recommendation. In April 2019, the most recent update DOD provided on this recommendation, DOD officials told us that each Military Service submits data on assignment coordination and family support to the EFMP data repository on a quarterly basis, and that OSN was currently developing additional performance metrics for assignment coordination and family support. Until these metrics are fully developed and implemented, DOD will remain unable to fully assess the effectiveness of its efforts related to assignment coordination and family support at each of its installations. We also found in May 2018 that OSN did not have a process to systematically evaluate the results of the Military Services monitoring activities. Instead, DOD requires each Military Service to monitor its own assignment coordination and family support provided through the EFMP and requires each Military Service to assess performance at least once every 4 years using standards developed by a national accrediting body. In addition, DOD requires personnel from each of the Military Service s headquarters to periodically visit installations as part of their monitoring activities. We also reported that the Military Services family support programs were not accredited by a national accrediting body because, according to Military Service officials, they were unable to obtain funding for engaging in that process. Instead, each Military Service has a self-certification process based on standards that meet those of a national accrediting body, Military Service-specific standards, and best practices. We also reported in May 2018 that OSN officials did not systematically review the results of monitoring activities, such as the certification process, because they rely on each Military Service to self- monitor. In addition, officials said efforts to standardize certification of EFMPs have been unsuccessful because the Military Services cannot agree on a set of standards that can be used across installations. We recommended in our May 2018 report that DOD implement a systematic process for evaluating the results of the Military Services monitoring activities. DOD concurred with our recommendation but has not yet fully implemented it. DOD last commented on this recommendation in April 2019 and said the family support component is monitored and evaluated through each Military Service s certification process, which includes specific standards for the EFMP. In addition, OSN participated in a monitoring site visit to Marine Corps Base Quantico in December 2018 and plans to participate in additional site visits that are coordinated by each Military Service s certification team. We will consider this recommendation implemented only when DOD provides evidence that it has implemented a systematic process to evaluate the results of each Military Service s monitoring activities. In conclusion, DOD relies on each Military Service to implement its policy on support for families with special needs. In doing so, they also rely on each Military Service to determine the extent to which its assistance to families with special needs complies with this policy. As it plans for the future, DOD will need to balance the flexibility it provides each Military Service to implement its policy with the need to assess the adequacy of the Military Services EFMPs in serving families with special needs, including any gaps in services these families receive. Chairwoman Speier, Ranking Member Kelly, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. Contact and Staff Acknowledgements> For further information regarding this testimony, please contact Jacqueline M. Nowicki, Director of Education, Workforce, and Income Security Issues at (617) 788-0580 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 Bill MacBlane (Assistant Director), Brian Egger (Analyst-in-Charge), Holly Dye, Robin Marion, James Rebbe, Shelia Thorpe, Walter Vance, Kelsey Kreider, and Mimi Nguyen. 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.

Why GAO Did This Study Military families with special needs face unique challenges because of their frequent moves. To assist these families, each Military Service implements its own program, known as EFMP. The National Defense Authorization Act (NDAA) for Fiscal Year 2017 included a provision for GAO to review the Military Services' EFMPs, including DOD's role in providing guidance for these programs. This statement focuses on the extent to which (1) each Military Service provides family support in the continental United States and (2) the Military Services monitor and DOD evaluates assignment coordination and family support. This statement is based on a May 2018 GAO report and updates its three recommendations as of January 2020. For the report, GAO analyzed EFMP guidance and documents; reviewed federal laws; analyzed fiscal year 2016 EFMP data; visited military installations, selected for their large numbers of military-connected students; and interviewed officials responsible for implementing, monitoring, and evaluating the EFMPs. What GAO Found In May 2018, GAO found that variation in support provided to military family members with special medical and educational needs through the Department of Defense's (DOD) Exceptional Family Member Program (EFMP) could lead to potential gaps in assistance. GAO recommended that DOD assess the extent to which each Military Service is developing services plans for each family with special needs and is providing sufficient resources to staff an appropriate number of family support providers, as required. DOD concurred. Services plans are important because they describe the necessary services and support for a family with special needs enrolled in the EFMP as well as during the relocation process, such as when a servicemember is assigned to a new location. In April 2019, DOD reported that the Military Services had adopted a standardized form to use when developing services plans; however, DOD has not yet assessed the extent to which each Military Service is developing these plans. In January 2020, a senior DOD official said that the Department began collecting data related to services plans in the last quarter of 2019. In April 2019 (the most recent update), DOD officials said they were planning to pilot a staffing tool to help the Military Services determine the number of family support providers needed at each installation. However, the pilot is expected to last 2 years before it can be implemented across the Military Services. GAO also found that DOD lacked common performance measures for the EFMP and was unable to compare the program's performance across the Military Services. GAO recommended that DOD develop common performance metrics for the program. DOD concurred, and in April 2019 said that it was still in the process of developing performance metrics for assignment coordination and family support. In January 2020, DOD noted that it had not yet developed guidance regarding use of forms that would help improve its ability to collect common performance measures across the Military Services. Further, GAO found that DOD does not have a process to systemically evaluate the results of each Military Service's monitoring activities. GAO also reported that DOD did not systematically review the results of monitoring activities because it relies on each Military Service to self-monitor. DOD officials said efforts to standardize certification of EFMPs have been unsuccessful because the Military Services cannot agree on a set of standards that can be used across installations. GAO recommended that DOD implement a systematic process for evaluating the results of the Military Services' monitoring activities. DOD concurred with the recommendation, but has not yet fully implemented it. What GAO Recommends In the May 2018 report, GAO made three recommendations to DOD. DOD concurred, but has made limited progress toward addressing them.

gao_GAO-20-15

gao_GAO-20-15_0

<1. Background> We and others have identified challenges specific to VA s management and oversight. These challenges have affected VA s ability to accomplish its mission economically, efficiently, and effectively. For example, in April 2019, we summarized priority open recommendations from our previous reports to address these VA challenges. These recommendations cover areas affected by shortcomings in human capital management, such as veterans access to timely health care and reform of the appeals process for disability benefits. VA agreed or partially agreed with 28 of our 30 priority recommendations and is taking steps to implement them. We have also previously reported on human capital challenges across VA. For example, we reported in March 2017 that VA determined VBA staff resources have not sufficiently kept pace with increased pending appeals, and additional staff were needed to improve timeliness and reduce its appeals inventory. We found that VA s written workforce plans which cover recruiting, hiring, and training were not consistent with sound workforce planning practices. We recommended that VBA ensure the development of a timely, detailed workforce plan for recruiting, hiring, and training new hires. As of October 2018, VA had taken steps to address this recommendation, but still needed to address risk mitigation strategies for ensuring it has appropriate capacity to manage appeals workloads and improve timeliness of appeals decisions. In addition, VA officials told us in August 2017 that VA had taken actions to hire more staff to update regulations on disability eligibility criteria. However, as of September 2018, the agency was still working to hire these staff. Furthermore, we reported in August 2018 that VHA s Sterile Processing Services experienced workforce challenges such as lengthy hiring time frames and limited pay and professional growth potential. Officials told us that these challenges resulted in difficulty maintaining sufficient staffing. These challenges pose a potential risk to VA medical centers ability to ensure access to sterilized medical equipment. We recommended that VHA examine the services workforce needs and take actions based on the assessment. As of July 2019, this recommendation remained open. In 2018, VA s Office of Inspector General identified leadership and workforce investment as a major management challenge. The Inspector General noted that the root cause for many of the issues it identified at VA was poor and unstable leadership and staffing shortages. Also, a 2015 Independent Assessment found that VHA s leadership pipeline was not robust enough to meet its current and future needs. The report also concluded that VHA could not identify potential leaders and prepare them to assume their future roles. It stated that inadequate succession planning and unfocused leadership development efforts contributed to these problems. Finally, the report found that VHA may have difficulties meeting projected demand for services if it does not increase its total number of clinical employees, such as physicians, and their productivity. Effective succession planning can help agencies ensure they have a pipeline of talent to meet current and future mission requirements, according to OPM and our past work. Succession planning is a proactive and systematic process where organizations identify the positions they consider to be too critical to be left vacant or filled by any but the best qualified persons, according to OPM guidance. Organizations then develop a plan to fill those positions with qualified and capable employees. The guidance also states that organizations should take a planned, deliberate, and holistic approach to selecting, developing, and engaging their workforce. In our prior work, we noted that effective succession planning is more than filling existing vacancies with people with the same occupational skills and competencies. Rather, succession planning focuses on current and future needs, and develops pools of high-potential staff to meet the organization s mission over the long term. <2. VA, VHA, and VBA Need to Fully Incorporate Key Succession Planning Leading Practices> Our assessment found that VA s succession planning efforts partially met one leading practice and did not meet four. VHA met two and partially met three leading practices. VBA partially met three and did not meet two leading practices (see table 1). <2.1. VA Does Not Have an Up- to-Date Department-wide Succession Plan> VA lacks a current, department-wide succession plan. It also has not met four of the key leading practices for succession planning, but has partially met one practice. VA Directive 5002 requires that VA use the administrations plans to develop a workforce and succession plan annually. However, VA has not produced a leadership-approved, department-wide succession plan since 2009. VA officials said the 2009 plan does not reflect their current succession planning efforts. Obtain active support and participation from leadership: Not met. According to VA officials, VA has tried to update its 2009 succession plan; however, leadership has not approved a revised plan because of leadership turnover. VA has developed a draft workforce plan, but as of July 2019, VA leadership had not approved the draft plan. Active leadership support for succession planning could help VA strengthen its current and future capacity to serve veterans. Develop succession plans aligned with strategic goals: Not met. VA officials did not provide evidence that VA s succession planning process was aligned with strategic goals. OPM strategic human capital management regulations require an agency s human capital policies and programs to align with its missions, goals, and strategic objectives. Developing an up-to-date succession plan aligned with the department s strategic goals would help VA to establish a strategic process for meeting its current and future workforce needs. Analyze current and future workforce gaps: Not met. VA officials told us that they have conducted some analyses of workforce data for mission-critical occupations, but they did not provide evidence that VA analyzes or projects workforce gaps for leadership positions or for each mission-critical occupation. For example, in accordance with the VA MISSION Act of 2018 (MISSION Act), VA reported on the steps it is taking to achieve full staffing capacity. The report included data on VA s onboard employees, turnover rates, and growth rates for the department s total workforce, and growth and turnover rates for clinical positions and a limited number of other positions. VA also forecasted its overall hiring requirements for the current and upcoming fiscal year based on the budget and average turnover. However, the report, which VA produces to meet the specific requirements of the MISSION Act, does not include an analysis of workforce gaps for leadership positions or for specific mission-critical occupations. OPM s strategic human capital management regulations require agency human capital policies and programs be based on comprehensive workforce planning and analysis, and use comprehensive data analytic methods and gap closure strategies to monitor and address skill gaps within mission-critical occupations. Further analyzing workforce gaps could help VA identify current and emerging workforce challenges and inform succession planning strategies. Identify strategies for closing workforce gaps: Partially met. VA has identified some strategies for addressing workforce gaps, though not within a succession planning process. VA s Corporate Senior Executive Management Office (CSEMO) is responsible for managing the Senior Executive Service (SES) across the department and its administrations. CSEMO coordinates the hiring, placement, training, and development of VA s SES employees. VA also has an SES Candidate Development Program, which identifies and develops talent to fill key SES positions. Further, in its MISSION Act report, VA identifies several strategies to achieve full staffing capacity. For example, the report discusses efforts to recruit and retain clinical staff through the VHA Education Debt Reduction Program and the VA Health Professional Scholarship Program. The report also discusses the Hire Right Hire Fast model initiated in 2017 that aims to fill open positions and reduce the time to hire for the medical support assistance occupation. VA officials have not provided evidence that they developed strategies for addressing future workforce gaps as part of the agency s succession planning process. VA s strategies are focused on closing current vacancies and achieving full staffing capacity. However, our prior work has found that leading organizations do more than just focus on replacing individuals; rather, they engage in broad, integrated succession planning and management efforts to strengthen both current and future organizational capacity. Additionally, OPM s strategic human capital management regulations require agencies to plan for and manage current and future workforce needs, and to make progress towards closing any knowledge, skill, and competency gaps. Furthermore, because VA has not conducted a full analysis of its future workforce gaps, VA cannot identify strategies for closing those gaps. Monitor, evaluate, and update succession plans and strategies: Not met. VA provided limited evidence that it monitors and evaluates workforce planning strategies. For example, VHA and VBA produce action trackers to monitor the progress of some human capital initiatives at the administration level. However, because VA officials did not provide a current succession plan with strategies for closing workforce gaps, VA s limited monitoring and evaluation efforts are not clearly linked to a succession planning process. Monitoring and evaluating the outcomes of strategies, policies, programs, and activities is one of the key systems established in OPM s strategic human capital management regulations, and requires agencies to identify, implement, and monitor process improvements. Monitoring and evaluating activities as part of its succession planning process could help VA ensure that it is implementing effective strategies. Furthermore, regularly updating its succession plans would help VA identify and address current and emerging workforce gaps. <2.2. VHA s Succession Plan Is Consistent with Some Leading Practices but VHA Performs Limited Monitoring and Evaluation of Its Plans> VHA developed a succession plan in 2016, and its efforts have met two of the five succession planning leading practices for both leadership and mission-critical occupations. However, leadership has not ensured that VHA has complete workforce data. In addition, VHA s monitoring and evaluation of its succession plans is limited. Obtain active support and participation from leadership: Partially met. VHA leadership has dedicated resources to succession planning. For example, VHA leadership dedicated staff and financial resources to develop a succession plan for VHA in 2016. VHA leadership also established the Healthcare Leadership Talent Institute (HLTI) in 2015 to strategically manage and develop VHA s leadership talent. In addition, the former Undersecretary for Health approved the 2016 plan and encouraged staff to use the plan to develop talented staff, improve workplace culture and employee engagement, and address workforce challenges to improve the veteran experience. However, VHA leadership has not ensured that VHA s plan incorporates leading practices and departmental requirements for succession planning, primarily related to analyzing workforce gaps and monitoring and evaluating its plan. VHA officials also told us that VHA does not provide leadership succession planning guidance to Veterans Integrated Service Networks (VISN) or medical centers because VHA has started to centralize leadership succession planning at the national level. Additional support and involvement from top leadership, such as providing additional oversight and guidance, could help to ensure VHA is meeting department-level succession planning requirements, and ensure that succession planning efforts achieve workforce goals. Develop succession plans aligned with strategic goals: Met. VHA has developed a succession plan and strategies that align with the administration s and department s strategic goals. The 2016 succession plan discusses VHA s strategic direction which includes strategic goals, major initiatives, and legislation that affect VHA s workforce and succession planning priorities. For example, the plan describes VHA s strategies to adapt to a changing veteran population and to ensure it can provide sufficient, patient-driven primary and mental health care to meet the needs of veterans. Analyze current and future workforce gaps: Partially met. VHA s 2016 succession plan analyzes current and projected workforce trends for both leadership and mission-critical occupations. For example, the plan presents the total number of executive leadership positions and the number of vacancies in those positions. In addition, the plan includes analyses of recent historical and projected workforce trends for mission- critical occupations, including prior and anticipated onboard, retirement, quit, and total loss rates. VHA collects workforce data from facilities annually and displays these data on its internal website, which is accessible to VHA staff who make human capital and workforce planning decisions. Although VHA tracks workforce data, our prior work has identified weaknesses with these data. For example, in October 2017, we found that VHA was unable to accurately count the total number of physicians in VA medical centers. Medical centers annually report data through a workforce planning tool; however, this tool does not include information on contract physicians, fee-basis physicians, and physician trainees. All of these arrangements help medical centers meet their demand for physicians, which have regularly been identified as one of VHA s top shortage occupations. We recommended VHA develop and implement a process to accurately count all physicians providing care at each medical center. VA disagreed with this recommendation and, as of March 2019, had not implemented this recommendation. Improving the completeness and accuracy of its data would help VHA better address workforce gaps. Identify strategies for closing workforce gaps: Met. VHA s 2016 plan identified strategies for closing workforce gaps. For leadership positions, HLTI offers training programs focused on developing future healthcare leaders. In addition to managing development programs, HLTI has implemented several initiatives to address specific gaps in leadership positions and build a succession pipeline of talent. For example, HLTI facilitates an annual talent review process by identifying and developing clinical and administrative leaders at medical centers who are interested in moving up into medical center director positions, the highest position in a VA medical center. VHA has also identified strategies to close gaps for its mission-critical occupations. For example, VHA requires facilities to develop action plans as part of the annual workforce planning cycle to reduce the risk of having critical staffing shortages. For instance, one VA medical center identified increasing human resources training and awareness of recruitment, retention, and relocation funding as an action to address shortages in dentist positions the clinical occupation with the most severe shortage of candidates at that medical center. In addition, VHA established an initiative for hiring mental health providers, which involved hosting a virtual career event, partnering with professional organizations, and implementing other marketing and recruitment strategies. Monitor, evaluate, and update succession plans and strategies: Partially met. VHA has taken some steps to monitor, evaluate, and update its succession planning. VHA updates its succession plan approximately every 4 years and issues limited updates to the plan annually. VHA s Office of Workforce Management and Consulting tracks workforce data nationally and provides data and risk scores by occupation to VISNs and medical centers so they can monitor workforce trends. VHA also uses these data to assess to what extent facilities efforts are achieving workforce goals. For leadership positions, VHA officials told us that HLTI evaluates its leadership development programs and that these evaluations are used to modify the programs to better meet VHA s succession needs. However, VHA s 2016 plan only included limited evaluations of previously identified strategies because VHA has not established a process for evaluating its succession planning efforts. While VHA tracks facility-level metrics for various occupations, VHA s plan did not discuss specific methods for monitoring and evaluating its succession planning strategies. For example, VHA tracks the vacancy rates for medical center director positions; however, VHA has not identified a process to monitor and evaluate the effectiveness of the talent review process it has implemented for identifying and developing medical center director candidates. The plan also mentioned that subject matter experts within VHA suggested expanding monitoring efforts of certain recruitment and retention programs. As noted above, agencies are required to identify, implement, and monitor process improvements under the evaluation system established in OPM s strategic human capital management regulations. Additional monitoring and evaluation of VHA s succession plans and strategies could help VHA to assess the effectiveness of its strategies, and to identify and address emerging workforce challenges. <2.3. VBA Analyzes Some Gaps in Its Mission-Critical Workforce, but Has Not Developed a Succession Plan for Leadership Positions> VBA has partially met three key leading practices for succession planning and has not met two practices. Its strategic workforce plan, which VBA officials said is their primary succession planning document, only incorporates some key leading practices for mission-critical occupations. The plan does not address succession planning for leadership positions. Obtain active support and participation from leadership: Partially met. VBA s leadership has taken some steps to promote succession planning, but has not fully incorporated departmental requirements or key leading practices. VBA officials told us that VBA s leadership prioritizes filling vacancies for mission-critical occupations. For example, human capital staff brief VBA leadership monthly on vacancies and hiring initiatives. However, our prior work has found that leading organizations do more than simply backfill specific positions; rather, they engage in broad, integrated succession planning and management efforts to strengthen both current and future organizational capacity. As noted above, OPM s strategic human capital management regulations require agencies to plan for and manage current and future workforce needs. In addition, VBA officials told us that VBA s leadership reviewed and approved its strategic workforce plan. However, unlike VHA s plan, VBA s plan does not indicate that it was reviewed and approved by leadership. VBA leadership also has not ensured that VBA s plan incorporates departmental requirements or key leading practices. Some of the missing leading practices discussed below such as aligning plans with strategic goals, identifying strategies to close workforce gaps, and monitoring and evaluating those strategies are also required by VA s succession planning directive. VBA leadership also has not ensured that VBA is performing succession planning for leadership positions, which is required by VA s succession planning directive and recommended by leading practices. In addition, strategic human capital management regulations require agencies to ensure leadership continuity by, in part, implementing and evaluating succession plans for leadership positions. According to VBA officials, VBA s strategic workforce plan does not include succession planning for leadership positions because VBA plans Senior Executive Service (SES) development in coordination with the Corporate Senior Executive Management Office (CSEMO). While CSEMO manages SES development, VBA officials told us that VBA provides input to CSEMO on VBA s SES needs. VBA officials did not provide evidence that they are identifying current and future leadership needs. Furthermore, VBA s leadership also includes General Schedule (GS)-13 to GS-15 managers, who are below the SES level. Planning for those managers would not involve coordination with CSEMO. Therefore, incorporating leadership succession planning into its existing workforce planning processes could help VBA strategically identify and better meet current and future leadership needs. Develop succession plans aligned with strategic goals: Not met. Officials stated that VBA s strategic workforce plan is the primary document that would discuss succession planning, but this document does not discuss strategic goals and how VBA s plans align with those goals. As noted earlier, OPM strategic human capital management regulations require agency policies and programs to align with the agency s mission, goals, and strategic objectives. Aligning plans with strategic goals could help VBA better achieve current and future mission requirements. For example, VBA does not clearly describe how succession plans and strategies for its veterans claims examining occupations a mission-critical occupation series will address VBA s goal to provide veterans benefits and services in a timely manner. It can also help VBA officials create a clear and convincing case for agency leaders to dedicate resources both budget and personnel to succession planning. Analyze current and future workforce gaps: Partially met. VBA s strategic workforce plan includes some analysis of current and future workforce gaps for mission-critical occupations, but not for leadership positions. For example, according to the plan, VBA has increased the number of employees in its veterans claims examining occupations. VBA also anticipates that it will need additional claims processors to meet future demand. However, the plan does not contain similar information for leadership positions, either at the SES level or at lower levels. As noted above, agency human capital policies and programs are to be based on comprehensive workforce planning and analysis. Analyzing workforce gaps in leadership could help VBA better understand its current and future workforce requirements to meet its evolving mission requirements. Identify strategies for closing workforce gaps: Partially met. VBA s strategic workforce plan does not identify strategies or actions to close anticipated workforce gaps. VBA s plan states that a forthcoming action plan will develop specific goals and corresponding targets, but VBA officials told us they are still developing this plan. As noted earlier, agencies are required to plan for and manage current and future workforce needs, and make progress towards closing knowledge, skill, and competency gaps. However, VBA does have training and development programs designed to ensure a pool of capable employees is available to take over leadership positions. For example, the Assistant Director Development Program helps prepare GS-14 and GS-15 employees for leadership positions within VBA. Nonetheless, identifying a coordinated set of strategies in its plan for filling leadership positions and closing mission-critical workforce gaps could help VBA address challenges in these areas. Monitor, evaluate, and update succession plans and strategies: Not met. VBA updates its strategic workforce plan every 4 years and issues limited updates to the plan annually. However, VBA s plan does not provide any information on monitoring or evaluating strategies to close workforce gaps for mission-critical occupations or leadership positions. It also does not include updates to actions or strategies based on past performance. Monitoring and evaluating the outcomes of strategies, policies, programs, and activities is one of the key systems established in OPM s strategic human capital management regulations, and requires agencies to identify, implement, and monitor process improvements. <2.4. VA s Succession Planning Directive Has Not Been Updated Since 2003 and May Not Reflect All Relevant Legal Requirements> VA has not updated its succession planning directive since 2003 and VA officials told us that the directive does not incorporate legal requirements put in place since then. VA s succession planning directive establishes the requirements and assigns the roles and responsibilities for succession planning across the department. VA s directive identifies succession planning as an ongoing activity intended to best meet the needs of the department over time. According to VA officials, VA has attempted to update the directive twice since 2003, but has not completed the update due to leadership turnover. In addition, officials stated that they had to delay updating the directive to revise it to incorporate new regulatory and legislative changes that occurred during those past efforts to update the directive. A key update to legal requirements since 2003 is OPM s strategic human capital regulations. These regulations establish the framework agencies are to use to plan, implement, evaluate, and improve human capital policies and programs. OPM originally issued the regulations in 2008 and then revised them in December 2016. In addition, the VA Choice and Quality Employment Act of 2017 requires VA, among other things, to establish a single database that lists each vacant position in VA that the Secretary determines is critical to the mission of VA, difficult to fill, or both. Updating the directive could help to ensure it reflects legal requirements put in place since 2003, such as OPM s strategic human capital regulations. Updating the directive is also consistent with GAO s Standards for Internal Control in the Federal Government, which requires management to identify and respond to significant changes, such as new laws and regulations. In addition, we found that VA, VHA, and VBA do not follow all of the requirements outlined in the directive. For example, the directive assigns responsibility to VA, VHA, and VBA for monitoring and evaluating their succession planning strategies, which is consistent with leading practices. However, as stated above, we found that VA, VHA, and VBA do not conduct sufficient monitoring and evaluation. Updating the directive could help VA clarify and recommunicate succession planning roles and responsibilities across the department and its administrations. <3. Conclusions> We and others have previously identified leadership turnover and mission-critical vacancies that have affected VA s ability to provide services to veterans. Addressing these challenges will require a planned and holistic approach to succession planning that focuses on current and future mission requirements over the long term rather than on filling existing vacancies with people with the same occupational skills and competencies. VA, VHA, and VBA have taken important steps to develop a pipeline of talent to fill leadership positions and mission-critical occupations. For example, each has developed training and development programs for aspiring leaders. However, VA lacks a current department-wide succession plan for leadership positions and mission-critical occupations, as required by its own directive. Establishing a department-wide succession plan and improving existing workforce plans would help VA identify and develop pools of high-potential staff to meet VA s mission over the long term. Meanwhile, VHA and VBA could each take additional steps to fully incorporate key leading practices into their succession planning. Addressing VA s challenges will require active leadership support and clear departmental guidance outlining VA s and its administrations responsibilities for succession planning. However, VA has not updated its succession planning directive since 2003 due to leadership turnover, among other factors. Updating the directive could help ensure VA and its administrations are complying with relevant legal requirements including OPM s strategic human capital management regulations and ensure they understand their roles and responsibilities for succession planning. <4. Recommendations for Executive Action> We are making a total of four recommendations, including two to VA, one to VHA, and one to VBA: The Secretary of Veterans Affairs should develop a department-wide succession plan for leadership and mission-critical occupations that incorporates key leading practices for succession planning. (Recommendation 1) The Under Secretary for Health should incorporate key leading practices into VHA s succession planning processes, including monitoring and evaluating VHA s succession planning. (Recommendation 2) The Under Secretary for Benefits should develop a succession planning process for all leadership positions and incorporate key leading practices into VBA s succession planning for leadership positions and mission- critical occupations. These practices include aligning the plans with strategic goals, identifying strategies to close workforce gaps, and monitoring and evaluating VBA s succession planning. (Recommendation 3) The Secretary of Veterans Affairs should update VA s 2003 directive on workforce and succession planning to incorporate relevant legal requirements, including OPM strategic human capital management regulation requirements. (Recommendation 4) <5. Agency Comments> We provided a draft of this report to the Secretary of Veterans Affairs for review and comment. VA provided written comments, which are reproduced in appendix III. VA concurred with all four recommendations. VA also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Secretary of Veterans Affairs. 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) 512-2757 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Leadership Positions and Mission-Critical Occupations Table 2 summarizes leadership positions and mission-critical occupations at the Department of Veterans Affairs (VA), Veterans Health Administration (VHA), and Veterans Benefits Administration (VBA) as identified by the department and administrations. Appendix II: Description of Key Leading Practices for Succession Planning We reviewed our past reports and Office of Personnel Management guidance to identify the following key leading practices for succession planning. The list below explains the importance of the practices and provides examples of how agencies can demonstrate them. 1. Obtain active support and participation from leadership. Agencies top leadership actively participates in, regularly uses, and ensures the needed financial and staff resources for key succession planning and management initiatives. This leadership is important because it can provide (1) stability during plan development and implementation, (2) champions within the agency, and (3) integration with other key management planning efforts. This practice may be demonstrated by, for example, leadership participating in key succession planning meetings and ensuring succession planning policies are up-to-date. 2. Develop succession plans aligned with strategic goals. Agencies discuss how workforce knowledge, skills, and abilities for leadership and mission-critical occupations will contribute to the achievement of strategic and annual performance goals. This alignment helps ensure agencies plans provide the talent needed to meet their current and future mission requirements. This practice may be demonstrated by, for example, integrating succession planning into strategic planning and annual strategic objectives review assessments. 3. Analyze current and future workforce gaps. For leadership and mission-critical occupations, agencies identify the current talent state and critical skills in the workforce, future workforce needs, and current and future workforce gaps. This gap analysis is important for identifying the skills and competencies needed for achieving its missions and goals even as the agency s operating environment changes. This practice may be demonstrated by, for example, conducting and documenting current and projected workforce analysis, including workforce gaps. 4. Identify strategies for closing workforce gaps. Agencies identify strategies for closing workforce gaps for leadership and mission- critical occupations, such as recruitment strategies, training, and developmental opportunities. This planning is important for aligning strategies to eliminate gaps, and tailoring workforce programs and processes to the agency s needs. This practice may be demonstrated by, for example, developing and implementing action plans and training and development programs. 5. Monitor, evaluate, and update succession plans and strategies. Agencies identify and track performance measures and progress against goals to measure the effectiveness of succession management programs, and regularly update plans to reflect lessons learned. This performance monitoring is important for measuring both the outcomes of strategies and how the outcomes have helped accomplish the agencies missions and goals. This practice may be demonstrated by, for example, conducting progress assessments or revising programs based on past performance. Appendix III: Comments from the Department of Veterans Affairs Appendix IV: GAO Contact and Staff Acknowledgments <6. GAO Contact> Robert Goldenkoff, (202) 512-2757 or [email protected]. <7. Staff Acknowledgments> In addition to the contact named above, Shannon Finnegan (Assistant Director), Alexander Ray (Analyst-in-Charge), Colleen Corcoran, Karin Fangman, Robert Gebhart, and Sarah Green made key contributions to this report. Steven Flint, Shelby Kain, Christy Ley, Marcia Mann, Rachel Stoiko, and James Whitcomb also made contributions.

Why GAO Did This Study VA operates one of the largest health care delivery systems in the nation and provides billions of dollars in benefits and services to veterans and their families. However, VA faces serious and long-standing problems with management challenges and veterans' access to care and disability benefits. For example, as of December 2018, VA reported an overall staff vacancy rate of 11 percent at VHA medical facilities, including vacancies of more than 24,000 medical and dental positions, and around 900 human resource positions. Ensuring VA, VHA, and VBA have a pipeline of talent to fill leadership positions and mission-critical occupations is key to addressing these challenges. The VA Choice and Quality Employment Act of 2017 includes a provision for GAO to review succession planning policies and guidance at VA and its administrations. This report addresses the extent to which succession planning policies and procedures at VA, VHA, and VBA are consistent with key leading practices. GAO reviewed agency documents related to succession planning for leadership positions and mission-critical occupations, and interviewed agency officials. To identify key leading practices, GAO reviewed GAO’s past work and Office of Personnel Management guidance. What GAO Found The Department of Veterans Affairs (VA), the Veterans Health Administration (VHA), and the Veterans Benefits Administration (VBA) have not fully incorporated key succession planning leading practices (see table). Legend: ● Met ◒ Partially Met ○ Not Met Source: GAO analysis of VA's, VHA's, and VBA's succession planning efforts. │ GA O-20-15 VA lacks a current, department-wide succession plan. According to VA officials, VA has not produced a department-wide succession plan since 2009 due to leadership turnover. VA officials said the 2009 plan does not reflect their current succession planning efforts. Establishing a succession plan would help VA identify and develop high-potential staff to meet VA's mission over the long term. VHA's succession plan is consistent with some leading practices, but our prior work found that VHA's physician staffing data are incomplete. Also, VHA performs limited monitoring and evaluation of its plans. Additional monitoring and evaluation could help VHA assess the effectiveness of its strategies in achieving its goals. VBA's plan includes some analysis of workforce gaps for mission-critical occupations. However, VBA's plan does not address leadership positions or fully incorporate key leading practices for mission-critical occupations, such as veterans claims examiners. Developing a succession planning process for leadership positions and fully incorporating key leading practices into its existing processes could help VBA better meet its current and future workforce needs. VA has not updated its succession planning directive since 2003 and VA officials told us that the directive does not incorporate legal requirements put in place since then. The directive establishes requirements and responsibilities for succession planning across VA. VA officials stated that they have not updated the directive because of leadership turnover and changes in legal requirements. Updating the directive could help to ensure it reflects relevant legal requirements. In addition, we found that VA, VHA, and VBA do not follow all of the requirements outlined in the directive. Updating the directive could help to clarify and recommunicate succession planning roles and responsibilities across the department. What GAO Recommends GAO is making four recommendations. VA should develop a department-wide succession plan and update its succession planning directive. VHA and VBA should fully incorporate key leading practices for succession planning. VA agreed with the recommendations.

gao_GAO-20-103

gao_GAO-20-103_0

<1. Background> <1.1. Tax Cuts and Jobs Act of 2017> Of TCJA s 119 provisions, 86 relate to business and international tax law, ranging in scope from tax treatment of commuter benefits to significant modifications to international aspects of U.S. income tax. See table 1 for select examples of tax law changes resulting from TCJA. While Congress amends the tax code routinely, the time constraints and magnitude of changes within TCJA are less common. According to IRS officials, the last time IRS implemented major tax law changes was in 1986. For TCJA, IRS had a relatively short time frame to implement because the law included many time-sensitive provisions that were either retroactively effective, or immediately effective upon the law s enactment. <1.2. IRS Project Management for TCJA> To implement TCJA, IRS established working groups to provide project management oversight, coordinate the implementation of TCJA provisions across IRS, and identify priorities, challenges, and risks of the new tax law changes. For instance, TRIO was established in January 2018 as a short-term centralized authority to prioritize, oversee, and coordinate implementation of TCJA, as shown in figure 1. TRIO s oversight model was based on the working groups convened during IRS s implementation of Patient Protection and Affordable Care Act. Made up of officials with expertise across IRS, including IRS s business operating divisions (BOD) the offices responsible for implementation, oversight, and compliance of tax laws TRIO was established to temporarily oversee TCJA implementation through the 2019 filing season. TRIO s objectives for the 2019 filing season included ensuring that taxpayers understood their tax obligations and that IRS could process tax returns, payments, and refunds. In March 2019, TRIO dissolved and transitioned oversight and operations to the BODs. In addition to the working groups that were established to implement TCJA, IRS also relied on its usual practices for implementation of tax law changes, including developing guidance, training employees, and updating technology systems: Determining appropriate guidance for release. IRS interprets the law and develops guidance using a variety of documents and services to communicate its interpretation to help taxpayers understand their tax obligations. IRS guidance includes Treasury Decisions (the formal name for final or temporary tax regulations), which are considered the legally binding interpretation of the statute and IRS s official position on federal tax law. Treasury generally has 18 months after tax law changes to issue final regulations for them to be retroactively effective to the date of enactment, though there is an exception to prevent abuse. In some cases, Treasury will issue temporary regulations to provide immediate guidance prior to issuing final tax regulations. Other forms of guidance include proposed regulations a step in the regulation development process revenue rulings, revenue procedures, and notices, among other documents, to provide additional official guidance to taxpayers. IRS also provides taxpayers with a range of other information sources, including frequently asked questions, webinars, YouTube videos, and news releases. Developing guidance. IRS s Chief Counsel, in coordination with Treasury s Office of Tax Policy, drafts tax regulations and also works with IRS BODs and the public. Draft tax regulations are circulated throughout IRS and Treasury for review and approval before being published as a proposed tax regulation in the Federal Register. The public is given the opportunity to provide comments, which are analyzed and incorporated as appropriate into another draft of the regulation. The draft tax regulation is again circulated through IRS and Treasury for review and approval, before being published as a final tax regulation in the Federal Register. In some instances, once the draft proposed and final regulations have gone through the IRS and Treasury approval process, regulations may be subject to review by OIRA. OIRA reviews tax regulations that may create serious inconsistencies or otherwise interfere with another agency s actions, raise novel legal or policy issues, or have an annual non-revenue effect on the economy of $100 million or more measured against a no-action baseline. Conducting stakeholder outreach. In addition to the development of regulations, IRS works with the public to gather feedback, educate taxpayers on published guidance, and inform it of upcoming efforts to provide additional guidance on key areas where IRS and stakeholders require additional clarity. Developing internal policies and procedures. IRS updates its Internal Revenue Manual (IRM) the official compilation of instructions to staff on the administration and operation of the IRS with procedures that inform staff of the steps they should take to correctly complete work and administer new tax law changes. Training employees. IRS trains employees to understand revisions in the tax code and ensure they have the tools necessary to manage key priorities such as using data and analysis to improve customer service and enforcement efforts. Modifying Information Technology (IT) Systems. IRS s Information Technology organization updates the application programs of the tax return intake systems to allow IRS to accept and process tax returns. Generally, IRS captures data from electronically filed (e-filed) tax returns through its Modernized e-File application in a format that can be used for compliance and enforcement purposes. <2. IRS Prioritized TCJA Implementation Activities and Used Collaborative Practices to Develop Guidance, but Has Not Decided Whether to Continue Enhanced Collaboration> Given the magnitude and short timeline for TCJA implementation, IRS reassessed priorities to implement the law. While some IRS officials said they were largely able to balance TCJA implementation with their other work, other officials from Chief Counsel told us they decreased some field services to taxpayers, and scaled back non-TCJA guidance development. Additionally as a result of TCJA, IRS temporarily postponed some planned work, including some IT work and publication of previously planned taxpayer guidance on health savings accounts, the work opportunity tax credit, and other areas. To meet statutory requirements and best meet taxpayer needs, IRS prioritized 33 TCJA provisions for initial implementation, including 12 business and international provisions as the highest priorities, as shown in table 2. IRS officials said their highest priorities were to implement retroactive provisions because they affected the tax year beginning prior to January 1, 2018 and entirely new provisions. According to IRS planning documentation, in making these decisions, the agency considered the anticipated amount of public scrutiny, as well as the necessary amount of internal collaboration, external stakeholder coordination, and the extent of IT system modifications required to implement. <2.1. IRS Attempted to Address Significant Questions in Early Guidance, but Unresolved Questions Created Challenges for Taxpayers> To help taxpayers understand the new tax law and meet their tax obligations, IRS released various types of guidance. Officials told us they aimed to address the most significant questions through early guidance, before answering secondary questions in subsequent guidance. IRS developed comparisons of TCJA with the previous law to help taxpayers understand changes by topic and conducted public information campaigns targeting specific audiences, such as small businesses, to help taxpayers identify the right information and resources to meet their tax obligations. According to IRS officials, one challenge with taxpayers needing to rely on guidance when guidance has not been finalized is that unresolved questions can create uncertainty and guesswork for some taxpayers. While some tax practitioners we spoke with said the release of shorter and earlier information was helpful to provide insight into initial IRS positions on provisions that required immediate instruction, other tax practitioners said that the absence of complete information meant that taxpayers had to file their taxes without certainty. For instance, IRS worked to provide early information to taxpayers on the immediately effective repatriation tax. Repatriation tax payments were due in 2018; however, under the law, taxpayers had the option to pay in installments over 8 years. IRS did not have time to release comprehensive guidance in advance. To provide some early information to taxpayers, IRS instead released three notices (in January, February, and April 2018) and a revenue procedure (February 2018) to help taxpayers understand topics such as whether they were subject to the tax and their tax liability. In May 2019, the Treasury Inspector General for Tax Administration (TIGTA) reported that the short implementation time frame did not leave taxpayers sufficient time to understand the guidance and comply with their resulting tax liability. TIGTA reported that while IRS made a reasonable effort to inform taxpayers of the requirements under the repatriation tax, some taxpayers overpaid their first-year repatriation tax installment without the knowledge that IRS would not be refunding excess remittances of installments. The initial repatriation tax information issued mid-filing season instructed taxpayers to make two separate payments one for their income tax liability and one for their repatriation tax liability, language that was later clarified. Subsequently, IRS announced that excess payments would be applied to the unpaid portion of the taxpayer s liability and that IRS was legally precluded from issuing a refund of any excess remittances. TIGTA reported that for the 2017 tax year, 115 taxpayers filed repatriation tax refund claims amounting to $2.8 billion which, according to TIGTA, indicated that these were unintended overpayments. TIGTA recommended that IRS take steps to inform taxpayers when the next payment is due and how their excess payment was applied to their repatriation tax balance. According to TIGTA, IRS agreed to these recommendations and is taking steps to implement them. <2.2. Enhanced Collaboration Was Critical for TCJA Implementation, but IRS Has Not Documented These Practices> Because of the magnitude of the changes and the immediate effective dates of many TCJA provisions, Chief Counsel collaborated earlier and more frequently with IRS BODs to implement TCJA. IRS officials said these enhanced collaborative efforts were best practices and critical to timely TCJA guidance development. Although there are some guidelines in the IRM for intra-agency coordination, IRS has not identified instances when this enhanced collaboration would benefit guidance development or taken steps to document these parameters to assure consistency and accountability. Based on our analysis, we found that IRS officials leveraged several key practices for implementing collaborative mechanisms to support TCJA implementation, including identifying leadership roles and responsibilities, identifying relevant participants, and using resources to facilitate collaboration, which we identified in prior work. For instance, IRS formed TRIO to manage TCJA implementation and centralize accountability and decision-making. Additionally, Chief Counsel s earlier and more frequent work with the BODs allowed for participants with appropriate skills and expertise to contribute to guidance development and highlight potential enforcement concerns. This collaboration included weekly, and in some instances daily, meetings for participants to provide implementation status updates. Further, IRS developed joint project documents and leveraged collaborative technologies to track and manage TCJA implementation and facilitate sharing across the agency. IRS officials stated that there were several benefits to this enhanced collaborative approach, including: more efficient and effective development of comprehensive regulations, for instance guidance for the QBI provision; faster decision-making on time-sensitive regulations; earlier identification of tax administration and enforcement concerns; mitigation of potential enforcement challenges, such as narrowing the definition of specified trades and businesses on the QBI deduction; and ability to begin compliance planning earlier. Our prior work on interagency collaboration mechanisms and the Standards for Internal Control in the Federal Government identify areas for agencies to improve and sustain collaboration. For instance, we identified that frequent communication can help facilitate working across agency boundaries and that articulating agreement in formal documents that are regularly updated and monitored can strengthen commitment to working collaboratively. In addition, federal internal control standards state that agencies should ensure stakeholders from different parts of an organization communicate to help the agency fulfill its mission. Chief Counsel officials acknowledged the value of this enhanced collaboration but as of December 2019 had not identified or documented criteria for when this collaborative approach would benefit guidance development and help achieve agency goals. Chief Counsel officials said that the guidelines as written provided flexibility in determining when to collaborate early with other offices during TCJA implementation. In addition, officials said that the value of collaboration depends on the scope and complexity of a tax law change and the decision to use earlier and more frequent collaboration would need to consider tradeoffs and other considerations such as other IRS priorities and the effects of pulling employees away from other activities. However, IRS officials described the enhanced collaboration used throughout TCJA implementation as unprecedented and key to successful implementation, indicating that identifying the situations when this earlier and more frequent collaboration would make sense and updating relevant documentation to reflect this could benefit IRS guidance development. Documenting the parameters and procedures for enhanced collaboration practices would better position IRS to be prepared to use enhanced collaboration during implementation of complex or time- sensitive changes to the tax code. For example, enhanced collaboration may help to identify and mitigate potential administrative effects of regulatory design decisions, potentially helping IRS identify more cost- effective alternatives within the limits of available resources. These potential benefits are also supported by our past work on regulatory design during the rulemaking process. Specifically, we found that it is important for agencies to consider enforcement and compliance issues during regulation development because different design choices have implications for future enforcement and compliance efforts. <3. Treasury s Economic Analyses Omit Key Considerations of Distributional Effects of Tax Regulations> While developing regulations to help implement and administer TCJA provisions, Treasury and IRS made discretionary decisions in the regulatory development process that have meaningful effects on taxpayers tax liability and government revenue collection that were not included in their analysis. Changes to tax liability have distributional consequences, as taxes transfer money from taxpayers to the government, but do not directly affect the total resources available to the country. These distributional effects are one element that should be recognized during the regulatory development process, along with costs and benefits of the regulations. While we found that, among the provisions we looked at more deeply, Treasury s analyses did recognize some costs and benefits related to factors such as administrability, compliance costs, and economic distortions, Treasury s analyses did not generally assess the distributional effects, including effects on tax revenue collection, the regulations had as a result of changes in tax liability. As part of the regulatory development process, Treasury and IRS must adhere to Executive Order (E. O.) 12866, which establishes standards for regulatory planning and review. E.O. 12866 instructs agencies to select regulatory approaches that maximize net benefits, including economic, distributive, and equity effects, unless a statute requires another regulatory approach. Any regulation that is determined to be significant must be submitted to OIRA for review, along with an analysis of the costs and benefits of that regulation. However, until 2018, Treasury s and IRS s tax regulations were not regularly subjected to analysis and review under E.O. 12866. In many cases, tax regulations were deemed not significant under E.O. 12866, and as a result, Treasury and IRS did not perform regulatory analyses and they were not reviewed by OIRA. Some tax regulations were also exempt from OIRA review, which was otherwise required under E.O. 12866 based on an agreement between OMB and Treasury. However, E.O. 13789, signed in 2017, instructed the Secretary of the Treasury to reconsider the scope of that exemption, and in April 2018, Treasury and OMB signed a Memorandum of Agreement (MOA) subjecting certain tax regulations to OIRA review. In accordance with the MOA and the requirements in E.O. 12866, for regulations deemed significant, Treasury is responsible for conducting and producing an analysis of the impact of the regulations, including an assessment of costs and benefits. Tax regulations with an anticipated annual non-revenue effect of $100 million or more are deemed economically significant, and are subjected to this additional analysis. Under the MOA, Treasury was allowed a 12-month transition period to obtain reasonably sufficient resources to meet the additional requirements for economically significant regulations. The transition period expired in April 2019, and any new regulations will be subjected to these additional analyses where applicable. E.O. 12866 and OMB Circular No. A-4, a guide developed by OMB for agencies to perform regulatory analyses required by E.O. 12866, emphasize that agencies should assess the costs and benefits of proposed regulations. In some cases, regulations may transfer money from one group to another, creating no net costs or benefits to society as a whole, but nonetheless affecting those who have been affected by the transfers. When regulations have this effect, they are said to have a distributive impact on society, and both E.O.12866 and OMB Circular A-4 instruct agencies to consider distributive effects. Because revenues raised through taxation are transfers and are not costs or benefits to society, OMB Circular A-4 instructs agencies to develop a description of the distributional effects of a regulation that is separate from the costs and benefits. Such an analysis should recognize the effects of the regulation across the population and the economy, divided up in various ways, such as income groups, race, sex, industrial sector, or geography. Treasury s and IRS s significant proposed and final rules used to implement TCJA included a section analyzing the impact of the regulations; however, we found these analyses generally overlooked the distributional effects of the regulations arising from changes in tax liability and revenue collection. The illustrative examples below from TCJA regulations highlight the potential effects of Treasury s and IRS s regulatory decisions on tax liability and how those were reflected in Treasury s analysis. Eligibility for QBI deduction for real estate and insurance brokers. The QBI deduction provides a deduction of up to 20 percent of QBI, but depending on a taxpayer s taxable income, a specified service trade or business (SSTB) may not be a qualified trade or business and therefore may not produce QBI. The statute defines SSTBs as trades or businesses within a list of broadly-identified fields. Treasury and IRS determined that guidance clarifying the types of trades or businesses that would be considered to be within the listed fields was needed. As one example, the statute specified that brokerage services are considered an SSTB, but Treasury and IRS regulations further specified that brokerage services was limited to securities brokers, while other brokerage services, including real estate brokers and insurance brokers, were explicitly excluded from the definition of brokerage services. The choices Treasury and IRS made when providing additional guidance on SSTBs will significantly affect the tax burden and revenue collected from certain businesses. In its analysis of its decisions regarding the definitions of SSTBs, Treasury stated that articulating which business activities were or were not considered SSTBs would provide clarity to taxpayers and prevent similarly-situated taxpayers from behaving differently, which could potentially create economic inefficiencies. Treasury did not address the fact that decisions about which business activities would be considered SSTBs would affect eligibility for a 20 percent deduction, and would affect the distribution of resources between certain taxpayers and the federal government. According to data from IRS s Statistics of Income on sole proprietorships one of several business structures that can earn a QBI deduction categories representing insurance agencies and brokerages, and offices of real estate agents, brokers, property managers, and appraisers recorded more than $35 billion in net income in 2016. The precise effect of not being categorized as an SSTB depends on the specific circumstances of the individual businesses, but given the magnitude of their annual net revenue, excluding real estate and insurance brokers from the definition of SSTB could lower their collective tax burden by billions of dollars annually. This could result in a reduction in federal tax revenues compared to the regulatory alternative of considering these sectors to be SSTBs. End date for opportunity zones. An investor who invests capital gains in a Qualified Opportunity Fund, and maintains that investment for at least 10 years, is eligible to make an election at the time of sale that would render such gains no longer taxable. TCJA s statutory language did not specify an end date for investors to make this election, or a point at which taxpayers must dispose of investments in opportunity funds and recognize future capital gains to be taxed. IRS s October 2018 proposed regulations for opportunity zones stated that investors will have until December 31, 2047, to dispose of investments and make this election. The decision to set an end date of December 31, 2047, was one of four approaches discussed in the proposed regulations. The other options considered were to offer no further guidance on this issue, to specify no end date to elect the gain exclusion, and to allow the election until December 31, 2047, but without disposition of the assets. In its analysis of this decision, Treasury considered how providing clarity would help taxpayers make more efficient investments in opportunity zones. Treasury also considered how forced dispositions could lead to economic inefficiencies, while a longer time horizon could lead to greater investment, but more administrative costs. Treasury did not, however, assess how the different decisions would influence the ultimate tax liability of investors. The determination of a disposition date can have a potentially large effect on tax liability. For example, if a taxpayer invested $1 million into an opportunity fund in 2019, and that grew at a 7 percent rate, it would be worth approximately $2 million after 10 years, $3.9 million after 20 years, and $6.6 million in 2047. Under Treasury s and IRS s regulations, such capital gains $5.6 million in this example would be exempted from taxation. We found that in the course of developing regulatory impact analyses for TCJA regulations, Treasury generally excluded any analysis of distributional effects due to changes in tax revenue collection. In the examples above, Treasury s decisions would significantly affect tax liability for certain taxpayers, which were not reflected in Treasury s analyses of the regulations. Treasury officials did not conduct distributional analyses related to revenue effects because in their view, the MOA instructed them to focus only on non-revenue effects and superseded E.O. 12866. This view is reflected in Treasury s guidance to staff on how to conduct regulatory analyses. Specifically, Treasury s internal guidance instructs staff to conduct distributional analyses, describing how benefits, costs, and transfers are distributed among subpopulations. This guidance further states that staff should not include transfers of revenue to the government, and Treasury officials told us that they did not think they should include any analysis of these effects in their regulatory impact analyses. However, Treasury s understanding that revenue effects should be excluded from its analyses is inconsistent with the MOA and OIRA s position. While Section 1 of the MOA between Treasury and OMB excludes revenue effects for the purposes of determining whether or not a regulation is economically significant, and thus subject to OIRA review, that limitation does not appear elsewhere in the MOA, and the MOA does not state that revenue should be excluded from all analysis. OIRA officials told us that that all agencies, including Treasury, are subject to the same requirements of E.O. 12866, and that outside of the MOA, OIRA had no agreements with Treasury that would otherwise modify the requirements. OIRA officials we spoke with reiterated that all agencies, including Treasury, should generally analyze the distributional impact of their regulations, and OMB s guidance identifies changes in tax revenue as an example of a transfer that would have a distributional impact. OIRA officials stated that they recognize conducting these analyses was a new procedure for Treasury, and that Treasury officials were still learning how to apply the analytical framework in Circular A-4. Treasury s internal guidance for conducting regulatory impact analyses is inconsistent with the standards in E.O. 12866 and OMB Circular A-4 that all agencies are expected to follow. Considering distributional effects related to tax revenue in the analyses would improve transparency surrounding how decisions made by Treasury and IRS affect various groups across the population. Robust analysis ensures that regulatory choices are made after appropriate consideration of the likely consequences, and provides transparency to the public and policymakers. Our prior work emphasizes the importance of transparency in the rulemaking process, and specifically that a regulatory impact analysis consistent with E.O. 12866 and OMB Circular A-4 provides a systematic framework for identifying and assessing the economic tradeoffs associated with alternative regulatory choices. By excluding analyses of distributional effects due to changes in tax liability, including effects on tax revenue collection, Treasury and IRS risk making regulatory decisions that have significant economic effects without fully understanding the consequences of their decisions. Further, the consequences of Treasury and IRS decisions and the tradeoffs they considered are not transparent to the public without an acknowledgement of the distributional effects of tax revenue changes. A lack of full information may also inhibit OIRA s ability to effectively review the regulations and limit decision makers understanding of the effects of a law. <4. IRS Data on TCJA Implementation Were Not Consistently Reliable, but Publicly- Available Information Indicates IRS has Made Considerable Progress in Some Areas Reliability of Data on TCJA Implementation Status Could Be Improved> Data-reliability issues in IRS s documents for tracking implementation of TCJA s business and international provisions made it challenging to characterize both the scope and status of implementation activities. However, based on IRS data we corroborated with publicly-available information (e.g., published guidance), we determined that IRS has made considerable progress in implementing many of TCJA s business and international provisions through issuing guidance, updating IT systems, and training IRS staff. Given the magnitude of changes and near immediate effective dates, tax professionals we interviewed generally spoke favorably about IRS s pace in developing TCJA guidance and the quality of the guidance developed. We found errors and inconsistencies in IRS s documentation used to track TCJA implementation. While we did not find errors and inconsistencies in the majority of IRS s TCJA implementation tasks, we did identify multiple instances of inaccurate recording of the task status, conflicting information in separate tracking documents, and several other miscellaneous errors. Examples include: Seven TCJA provisions and six updates to the IRM were inaccurately identified as complete in the tracking document for the responsible BODs, potentially delaying work on implementation. IRS had cancelled IRM updates for five IRM sections for one provision, but tracking documents across multiple BODs did not accurately capture this fact, which could result in a misallocation of staff and resources. IRS officials could not verify whether all tasks included in TRIO s Enterprise Integrated Project Plan (EIPP) tracking document had been carried over to the new tracking documents following the dissolution of TRIO, increasing the risk of previously planned tasks mistakenly being left incomplete. At least 22 unique identifiers used to track tasks across iterations of TRIO s EIPP tracking document were inconsistent between updates, limiting IRS s ability to accurately track changes in guidance planning over time. The lack of consistency and accuracy across IRS s tracking documentation is not in accordance with Standards for Internal Control in the Federal Government. These standards direct management to use quality information to make informed decisions and evaluate the entity s performance or efficiency in achieving key objectives and addressing risks. Changes in IRS s method of monitoring TCJA implementation status contributed to the data-reliability issues we identified. Early TCJA implementation efforts involved close coordination among multiple internal organizations. When TRIO was responsible for coordinating implementation efforts, it maintained a unified tracking system as part of its coordination management. However, when TRIO was disbanded, BODs and other IRS organizations used several different methods of tracking implementation status. According to IRS officials, in some cases, these new methods were not compared with TRIO s documentation to ensure all necessary tasks were carried over. Additionally, the implementation tracking tools used by these organizations were not uniform in data included, format, or the frequency with which they were updated. These issues may impede the ability to coordinate internally and to monitor overall implementation status. IRS officials stated that these inconsistencies did not pose obstacles to implementation, and that the IRS organization with overall responsibility for a given task was accurately tracking implementation status. While IRS officials said the inconsistencies did not impact implementation, developing a process or modifying the existing process to accurately and consistently track the implementation status of provisions could improve IRS s ability to prioritize resources and coordinate implementation efforts. For example, such tracking could help prevent misunderstandings regarding the implementation status of a provision that could lead management to reallocate resources away from ongoing implementation tasks. Further, it could help ensure IRS s implementation efforts are efficient, as each BOD would have the same information to help coordinate prioritization efforts. While TCJA implementation is a one-time effort, IRS officials stated that efforts will extend beyond a decade into the future, as some provisions (such as opportunity zones) may require further guidance as key deadlines are reached. Additionally, IRS has identified the need for further guidance or implementation tasks as implementation has progressed, and the timeline for full implementation may be extended as IRS receives new information or observes changes in taxpayer behavior. Further, IRS is implementing provisions of a new law reforming aspects of the agency and may face similarly extensive implementation projects in the future. The Taxpayer First Act, signed into law on July 1, 2019, calls for several IRS reforms, including changes to rules related to enforcement as well as modernizing IRS structure and technology, among other things. Management may be able to identify issues with, or improvements to, the implementation process using quality information on implementation status. By improving the ability to monitor and evaluate implementation progress, IRS will be better equipped to evaluate existing implementation processes. IRS also will be better positioned to effectively implement significant tax law or organizational changes in the future. <4.1. IRS Made Considerable Progress by Publishing Approximately Half of Total Guidance for High-Priority Provisions, but Has Significant Work Remaining> IRS has attempted to determine the amount of guidance required for TCJA implementation throughout the implementation process, but the amount of guidance has fluctuated for several reasons. For instance, in July 2018 IRS planned to issue 40 proposed regulations and 35 final regulations by December 2021 to implement the 86 business and international provisions. But by the end of the 2019 fiscal year, IRS planned to issue 53 proposed regulations and 51 final regulations by February 2022. According to IRS officials, they initially expected to issue less guidance than now planned, but as work progressed, they discovered they would need to issue more guidance or issue some guidance through multiple regulations to address taxpayer comments and inquiries. Conversely, in some cases IRS determined that some guidance initially planned was no longer necessary after further consideration. As of the end of fiscal year 2019, IRS Chief Counsel reported that it had issued 90 pieces of guidance and was developing another 43 to implement the 86 business and international provisions of TCJA. Overall, as of the end of fiscal year 2019, IRS publicly issued approximately half of planned official guidance. As shown in figure 2, for the 12 provisions that IRS identified as high-priority, the agency issued 13 of 19 planned proposed regulations and three of 18 planned final regulations. IRS missed internal target dates for issuing 10 guidance documents initially targeted for publication by the end of the fiscal year, including three final regulations. According to IRS officials, several factors affected IRS s ability to issue guidance within planned time frames: Ambitious project planning. Scheduled completion dates for some tasks were aspirational and developed early in the implementation process. Officials stated that they understood from the beginning of implementation that their planned dates might change, and that they did not expect there to be any impact on taxpayers. Revised regulatory review process. As discussed earlier in this report, beginning in April 2018, OIRA began subjecting more tax regulations to further review as agreed to in the MOA between OMB and Treasury. Based on our analysis, from July 2018 to September 30, 2019, OIRA took an average of about 38 calendar days to review 25 TCJA business and international regulations. See appendix III for a table of all TCJA regulations relating to business and international provisions reviewed by OIRA and associated review times. Partial lapse in appropriations. According to IRS officials, a partial lapse in appropriations from December 22, 2018, through January 25, 2019, contributed to implementation delays. For example, IRS officials estimated that the issuance of final regulations for the qualified business income deduction and repatriation tax was delayed 1 to 2 weeks. While IRS was generally able to continue working on TCJA implementation tasks, it had to allocate some resources towards unplanned administrative tasks during this period. During a lapse of appropriations, the Antideficiency Act generally restricts agencies from continuing operations funded by annual appropriations. However, Congress passed a separate 2-year appropriation for IRS to perform TCJA implementation activities. Some IRS personnel that would otherwise have been furloughed were instead able to continue TCJA implementation work through the use of this special appropriation. Additionally, IRS had to develop justifications for the Federal Register to publish TCJA regulations during the lapse in appropriations that it would not have had to do in the absence of a partial lapse in appropriations, which reduced available resources for implementation tasks. IRS officials also stated that they faced issues working with partners at Treasury and OIRA. Treasury s Lapse in Appropriations Plan states that Office of Tax Policy staff could work on policies to restore appropriations and developing revenue estimates for pending appropriations negotiations, but does not include work on TCJA. Further, while OIRA continued regulatory review in certain circumstances, approximately 67 percent of OMB s staff was furloughed. Of the remaining guidance, IRS plans to issue 13 of the remaining final TCJA regulations related to business or international provisions by December 31, 2019. IRS plans to issue 12 final regulations in 2020, three in 2021, and one in 2022. It has not determined publication dates for 14 final regulations. To implement TCJA, IRS has provided a substantial amount of written guidance. Between TCJA s enactment and the end of fiscal year 2019, IRS published 1,383 pages of guidance related to TCJA s business and international provisions in the Internal Revenue Bulletin, out of a total of 4,064 pages published during that period. By comparison, from 2013 to 2015, IRS published approximately 2,000 pages of guidance annually. IRS also issued more than 115 pieces of business- and international- related products, including news releases, frequently asked questions, virtual webinars, YouTube videos, and targeted publications, such as the example in figure 3. Tax practitioners we spoke with were generally favorable about IRS s pace in developing TCJA guidance and the quality of the guidance developed. For example, they generally stated that IRS s multi-pronged approach to providing both official guidance and other information sources was helpful and allowed practitioners to understand of the likely impacts of tax reform prior to the release of final regulations better. Additionally, Tax Notes a well-regarded publisher of a collection of professional tax products named the IRS s tax reform regulatory team as Person of the Year for 2018 for issuing many TCJA regulations in less than a year. <4.2. IRS Prioritized TJCA IT Efforts over Other IT Activities Prior to the 2019 Filing Season, and Plans to Complete Additional Activities before the 2020 Filing Season> According to IRS officials, IRS s Information Technology organization completed all TCJA tasks that the organization agreed to complete prior to the opening of the 2019 filing season, including updates to electronic forms and the underlying technology IRS uses to receive returns. According to IRS officials, they completed these tasks by prioritizing TCJA work over other tasks and modifying its routine processes for implementing IT changes. IRS s Information Technology organization also worked with the BODs to determine which data were most important to have in Extensible Markup Language (XML) format, which is more accessible than data in Portable Document Format (PDF) format. While BOD officials requested programming for TCJA-related requirements that would necessitate that the Information Technology organization enable forms in XML format, IRS s Information Technology organization ultimately determined that it could not deliver updates for all TCJA affected forms in advance of the 2019 filing season, and forms where IT could not deliver updates in XML format would be implemented in PDF format. For example, according to IRS officials, they prioritized having tax year 2018 XML data for the repatriation tax because this tax was immediately effective for tax year 2017, had a short-lived time frame, and presented challenges for monitoring. BODs requested that all affected forms be converted for the 2020 filing season. To further facilitate the implementation of TCJA-related IT tasks, IRS officials told us that they designed a framework to streamline communication between the Information Technology organization, subject matter experts, and the IRS BODs. These sessions enabled staff to work through and identify IT requirements in real time, rather than requiring Information Technology organization staff to wait until the BODs submitted a work request to begin work. As of October 2019, IRS s Information Technology organization had identified an additional 124 TCJA-related tasks for the 2020 filing season. Officials expected to complete these tasks prior to the filing season. According to IRS documentation and officials, these tasks include updating underlying programming of IT systems to capture tax return information in a way that can be more easily used for compliance purposes, updating critical IT systems, and implementing error resolution codes to correct some mistakes on submitted returns. While the Information Technology organization had not yet approved all work and some TCJA requested work was pending analysis or approval in its work tracking spreadsheet, according to Information Technology organization officials, they are aware of the work and proceeding with implementation for the Modernized e-File application, the system used to file returns electronically. <4.3. IRS Began Larger Scale In-Person Training at End of Fiscal Year 2019 and Will Continue Training Efforts in 2020> According to IRS documentation, the agency has begun training staff on several TCJA provisions, including high-priority provisions, and plans to deliver additional training in 2020. According to IRS, workforce training is a critical component of tax law implementation to ensure that the workforce is equipped to identify and address potential audit issues associated with the new tax law provisions as well as to provide the appropriate level of taxpayer service. According to IRS documentation and officials as of the end of fiscal year 2019, the agency delivered training for business and international TCJA changes in multiple formats, including virtual and in-person training. These sessions have addressed at least 28 of the 69 business and international provisions identified as requiring training. IRS began larger scale in-person training in August 2019 and is developing content for further training in fiscal year 2020. The in-person training primarily addresses high-priority TCJA provisions such as QBI deduction, opportunity zones, the repatriation tax, the limitation on the interest deduction, the tax on global intangible low-taxed income, and the base erosion and anti-abuse tax. IRS officials said that their training efforts have been a major undertaking and that they focused their training efforts on high priority provisions and provisions that affected a large number of taxpayers. Some of these training sessions will culminate in an interactive risk assessment exercise. IRS planned to train about 8,500 employees in these sessions. IRS plans to continue TCJA training in 2020 as IRS finalizes regulations. According to SB/SE s implementation tracking documentation, it plans to complete training by the end of 2020. According to LB&I documentation, it plans to hold virtual training in March, May, and June 2020 addressing, among other things, some high priority provisions, including the repatriation tax and base erosion and anti-abuse tax. <5. Aspects of TCJA Present Compliance Challenges for IRS and Taxpayers> <5.1. Lack of Final Regulations Create Uncertainty for Taxpayers and Enforcement Challenges for IRS> Treasury did not issue all planned final regulations within the 18 months the agency generally has to issue regulations retroactive to the date of a law s enactment or before taxpayers were required to file tax returns, which has the potential to be significant for both taxpayers and IRS. Specifically, of the 51 planned final regulations to implement TCJA business and international provisions, Treasury issued five within the 18- month time frame. Treasury also issued one temporary regulation within this time frame. Treasury did not release any final regulations for eight of its 12 priority provisions. As discussed earlier in this report, taxpayers and other stakeholders appreciated the supplemental information Treasury provided in the absence of final regulations. According to IRS Chief Counsel officials, however, a significant effect of relying on proposed regulations rather than final regulations is uncertainty. In instances where Treasury has yet to issue regulations or any other guidance, taxpayers must rely on the statutory language to understand the law. For example, LB&I officials said that taxpayers may not be able to correctly calculate tax for foreign branch losses because IRS included limited information on related forms as final guidance had not yet been issued. Similarly, tax practitioners we interviewed cited several provisions in need of additional guidance and identified challenges associated with those provisions that have the potential to affect taxpayers ability to comply with the law. Challenges identified by tax practitioners we interviewed included confusion regarding and challenges related to the definitions of related party and interest in the proposed regulations for the limitation on the deduction for interest and difficulty for individuals and corporations to understand and comply with international changes given the interdependence of several of the international provisions. A September 2019 Treasury Inspector General for Tax Administration (TIGTA) report also raised concerns related to taxpayers ability to comply with the international provisions. Further, proposed regulations are subject to change when Treasury finalizes them, which could create additional burdens for taxpayers. For example, Treasury s proposed rule issued in August 2018 for determining whether a foreign corporation s earnings are subject to the repatriation tax was modified from a 5-percent threshold for application of the special attribution rules relating to partnerships and trusts to a 10- percent threshold under the final regulations issued in February 2019. Because the repatriation tax was immediately effective, taxpayers needed to pay their tax liability, or make installment payments towards that liability, before IRS was able to finalize its regulations. Some taxpayers who would have been subject to the tax had the proposed regulations been finalized without change may not be subject to this tax because of changes between the proposed and final regulations, and any payments towards repatriation tax liability would no longer be needed. According to IRS officials, taxpayers who initially made repatriation tax payments but are not subject to the tax under the final regulations will need to file an amended return to receive a refund of their repatriation tax payments. The lack of finalized guidance can also create challenges for IRS in the agency s efforts to ensure compliance with the new law. For example, LB&I officials told us they have identified form changes needed related to at least one TCJA provision for which Treasury had yet to issue final regulations, but they need to be mindful when proposing form changes because final regulations could require additional form changes and could require rework. Further, in September 2019, TIGTA reported that the lack of final of final guidance delayed training for LB&I staff, which could hinder LB&I s ability to respond to emerging compliance risks. According to IRS Chief Counsel officials, if IRS believes that a rule articulated in proposed regulations under a statutory provision is correct, it may proceed to enforce that interpretation of the statute in the absence of final regulations. However, in the event of litigation, the interpretation set forth in the proposed regulations would not carry the same weight as final regulations. IRS may also face additional challenges administering the law in instances where the agency has yet to issue proposed regulations. Treasury can issue final regulations that are retroactively effective to the proposed regulations. As of the end of fiscal year 2019, Treasury had not issued 27 planned proposed regulations for business and international provisions. Generally final regulations not issued by the end of calendar year 2019 would not be effective until 2020. According to TIGTA, if IRS makes substantial changes to the proposed regulations, Treasury and IRS may decide not to apply those revisions retroactively to the date of the proposed regulations. While Treasury was unable to issue all final regulations within the 18- month time frame and before taxpayers needed to begin filing tax returns affected by TCJA changes, IRS took actions to mitigate the potential impact of the lack of final guidance. According to IRS officials, they prioritized which regulations needed to be issued to be retroactively applicable to the date of the law s enactment. For example, Treasury s QBI deduction regulations included anti-abuse rules to prevent taxpayers from being able to engage in transactions that will artificially increase their deduction. Treasury s repatriation tax regulations also included rules preventing taxpayers from being able to take actions to reduce their repatriation tax liability. Further, in one instance, Treasury issued a temporary regulation in a situation where Treasury did not have time to issue proposed and final regulations to prevent abuse of TCJA changes related to a deduction for dividends received from certain foreign corporations. <5.2. IRS May Face Challenges Verifying Taxpayer- Reported Information for Some Provisions> We identified 11 business and international provisions where TCJA s statutory language either required or authorized additional information reporting to administer and enforce them. These include the QBI deduction, repatriation tax, and base erosion and anti-abuse tax. TCJA changes also enabled IRS to address a prior reporting gap related to foreign branch activity that will help with compliance and enforcement efforts, according to LB&I officials. As shown in the examples below, in some instances, the statute did not include an information reporting framework to enforce provisions, and IRS has taken some steps to mitigate information reporting gaps. Limitation on interest deduction. Tax practitioners we interviewed told us that they doubted that IRS would be able to verify information related to controlled foreign corporations that are subject to the limitation of business interest expense because there are limitations on information reporting from other countries. According to IRS officials, the statute made substantial changes to this code section and did not correspondingly include a framework for IRS to require information reporting. IRS is taking mitigation actions to help ensure compliance despite the lack of information reporting framework. For example, according to officials, IRS has the authority to require information from taxpayers and developed a new form to collect information needed to ensure taxpayer compliance with this change. In addition, IRS is planning to make changes to another form to help with compliance efforts. Opportunity zones. While the statute did not grant IRS specific authority to require information reporting for opportunity zones a tax expenditure that is intended to spur economic growth in low-income areas IRS has general authority to require information reporting and plans to require and use information reporting to ensure compliance with this provision. As shown in table 3, IRS plans to use information reported on four forms. Taxpayers who invest in qualified opportunity funds may qualify for potentially large benefits that are time dependent. When taxpayers initially invest eligible capital gains in qualified opportunity funds, they can defer the tax due on those gains until the earlier of 2026 or when taxpayers dispose, in whole or in part, of (e.g., sell or exchange) those investments. Specifically, taxpayers receive an increase in the basis of their investment in the qualified opportunity fund if they hold the investment at least 5 years and an additional increase in their basis if they hold their investments an additional 2 years. Taxpayers who hold investments at least 10 years can elect to have their investments valued at the fair market value when they dispose of the investments, and thus would not need to pay taxes on any gains on their initial investments. IRS plans to use taxpayer-reported information and possibly some fund-reported information on the forms listed above in table 3 to identify taxpayers who have invested in qualified opportunity funds to confirm eligibility for tax benefits for investing in and holding those investments in qualified opportunity funds. In other instances, third-party information is not available for IRS to corroborate taxpayer-related information. For example, above certain income thresholds only businesses engaged in an eligible trade or business qualify for the QBI deduction and this information is self- reported. Our past work has found that one of the important factors contributing to the tax gap is the extent to which information is reported to IRS by third parties. For example, according to 2011 2013 IRS data, for income types where there is little or no third-party information reporting (e.g., business income), taxpayers misreported more than half of this income. Without reliable information reporting, IRS will likely need to conduct labor-intensive audits, such as correspondence or face-to-face audits, to ensure compliance with certain TCJA provisions. The potential need to conduct labor-intensive audits could create challenges for IRS given recent trends in audit rates and staffing reductions. Specifically, IRS audit rates of large corporations with assets of $10 million or greater declined from 17.7 percent in fiscal year 2011 to 7.9 percent in fiscal year 2017. We previously reported that IRS s staffing has declined each year since 2011, and has significantly reduced enforcement activities. In September 2019, TIGTA reported LB&I had difficulty hiring personnel with the skills needed for TCJA implementation. This could limit IRS s ability to conduct correspondence or face-to-face audits to ensure taxpayer compliance, including TCJA provisions. LB&I and SB/SE officials expressed their confidence in IRS s ability to audit TCJA provisions sufficiently. SB/SE has developed compliance plans for TCJA provisions identified as having the potential for fraud. SB/SE officials said TCJA work will be prioritized and SB/SE can use some filtering to help identify noncompliance. For example, regarding the QBI deduction, they said IRS may be able to identify returns that need further review based on tax return data. According to LB&I officials, they planned to hire an additional 600 staff, including about 300 revenue agents by the end of fiscal year 2019, and as of the end of the fiscal year, LB&I had selected 430 applicants to hire to help with compliance and enforcement efforts. Revenue agents are of particular importance to IRS s enforcement efforts as they conduct audits of tax returns. In March 2019, we reported that IRS has skills gaps within its revenue agent workforce, and the agency was taking action to address those gaps. For example, the agency established communications with revenue agents to increase awareness about detail and developmental opportunities, and was developing a plan for more effectively including revenue agents in management training. We recommended that IRS take actions to reduce skills gaps among revenue agents, including developing schedules for skills assessments and reporting on agency efforts to close those gaps. IRS agreed with our recommendation and, as of December 2019, IRS plans to report on efforts to close skills gaps among revenue agents by December 2021. <5.3. Limited Data Accessibility Creates Compliance Challenges for IRS> Because IRS had not yet updated all systems prior to accepting tax year 2018 (filing season 2019) returns, IRS was not able to capture all return information in XML format a format that allows for greater accessibility and analysis. According to IRS documentation and officials, the agency was unable to obtain Extensible Markup Language (XML) data for 11 provisions that LB&I and SB/SE had requested for tax year 2018, including certain high-priority provisions. Instead, according to IRS officials, the agency captured this information in PDF, which is challenging for officials to use for data analytics and trend analysis. According to IRS officials, examiners will be able to view the PDFs and use that information if the return is selected for audit. Officials also told us they have other ways to select returns for audit in the absence of XML data. While the agency does not have any agency-wide plans to retroactively convert PDF data to XML data, which could help with compliance analytics and planning, IRS is capable of conducting this work. For example, IRS staff could transcribe, or manually enter, selected information from returns filed on paper into IRS s IT systems to process these returns. Additionally, Information Technology organization officials told us they could develop a program to convert PDF forms to an XML format, if the effort is deemed a high priority. Converting data into usable formats for compliance purposes would be consistent with IRS s strategic plan and Standards for Internal Control in the Federal Government. IRS s strategic plan includes a strategic goal to advance data access, usability, and analytics to inform decision-making and improve operational outcomes. Specifically, IRS is to use analytics to improve enforcement efforts and maximize learning from tests and data. According to Standards for Internal Control in the Federal Government, agencies should use quality information to achieve their objectives. As part of this, agencies should obtain data and process these data into quality information. LB&I officials said they are taking steps to convert their PDF data into useable data for compliance purposes. According to LB&I officials, they identified which provisions data would be useful to retroactively transcribe and they are coordinating with other parts of IRS to complete the transcription. They identified the data on forms related to certain new TCJA provisions as a higher priority for transcribed data. According to officials, they then coordinated with various IRS offices, including the Office of Research Applied Analytics and Statistics, that have the capability to use optical character recognition technology to convert certain forms for these TCJA sections into a more useable format. Statistics of Income, a division within the Wage and Investment Division, is providing clerical staff to perform data validation on the converted data. According to LB&I officials, LB&I plans to use this information to help develop filters and compliance models and it will enable them to conduct analysis earlier than planned because they had not expected to have access to this data. Unlike LB&I, SB/SE had not reviewed the costs and benefits of converting PDF forms for their provisions to determine which PDF forms, if any, would be a good use of IRS resources to convert to XML format to help with compliance planning. According to SB/SE officials, they did not know IRS had the capacity to retroactively convert PDF data to XML format and were unaware of LB&I s efforts to convert select TCJA PDF forms to useable data. Assessing the costs and benefits of converting PDF data to a more useable format, such as XML format, would be consistent with OMB guidance on using cost-benefit analysis to support agency planning efforts. OMB provides guidance to agencies for conducting economic cost-benefit and cost-effectiveness assessments that promote efficient resource allocation through well-informed decision-making. These assessments should consider different alternatives to meet program objectives along with a discussion of costs and benefits. For provisions where IRS does not have XML data, IRS may not be able to adequately identify both intentional and unintentional compliance risks and may be missing opportunities to better ensure compliance with and enforce TCJA provisions. For example, we previously reported that without comprehensive transcribed data, examiners cannot immediately access and review all data reported on tax returns, which burdened taxpayers as well as made examiners less efficient in doing their jobs. According to IRS officials, retroactively transcribed data would be helpful to SB/SE for compliance planning and enforcement efforts, especially for at least one TCJA provision. Further, taxpayers may think they are in compliance and may not be alerted to their errors until IRS has data stored in a format that can be analyzed more easily. Similarly, in October 2011 we reported that IRS said that having more tax return information available electronically, such as through transcription, would reduce burdensome examinations for compliant taxpayers, as well as facilitate enforcement efforts, make case resolution faster, and increase compliance revenue. However, without an analysis of the costs and benefits of retroactively converting PDF data to XML data, SB/SE cannot determine which PDF forms would likely yield benefits that would outweigh the costs of this effort. Management also cannot make an informed decision as to which PDF data would benefit SB/SE if converted to XML format without this information. While IRS may not have complete data on the potential benefits of converting PDF data to XML data, high-level analysis could show whether the potential benefits outweigh the costs. In instances where IRS finds that potential benefits outweigh the costs, SB/SE and IT could provide this information to management to inform its decision as to whether the work is cost effective. Using this information, management could determine if the work should be conducted, and if it should be a high priority for SB/SE and the Information Technology organization. <6. Conclusions> As of the end of fiscal year 2019, IRS made considerable progress implementing TCJA, however, much work remains, and IRS has publicly issued approximately half of planned official guidance. Given the magnitude and immediate effective dates for many TCJA provisions, Chief Counsel collaborated earlier and more closely with IRS BODs which enabled the agency to more efficiently and effectively develop guidance that accounts for tax administration and enforcement concerns. Moving forward, IRS can leverage the lessons learned from this enhanced collaboration. By identifying situations when this earlier and more frequent collaboration would benefit IRS s guidance development process and by updating any relevant policies or procedures to document beneficial collaboration practices, IRS will be better prepared to implement the next set of complex or time-sensitive changes to the tax code. In developing regulations for TCJA provisions, Treasury and IRS made decisions that could potentially affect tax liability by billions of dollars per year, which would have distributional effects on the economy, but these effects were not included in their regulatory analyses. The distributional effects of tax liability changes from regulations can be significant; updating Treasury s internal guidance to include analysis of these effects in the rulemaking process would provide greater transparency to the public, and would better inform decision makers who must determine which regulatory alternative is the best to adopt. Addressing data reliability issues in IRS s tracking documentation could better ensure that further TCJA implementation work is performed in an efficient and timely manner and better enables IRS to identify opportunities for improvements to their implementation process. Additionally, this could enable IRS to better complete and evaluate existing TCJA implementation processes, as well as be better equipped to improve those processes for future application. SB/SE s ability to analyze tax return data and efficiently plan compliance efforts is impeded by the lack of easily accessible and useable data for certain TCJA changes. Taking steps to obtain these data in instances where the potential benefits outweigh the costs would help the agency identify return filing trends and potential noncompliance to help the agency improve audit selection. It would also help SB/SE fulfill IRS s goals of improving operations using data analytics and would also help the agency be able to effectively ensure compliance with and enforce TCJA provisions. <7. Recommendations> We are making a total of five recommendations, including four to IRS and one to Treasury. Specifically: The Chief Counsel of the Internal Revenue Service, in coordination with appropriate offices, should identify and document parameters and procedures for applying enhanced collaborative approaches to regulation and other guidance development with IRS Business Operating Divisions. (Recommendation 1) The Commissioner of Internal Revenue should develop a process to accurately and thoroughly capture implementation status of ongoing projects in accordance with Standards for Internal Control in the Federal Government. (Recommendation 2) The Commissioner of Small Business/Self Employed should coordinate with appropriate IRS divisions or offices to identify the costs and benefits of retroactively transcribing taxpayer data resulting from TCJA. (Recommendation 3) Based on the costs and benefits identified in recommendation 3, the Commissioner of Small Business/Self Employed should determine which TCJA provisions data should be converted into a more useful electronic format for compliance and enforcement purposes and work with the appropriate offices to obtain the transcribed data, as appropriate. (Recommendation 4) The Assistant Secretary of Tax Policy should update Treasury s internal guidance to ensure that Treasury s regulatory impact analyses include examination of the distributional effects of revenue changes when regulations influence tax liability. (Recommendation 5) <8. Agency Comments and Our Evaluation> We provided a draft of this report to the Commissioner of Internal Revenue, the Secretary of the Treasury, and the Director of the Office of Management and Budget for review and comment. In its written comments, which are summarized below and reproduced in appendix IV, IRS disagreed with the four recommendations addressed to that agency. The Director of Treasury s Office of Tax Analysis did not comment on the merits of the recommendation directed to Treasury and provided other comments by email, which are summarized below. In addition, IRS, Treasury, OMB also provided technical comments, which we incorporated as appropriate. IRS disagreed with our recommendation to identify and document parameters and procedures for applying enhanced collaborative approaches to regulation and other guidance development (Recommendation 1). IRS stated it believes that its Internal Revenue Manual provides sufficient guidance and flexibility on when such enhanced collaboration is appropriate and that establishing specific criteria is likely to reduce the flexibility and independent judgement that presently exists. Additionally, IRS said that this type of collaboration is not needed for more routine tax law changes. We are recommending that IRS document the collaboration procedures that were cited as critical for implementing TCJA for use in specific instances such as during complex or time-sensitive tax law changes. As discussed in the report and acknowledged in IRS s letter, this collaboration was particularly helpful for TCJA implementation and had many benefits, such as faster decision-making and identifying enforcement concerns earlier in the guidance development process. We believe that by implementing this recommendation, IRS can help ensure that institutional knowledge and beneficial practices from TCJA implementation will be documented and effectively leveraged to support implementation of future time-sensitive or complex tax law changes without restricting IRS s flexibility. Documenting procedures would ensure IRS can retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel. For our recommendation that IRS develop a process to accurately and thoroughly capture implementation status of ongoing projects in accordance with federal internal control standards (Recommendation 2), IRS disagreed that a new process is needed and said that inaccurate reporting of implementation status did not harm IRS implementation of any TCJA provision. As we acknowledge in this report, IRS officials told us implementation was not impeded by data inconsistencies. However, accurately and thoroughly capturing implementation status on ongoing projects would provide accurate information to decision makers and could prevent potential misreporting, mismanagement, or inefficient resource investment in the future. For example, our ability to use these data to inform Congress of TCJA implementation status was impeded because we deemed the data unreliable for this purpose. Our recommendation does not require IRS to develop a new process for capturing and tracking implementation status. If deemed appropriate, IRS could, instead, update or modify existing processes in ways designed to ensure data reliability. IRS disagreed with our recommendations to identify the costs and benefits of retroactively transcribing certain taxpayer data and then to implement transcription based on this determination (Recommendations 3 and 4). IRS stated that retroactively transcribing data is a resource- intensive, manual process. We disagree with this assertion. LB&I is using optical character recognition to convert PDF data into a more useable format, which is a semi-automated process. Further, as also stated in this report, IRS IT officials we interviewed told us they had the capability to develop a program that would convert PDF data to a more useable format if IRS management deemed it a priority. In its response, IRS also states that the benefits of converting data to a more useable format are unknown. We do not expect IRS to conduct a complex and detailed cost-benefit analysis. Rather, as acknowledged in this report, a high-level analysis of costs and benefits could help IRS management determine what, if any, data would benefit compliance and enforcement efforts. IRS could use readily available existing information (such as the number of returns affected by a certain provision, LB&I and IT cost data on conversion efforts already implemented, or the usefulness of past compliance analytics in similar areas) to inform the analysis. IRS also states that the potential noncompliance costs are unknown until the agency completes audits of TCJA provisions. As we reported, conducting audits is labor-intensive and IRS s audit rate and enforcement efforts have declined since 2011. Further, senior IRS officials we interviewed stated that a limitation of taxpayer information in the PDF format is that it is not easily analyzed. Therefore, we believe that converting data in instances where the benefits outweigh the costs would better position IRS to more effectively and efficiently pursue its mission of ensuring taxpayer compliance. In an email, the Director of Tax Analysis indicated that Treasury generally did not agree with the report s findings regarding its economic analyses. The Director did not specifically comment on the merits of our recommendation that Treasury update its guidance for conducting regulatory impact analyses (Recommendation 5), but stated that the analyses underlying Treasury s tax regulations have fully complied with the MOA established with OMB, which in Treasury s view focuses on non- revenue effects. We maintain that decisions Treasury and IRS made when developing regulations to implement TCJA could potentially impact tax liability by billions of dollars per year; however, Treasury s internal guidance dictates that these revenue effects should not be included in its economic analyses of the regulations. Amending Treasury s guidance to ensure that impacts on tax revenue and liability are included would make the guidance consistent with E.O. 12866 and OMB Circular A-4, which underlie the MOA and instruct agencies to analyze the distributional consequences of regulations. Including these effects of tax regulations, as we recommended, is necessary in order to provide greater transparency to the public and better inform decision makers, who must determine which regulatory alternative is the best to adopt. We are sending copies to the appropriate congressional committees. We are also sending copies of the report to the Commissioner of Internal Revenue, the Secretary of the Treasury, the Director of the Office of Management and Budget, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff 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 are on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report (1) examines the Internal Revenue Service s (IRS) processes that it has in place to provide guidance to taxpayers on Public Law 115- 97, commonly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA) business and international provisions; (2) assesses the economic analyses Department of the Treasury (Treasury) conducted as part of the regulatory development process; (3) evaluates IRS monitoring of implementation of these provisions and describes implementation status; and (4) examines any challenges that could affect IRS s ability to effectively administer these provisions. We defined business and international provisions as provisions assigned to IRS s Large Business & International (LB&I) Division or Small Business/Self-Employed (SB/SE) Division. To examine IRS s processes to provide guidance to taxpayers, we analyzed IRS documentation, such as prioritization records, guidance development records, and actual regulations and other guidance documents (e.g., notices and news releases) and interviewed IRS officials. Specifically, we reviewed IRS s documentation of prioritization of TCJA provisions and interviewed IRS officials in the Tax Reform Implementation Office (TRIO) and the Office of Chief Counsel (Chief Counsel) to examine the criteria IRS used to prioritize TCJA provisions for implementation. We also reviewed IRS documentation on internal coordination and interviewed IRS TRIO and Chief Counsel officials to examine IRS s strategy for and process of guidance development and IRS s plan to provide taxpayers with timely information. We used criteria from Standards for Internal Control in the Federal Government and our key practices for collaboration to determine the extent to which IRS s process for providing guidance to taxpayers was consistent with these standards and best practices. To assess the economic analyses Treasury conducted as part of the regulatory development process, we analyzed IRS, Treasury Office of Tax Policy (OTP), and Office of Management and Budget (OMB) documentation detailing the regulatory development and decision-making processes. We also interviewed officials from IRS TRIO, Chief Counsel, OTP, and OMB Office of Information and Regulatory Affairs (OIRA). Specifically, to identify the factors Treasury and IRS considered when analyzing trade-offs presented by different regulatory options to decide which regulatory options to select, we analyzed underlying regulatory development documentation and interviewed relevant officials. For example, we examined issues lists, internal memorandums, emails discussing regulatory alternatives and their tradeoffs, and early drafts regulations with internal comments. We also analyzed TCJA published regulations and interviewed OIRA and Treasury OTP officials to determine the extent to which Treasury OTP and IRS included discussions of regulatory alternatives and cost-benefit and economic analyses of these alternatives in the published regulations. We used criteria from OMB regulatory guidance for executive branch agencies to examine Treasury s development and analyses of regulatory alternatives. This guidance includes the Memorandum of Agreement (MOA) between Treasury and OMB prescribing OMB review of tax regulations under Executive Order 12866; Executive Order 12866, Regulatory Planning and Review; and OMB Circular A-4, Regulatory Analyses, to determine the extent to which Treasury s analyses met OMB guidance for developing regulations. To describe the implementation status of business and international TCJA provisions, we analyzed IRS project management documentation, such as IRS s Enterprise Integrated Project Plan (EIPP) for TCJA implementation and publicly issued guidance and met with IRS officials. Specifically, we analyzed EIPP to determine which tasks were guidance or training related based on description, and developed keywords to limit our dataset to only relevant tasks. We interviewed IRS TRIO officials to ensure we accurately interpreted the description and status of the identified implementation tasks. We monitored for progress on guidance tasks by regularly reviewing IRS s tax reform website and the Federal Register, as well as SB/SE and LB&I s implementation trackers and Chief Counsel s guidance planning documentation. We reviewed Chief Counsel, LB&I, and SB/SE documentation (e.g., implementation trackers) and met with those officials to understand their internal tracking mechanisms for TCJA tasks and implementation status. To monitor training tasks, we used the EIPP to establish which provisions would require training and reviewed training documentation (e.g., training schedules and materials) from LB&I and SBSE. To describe and monitor information technology (IT) implementation status, we analyzed IRS s Information Technology organization s TCJA implementation documentation and met with IRS Information Technology organization officials. We reviewed IRS s IRM website to determine whether IRS had updated its IRM sections as planned in its EIPP and other planning documents. While we identified potential data reliability issues with the EIPP, LB&I s implementation tracking documentation, and SB/SE s implementation tracking documentation (including inaccurate recording of the completion status of multiple categories of tasks, inconsistent use of unique task identifiers across tracking documentation, and potential errors introduced in the transition from the EIPP to the subsequent tracking documentation), we determined that the data were sufficiently reliable for the purpose of reporting the status of guidance releases, training, and overall TCJA IT tasks. We did not find the data sufficiently reliable to report on the status of IRM updates. We were also unable to report on the number of IT tasks specific to business and international provisions as a subset of overall TCJA IT implementation because IRS s IT organization did not track work by TCJA section. To assess the reliability of the EIPP, we met with TRIO officials to understand how the EIPP was created and updated, as well as verified information from outside sources, including the Federal Register and IRS s tax reform website. After identifying potential discrepancies in LB&I s and SB/SE s TCJA tracking documentation, we followed up with SB/SE and LB&I to determine whether the status of our selected tasks was accurate and complete. SB/SE and LB&I provided responses and statements indicating that the status of some tasks was not accurately recorded. For example, we identified an instance where LB&I s tracking documentation had a provision s final regulations listed as issued in July 2019, when IRS had yet to issue the guidance. Based on these discrepancies and inconsistencies, we used criteria from the Standards for Internal Control in the Federal Government to evaluate IRS s project management activities. To identify the impact of OIRA s effect on the status of TCJA implementation, we analyzed information available on the agency s public website to determine the length of time of OIRA review of regulations. We compared the length of time of OIRA s review to agreed-upon time frames for OIRA review of tax regulations in the Memorandum of Agreement, Review of Tax Regulations under Executive Order 12866 (MOA) between Treasury and OMB to determine the extent to which OIRA met the MOA s 10- and 45-day time frames. To examine challenges that could affect IRS s ability to effectively administer these provisions, we analyzed TCJA and IRS documentation. Further, we interviewed TRIO, LB&I, SB/SE, IT, Chief Counsel officials, and outside tax practitioners. We analyzed TCJA s statutory language to identify instances where the law included compliance safeguards, such as anti-abuse provisions or information reporting requirements. We reviewed IRS documentation (e.g., SB/SE compliance plans) and interviewed IRS officials to understand IRS s views on the opportunities, challenges, and risks to administering and ensuring compliance with the new law. We also interviewed and subsequently analyzed statements from seven randomly selected tax practitioners who had submitted public comments on IRS s proposed regulations for the qualified business income (QBI) deduction, opportunity zones, and the repatriation tax (see below for discussion of provisions we further analyzed) to identify outside perspectives on challenges for IRS administration and enforcement. We downloaded the public comments on these proposed regulations on April 9, 2019. For the QBI deduction, the open comment period was from August 16, 2018, to October 1, 2018, and as of the time we downloaded comments, there were 340 comments. For the repatriation tax, the open comment period was from August 9, 2019, to October 9, 2019, and as of the time we downloaded comments, there were 188 comments. For opportunity zones, the open comment period was from October 29, 2018, to February 8, 2019, and as of the time we downloaded comments, there were 185 comments. We also interviewed tax practitioners from two of the four Big Four tax firms and one outside tax practitioner to which we were referred to describe some outside opinions on challenges for IRS administration and enforcement. The views expressed in these interviews are not necessarily representative of those of other tax practitioners, or tax practitioners as a whole, and the views of the tax practitioners we interviewed are being used as illustrative examples throughout our report. We examined these challenges and risks and subsequently followed up with IRS to examine the extent to which IRS was aware of them and planning mitigating actions to address them. We used IRS s strategic plan and to Standards for Internal Control in the Federal Government as criteria for identifying any gaps between mitigation efforts and overall agency-wide goals and priorities. As part of our work, we further analyzed three provisions the QBI deduction, opportunity zones, and the repatriation tax to gain specific insights into the decision-making process for prioritizing and developing guidance and regulations and factors that may affect IRS ability to effectively administer these provisions. We selected these three provisions for closer examination based on a number of factors, including (1) IRS designating them higher priority for implementation and identification, and (2) IRS, the National Taxpayer Advocate, and other knowledgeable stakeholders identifying them as especially challenging or complex to implement, administer, or enforce. Further, these three selections ensured we were able to examine at least one provision impacting domestic taxpayers managed by SB/SE division and at least one provision impacting foreign, or multinational, taxpayers managed by LB&I. We conducted this performance audit from August 2018 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. Appendix II: Implementation Status of Tax Cuts and Jobs Act of 2017 (TCJA) Business and International Provisions Appendix III: Office of Management and Budget Review of Tax Cuts and Jobs Act of 2017 We found that, as of September 30, 2019, on average, the Office of Management and Budget s (OMB) Office of Information and Regulatory Affairs (OIRA) completed its review of 25 Tax Cuts and Jobs Act of 2017 (TCJA) regulations in about 38 calendar days, as shown in tables 5 and 6. While according to the Memorandum of Agreement between OMB and the Department of Treasury, OIRA has 45 calendar days to review tax regulations, OIRA agreed to consider an expedited review of 10 business days for TCJA regulations. As of September 30, 2019, OIRA agreed to review three regulations in an expedited fashion and OIRA completed two of these reviews in 10 business days and the third in 12 business days. Appendix IV: Comments from the Internal Revenue Service Appendix V: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, Brian James (Assistant Director), Dawn Bidne (Analyst-in-Charge), Michael Bechetti, Justin Bolivar, Tara Carter, Jacqueline Chapin, Nina Crocker, Robert Gebhart, Thomas Gilbert, Travis Hill, Naomi Joswiak, Mark Kehoe, Shelbe Klebs, Daniel Mahoney, Regina Morrison, Benjamin Moser, Sabine Paul, Bradley Roach, Erin Saunders-Rath, Jerome Sandau, Andrew J. Stephens, Rachel Stoiko, Jennifer Stratton, Peter Verchinski, and Sarah Wilson made key contributions to this report. Related GAO Products 2019 Tax Filing: IRS Successfully Implemented Tax Law Changes but Needs to Improve Service for Taxpayers with Limited-English Proficiency. GAO-20-55. Washington, D.C.: January 15, 2020. Tax Gap: Multiple Strategies Are Needed to Reduce Noncompliance, GAO-19-558T. Washington, D.C.: May 9, 2019. Internal Revenue Service: Strategic Human Capital Management is Needed to Address Serious Risks to IRS s Mission. GAO-19-176. Washington, D.C.: March 26, 2019. 2018 Tax Filing: IRS Managed Processing Challenges and Enhanced Its Management of Tax Law Changes. GAO-18-471. Washington, D.C.: September 10, 2018. Federal Regulations: Key Considerations for Agency Design and Enforcement Decisions. GAO-18-22. Washington, D.C.: October 19, 2017. Regulatory Guidance Processes: Treasury and OMB Need to Reevaluate Long-standing Exemptions of Tax Regulations and Guidance. GAO-16-720. Washington, D.C.: September 6, 2016. Federal Rulemaking: Agencies Included Key Elements of Cost-Benefit Analysis, but Explanations of Regulations Significance Could Be More Transparent . GAO-14-714. Washington, D.C.: September 11, 2014.

Why GAO Did This Study According to IRS, TCJA was the most sweeping tax law change in more than three decades, with 86 provisions that modified, added to, or repealed business and international taxes, such as the qualified business income deduction. IRS determined it would take significant effort to implement the law given the limited time-frame and magnitude of the provisions. GAO was asked to review IRS's implementation of TCJA business and international provisions. Among other reporting objectives, this report examines IRS's (1) progress implementing the provisions, (2) processes to provide guidance, and (3) challenges for effectively administering these provisions. To address these objectives, GAO analyzed IRS documentation on project management, compliance planning, and regulation development. Additionally, GAO interviewed IRS officials and tax practitioners. What GAO Found The Internal Revenue Service (IRS) has made considerable progress issuing guidance to taxpayers for Public Law 115-97—commonly known as the Tax Cuts and Jobs Act of 2017 (TCJA)—but has additional work remaining to issue all planned guidance, as shown in the figure. To improve efficiency of TCJA guidance development, IRS internally collaborated earlier and more frequently than during more routine tax law changes. IRS officials said the benefits of this enhanced collaboration included faster decision-making on time-sensitive guidance, including regulations. IRS officials agreed enhanced collaboration had value but as of December 2019 had not identified the parameters for when this collaborative approach would be warranted. IRS may face challenges ensuring compliance with certain TCJA provisions because third-party information reporting is not always available. GAO's past work has found that one of the important factors contributing to the tax gap is the extent to which information is reported to IRS by third parties. Without third-party reporting, IRS will have to rely on resource-intensive audits to enforce certain TCJA provisions, which could be challenging given recent trends of declining audit rates and enforcement staff. GAO has recommendations from March 2019 for IRS to take actions to mitigate hiring risks and reduce skill gaps. IRS was also unable to update all information technology systems prior to the start of the 2019 tax season due to the magnitude of TCJA changes. As a result, IRS was not able to capture certain tax return information in a format that can be easily analyzed to help with compliance planning activities. One IRS division took steps to convert certain tax return data to a more useable format, but efforts to identify other viable opportunities have not been taken. Without appropriate data for analyses, IRS could face challenges enforcing certain TCJA provisions. What GAO Recommends GAO is making five recommendations, including that IRS develop and document procedures for continued enhanced collaboration and convert tax return data to a more useable format for compliance purposes. IRS disagreed; however, GAO believes that these recommendations will benefit guidance development and tax administration. In prior work, GAO recommended that IRS measure which activities are producing desired hiring outcomes and take steps to reduce skill gaps among revenue agents. IRS agreed with these recommendations and, as of December 2019, plans to report on efforts to close skill gaps by December 2021.

gao_GAO-19-624

gao_GAO-19-624_0

<1. Scope and Methodology> As part of our audit of the fiscal years 2018 and 2017 CFS, we considered the federal government s financial reporting procedures and related internal control. Also, we determined the status of corrective actions Treasury and OMB have taken to address open recommendations relating to their processes to prepare the CFS, detailed in our previous reports that remained open as of the completion of our fiscal year 2017 audit. A full discussion of our scope and methodology is included in our March 2019 report on our audit of the fiscal years 2018 and 2017 CFS. We have communicated each of the control deficiencies discussed in this report to your staff. We performed our audit in accordance with U.S. generally accepted government auditing standards. We believe that our audit provides a reasonable basis for our findings and recommendations in this report. <2. Control Deficiencies Identified during Our Fiscal Year 2018 Audit> During our audit of the fiscal year 2018 CFS, we identified three new internal control deficiencies in Treasury s processes used to prepare the CFS. Specifically, we found that (1) Treasury did not have sufficient procedures to analyze and determine whether appropriate disclosures related to new federal accounting standards were included in the draft fiscal year 2018 Financial Report; (2) Treasury did not have sufficient procedures to properly support and consistently report restatements, reclassifications, and adjustments to beginning net position reported in the draft fiscal year 2018 Financial Report; and (3) Treasury and OMB did not have adequate processes and procedures for reporting appropriate information regarding legal contingency losses in the fiscal year 2018 CFS. <2.1. New Federal Accounting Standards> During our fiscal year 2018 CFS audit, we found that Treasury did not have sufficient procedures to analyze and determine whether appropriate disclosures related to new federal accounting standards were included in the draft fiscal year 2018 Financial Report. Treasury uses working groups, disclosure checklists, and other tools to assist in determining appropriate reporting in accordance with new standards. Treasury s procedures include working with federal entities during the fiscal year to determine the reporting required based on new standards. Treasury presents the new standards for discussion at monthly Central Reporting Team meetings that include financial reporting representatives from federal entities. Treasury also establishes working groups for certain new standards, such as the working group established for the Federal Accounting Standards Advisory Board s (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) 47, Reporting Entity, to work with federal entities on their implementation. Treasury also utilizes a financial reporting disclosure checklist to help determine that all disclosures required by FASAB standards are included in the CFS. Treasury updates this disclosure checklist throughout the fiscal year and completes the checklist as a key focus of the CFS compilation process. Although Treasury has processes in place for the implementation of new standards, certain disclosures required by new standards were not included in the draft fiscal year 2018 Financial Report. For example, the draft fiscal year 2018 Financial Report did not include disclosures related to federal government land assets, such as the number of acres held at the end of each reporting period, explanations of federal entities election to include or exclude land and land rights from their opening balances, and a reference to the component reporting entity s financial report, as required by SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment. In addition, the draft fiscal year 2018 Financial Report did not include disclosures related to significant component entity amounts included in certain CFS line items that were determined in accordance with Financial Accounting Standards Board (FASB) standards rather than FASAB standards, in accordance with SFFAS 47. SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board, provides that general purpose federal financial reports prepared in conformity with accounting standards issued by FASB also may be regarded as in conformity with U.S. generally accepted auditing principles (U.S. GAAP). SFFAS 47 permits the consolidation of amounts determined in accordance with FASAB and FASB standards into a single line item without conversion for differences in accounting policies and also provides application guidance that emphasizes the need for disclosures of the different accounting policies and the related amounts to aid financial statement users understanding of the information provided. Treasury s disclosure checklist was not updated in sufficient detail for Treasury accountants to identify appropriate disclosures for inclusion in the draft fiscal year 2018 Financial Report in accordance with these new federal accounting standards. The updated disclosure checklist used for fiscal year 2018 did not include (1) specific details about disclosures required by SFFAS 50 for land assets, such as the number of acres added or disposed of during the reporting period, and (2) questions to help determine the need for disclosures to communicate the effect on certain CFS line items that include material amounts determined using accounting policies in accordance with FASB standards rather than FASAB standards, as SFFAS 47 allows. Also, Treasury did not calculate in aggregate the amounts that are reported in the CFS on a FASB basis by line item in order to determine line items where the disclosures were needed. We communicated these matters to Treasury officials, who conducted a comprehensive analysis and included disclosures in the final fiscal year 2018 Financial Report, as appropriate. In addition, although Treasury established a working group to help implement SFFAS 47, Treasury s procedures did not provide for sufficient consultation with technical experts in interpreting new standards and updating the disclosure checklist to reasonably assure that all requirements related to the new standard were incorporated during implementation. Actively consulting with technical experts, such as members of FASAB, the body designated as the source of U.S. GAAP for federal reporting entities, would help minimize the risk of misinterpreting the standards or presenting and disclosing information in the Financial Report that is incorrect, inconsistent, or incomplete. Standards for Internal Control in the Federal Government states that one of the key objectives of an organization s internal control over financial reporting is to provide reasonable assurance as to the reliability of its financial reporting, including its financial statements and note disclosures. Accompanying notes are an integral part of financial statements and provide additional disclosures that are necessary to make the financial statements more informative. Without sufficient procedures for analyzing and determining the appropriate reporting of disclosures required by new federal accounting standards, Treasury cannot reasonably assure that disclosures included in the Financial Report are reliable and complete. <2.1.1. Recommendation for Executive Action> We recommend that the Secretary of the Treasury should ensure that the Fiscal Assistant Secretary develops and implements procedures to enhance Treasury s processes for reasonably assuring that the Financial Report includes disclosures required by new federal accounting standards, such as conducting an appropriate level of analysis to determine whether disclosures are needed, consulting with technical experts, and including additional details on these requirements in its financial reporting disclosure checklists. (Recommendation 1) <2.2. Restatements, Reclassifications, and Adjustments to Beginning Net Position> During our fiscal year 2018 CFS audit, we found that Treasury did not have sufficient procedures to properly support and consistently report restatements, reclassifications, and adjustments to beginning net position in the draft fiscal year 2018 Financial Report. Treasury identifies changes to prior year amounts (either restatements or reclassifications) and adjustments to current year beginning net position based on its review of information that significant component entities submit to Treasury and applicable FASAB standards. Treasury also performs procedures to determine the consistency of such reporting with significant component entities audited financial statements. Treasury s Subject Matter Analysis standard operating procedure includes steps for Treasury s staff to obtain financial information from significant component entities and to prepare the draft Financial Report. According to these procedures, Treasury s staff uses third quarter financial data that significant component entities report and other information to obtain a preliminary understanding of potential changes to prior year amounts and adjustments to beginning net position. Treasury s staff compares these preliminary results to the entities year-end information and compares beginning net position amounts reported for the current year to ending net position amounts reported the prior year to identify changes to prior year amounts. The staff then prepares a table categorizing such changes as restatements, reclassifications, or adjustments to beginning net position. This table includes a separate line for each of the significant component entities but does not include separate lines for each line item or note disclosure affected. Treasury uses this table to prepare a summary analysis of its conclusions for reporting restatements, reclassifications, and adjustments to beginning net position and related note disclosures presented in the draft Financial Report. The subject area manager reviews the results of the procedures that Treasury s staff performed and documented. Although Treasury s staff followed these procedures for fiscal year 2018, we found that Treasury did not always maintain sufficient support for restatements, reclassifications, and adjustments to beginning net position included in the draft fiscal year 2018 Financial Report. For example, Treasury reported an adjustment to beginning net position but did not identify errors made in prior years to support such an adjustment. Treasury also reported that restatements affected the Statement of Changes in Cash Balance from Budget and Other Activities, but supporting documentation provided by Treasury for the draft fiscal year 2018 Financial Report did not clearly indicate how this statement was affected by restatements. Treasury included a summary of significant accounting policies in Note 1 to the CFS as required by U.S. GAAP, which contained information about restatements, reclassifications, and adjustments to beginning net position. However, Treasury did not disclose consistent information in related line item notes, such as those for loans receivable and loan guarantee liabilities, federal employee and veteran benefits payable, and funds from dedicated collections in the draft fiscal year 2018 Financial Report. Treasury included information in its summary analysis and supporting documentation that was not consistent with information that significant component entities reported. Although Treasury s processes did not identify these inconsistencies, Treasury corrected them in response to our questions. We found that Treasury did not identify these inconsistencies, in part, because its subject matter review procedures did not include steps for coordinating with Treasury managers of other subject matter areas to reasonably assure consistency and appropriate support for conclusions. Also, although Treasury s process involved preparing a summary of analyses performed, Treasury s process did not include steps or other tools to reasonably assure that consistent information was communicated in all financial statement line items and note disclosures affected by restatements, reclassifications, and adjustments to net position. SFFAS 21, Reporting of Corrections of Errors and Changes in Accounting Principles, requires that reporting entities restate prior period financial statements for material errors discovered in the current period, if such statements are provided for comparative purposes and if the effect of an error would be material to the financial statements in either period. If not material, corrections should be made to the beginning balance of cumulative results of operations in the statement of changes in net position. A reclassification is the movement of a prior year amount in comparative financial statements in order to conform to the current year presentation. Standards for Internal Control in the Federal Government states that management should (1) design control activities to achieve objectives and respond to risks, such as procedures to help reasonably assure that financial information is completely and accurately reported, and (2) implement control activities, such as documenting responsibilities through policies and procedures. Management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving objectives. Without sufficient procedures for reporting restatements, reclassifications, and adjustments to beginning net position, there is an increased risk of presenting information that is inaccurate or incomplete in the Financial Report. <2.2.1. Recommendations for Executive Action> We are making the following two recommendations to Treasury: The Secretary of the Treasury should ensure that the Fiscal Assistant Secretary enhances existing procedures for Treasury management to perform additional reviews for restatements, reclassifications, and adjustments to beginning net position to reasonably assure that they are properly supported and accurately reported. (Recommendation 2) The Secretary of the Treasury should ensure that the Fiscal Assistant Secretary develops and implements steps to reasonably assure that restatements, reclassifications, and adjustments to beginning net position are consistently reported in the Financial Report, such as developing a tool that identifies all affected financial statement line items and note disclosures. (Recommendation 3) <2.3. Contingencies for Legal Representation Letters> During our fiscal year 2018 CFS audit, we found that Treasury and OMB did not have adequate processes and procedures for reporting appropriate information regarding legal contingency losses in the fiscal year 2018 CFS. Significant component entities are responsible for properly accounting for and reporting legal contingency losses in their entity-level financial statements and submitting this information to Treasury for inclusion in the CFS. For each entity-level financial statement audit, U.S. generally accepted government auditing standards require that component entity auditors obtain written legal representations as part of the audit. The significant component entities provide interim and final legal representation letters, along with management schedules, to Treasury, the Department of Justice (DOJ), and GAO. According to DOJ s established process, its legal counsel reviews individual cases included in these legal representation letters for which the potential loss exceeds $500 million individually or in the aggregate for similar cases. DOJ is responsible for preparing and submitting an interim and final government-wide legal representation letter to Treasury and GAO, containing its assessment of the potential litigation losses, including whether there are litigation, claims, or assessments that were not addressed in the significant component entities legal representation letters that DOJ believes should have been reported or which DOJ believes should have been reported differently. Treasury s procedures call for it to determine whether the financial statement information that the significant component entities submitted and Treasury used to compile the fiscal year 2018 CFS is consistent with the significant component entities management schedules, legal representation letters, and the government-wide legal representation letter. For fiscal year 2018, Treasury identified various inconsistencies among the significant component entities financial statement information, management schedules, and legal representation letters as well as inconsistencies between the government-wide legal representation letter and the significant component entities management schedules and legal representation letters. There may be appropriate reasons for these differences. For example, although management often relies on advice of legal counsel on the likelihood of loss and estimate of the amount or range of potential loss, as reflected in the legal representation letter, management is ultimately responsible for determining whether the loss should be recognized as a liability or disclosed in the notes to the financial statements. As such, management may make a different determination as to the likelihood of loss or estimated loss amounts than those in the legal counsel s assessment. Also, differences between the government-wide legal representation letter and the significant component entities legal representation letters can occur in situations in which DOJ has more current information on the likelihood of loss and estimated loss amounts. However, Treasury was not always able to timely determine whether there were appropriate reasons for the differences it identified or whether adjustments were needed to the legal contingency loss information reported in the fiscal year 2018 CFS. Based on our work, we found that certain of these differences required correction in the fiscal year 2018 CFS. For example, Treasury noted that one significant component entity included estimated loss amounts for reasonably possible cases in its management schedule and that such amounts were not reported in the financial information provided to Treasury for consolidation. Because Treasury was unable to timely resolve the issue, the fiscal year 2018 CFS was not appropriately adjusted to include these amounts. Further, DOJ did not provide us the final government-wide legal representation letter as of our audit completion date. Although Treasury has procedures for reviewing and analyzing the significant component entities legal contingency loss information and the government-wide legal representation letter, we found that Treasury lacked effective processes and procedures to reasonably assure that appropriate information regarding legal contingency losses was reported in the fiscal year 2018 CFS. Specifically, Treasury did not have sufficient processes and procedures to obtain the needed information in a manner that would facilitate the timely compilation of the legal contingency loss information for inclusion in the fiscal year 2018 CFS or for timely resolving issues identified during its review. For example, as part of Treasury s procedures, it compares the estimated loss amounts for reasonably possible and probable cases included in the significant component entities management schedules with the financial statement information that the significant component entities report for inclusion in the fiscal year 2018 CFS. If discrepancies are greater than 10 percent, Treasury s procedures call for significant component entities to provide an explanation. However, because of the extensive amount of time needed to perform this analysis, Treasury was not always able to timely follow up and resolve the differences with the significant component entities. SFFAS 5, Accounting for Liabilities of The Federal Government, as amended by SFFAS 12, Recognition of Contingent Liabilities Arising from Litigation, contains accounting and reporting standards for loss contingencies, including those arising from litigation, claims, and assessments. An entity should recognize a liability and a related charge to expense for an estimated loss from a loss contingency only when (1) a past event or exchange transaction has occurred, (2) a future outflow or other sacrifice of resources is probable, and (3) the future outflow or sacrifice of resources is measurable. A contingent liability should be disclosed if any of the conditions for liability recognition are not met and there is at least a reasonable possibility that a loss or an additional loss may have been incurred. Disclosure should include the nature of the contingency and an estimate of the possible liability, an estimate of the range of possible liability, or a statement that such an estimate cannot be made. OMB Bulletin 19-01 provides guidance to federal agencies on the preparation of legal letters and management schedules, and the Treasury Financial Manual provides federal agencies the legal letter reporting requirements. Also, Standards for Internal Control in the Federal Government provides that management should design control activities to achieve objectives and respond to risks. For example, management should design control activities so that financial information is completely and accurately reported. Until the federal government implements effective processes and procedures to obtain and assess information regarding legal contingency losses, the reliability of amounts and disclosures associated with legal loss contingencies reported in the CFS and the ability to assess their potential effect on the financial condition of the federal government will be limited. <2.3.1. Recommendation for Executive Action> We recommend that the Secretary of the Treasury should ensure that the Fiscal Assistant Secretary, working in coordination with the Controller of OMB, establishes effective processes and procedures to reasonably assure that appropriate information regarding legal contingency losses is reported in the CFS. (Recommendation 4) <3. Status of Recommendations from Prior Reports> At the completion of our fiscal year 2017 audit, 14 recommendations were open from our prior reports regarding control deficiencies in the processes used to prepare the CFS. During our fiscal year 2018 CFS audit, we found that Treasury, in coordination with OMB, implemented corrective actions that resulted in significant progress in resolving certain of the control deficiencies addressed by our prior recommendations. For two recommendations, the corrective actions resolved the related control deficiencies, and we closed the recommendations. While progress was made, 12 recommendations from our prior reports remained open as of March 20, 2019, the date of our report on the audit of the fiscal year 2018 CFS. These continuing control deficiencies contributed to the three material weaknesses that relate to the federal government s processes used to prepare the CFS. Consequently, a total of 16 recommendations need to be addressed 12 remaining from prior reports and the four new recommendations we are making in this report. Appendix I summarizes the status as of March 20, 2019, of the 14 open recommendations from our prior years reports according to Treasury and OMB, as well as our own assessment and additional comments, where appropriate. Various efforts are under way to address these recommendations. As part of our fiscal year 2019 CFS audit, we will continue to monitor Treasury s and OMB s progress in addressing our recommendations. <4. Agency Comments and Our Evaluation> <4.1. Treasury Comments> We provided a draft of this report to Treasury for comment. In its written comments, reproduced in appendix II, Treasury concurred with our four new recommendations. Treasury agreed that new processes and procedures would enhance its internal controls over the processes used to prepare the CFS. It also described actions it will take, and has taken, to address these recommendations as well as certain open recommendations from our prior reports that are summarized in appendix I of this report. Treasury also provided technical comments, which we incorporated as appropriate. Treasury stated that it implemented process improvements that addressed three of the new recommendations, which resulted from our review of the draft fiscal year 2018 Financial Report, prior to the publication of the final report. These three recommendations are aimed at enhancing Treasury s processes related to (1) including appropriate disclosures required by new federal accounting standards in the Financial Report and (2) supporting and consistently reporting restatements, reclassifications, and adjustments to beginning net position. In our report, we acknowledged that Treasury addressed the need for certain additional disclosures related to new federal accounting standards and inconsistencies related to restatements, reclassifications, and adjustments to beginning net position in the final fiscal year 2018 Financial Report. However, addressing the specific issues we identified in the draft fiscal year 2018 Financial Report does not fully address our recommendations and Treasury did not provide sufficient documentation supporting its efforts to develop and implement or enhance procedures or other steps to reasonably assure that the Financial Report is complete and accurate related to these areas. Treasury also stated that it will work on addressing the remaining recommendation. Regarding five open recommendations from our prior year reports related to treaties and other international agreements, Treasury stated that its existing controls provide reasonable assurance that there are no material misstatements in the Financial Report and that it worked with federal entities in fiscal year 2018 to obtain reasonable assurance that proper amounts and disclosures are reported as commitments and contingencies. As noted in appendix I, Treasury established three broad categories to help agencies in classifying treaties and other international agreements with respect to their potential financial implications. The establishment of three standard categories provides some guidance for identifying and reporting treaties and other international agreements; however, as stated in appendix I, we continue to believe further guidance is needed to determine whether additional disclosure in the CFS is required by U.S. GAAP. The guidance should be consistent with FASAB standards and provide procedures for identifying and assessing all treaties and other international agreements for potential contingencies. Treasury also stated that its efforts to validate the material completeness of budgetary information included in the Financial Report and verify the consistency of such information with federal entity reports are sufficient to address the two open recommendations from our prior year reports related to the Reconciliations of Net Operating Cost and Budget Deficit and the Statements of Changes in Cash Balance from Budget and Other Activities (Reconciliation Statements). As noted in appendix I, Treasury has improved its process by documenting its detailed analyses related to the accrual-based and cash-based effects of federal entities transactions included in net operating cost and the budget deficit and by continuing to identify items needed to prepare the Reconciliation Statements. However, as noted in appendix I, we continue to believe additional work is needed to (1) reconcile line items to audited federal entity financial statements and (2) determine the appropriate presentation for the reconciling items, which could affect the line items included. Treasury stated that it appreciates our perspective and will continue to focus its efforts on cost-beneficial solutions to resolve the material conditions that preclude having an opinion rendered on the CFS. Treasury also indicated that it plans to work with GAO as it fulfills its commitment to improving federal financial reporting. As part of our fiscal year 2019 CFS audit, we will determine the status of corrective actions to address the four new recommendations made in this report and the 12 remaining open recommendations from our prior year reports. <4.2. OMB Comments> We provided a draft of this report to OMB for comment. In oral comments, OMB staff in the Office of Federal Financial Management stated that OMB generally agreed with the draft report and Treasury s written response. OMB noted that the current administration is committed to continuing to work with Treasury and federal agencies to achieve sound financial management across the federal government. This report contains three recommendations to the Secretary of the Treasury and one recommendation to the Secretary of the Treasury, working in coordination with the Controller of OMB. The head of a federal entity is required by 31 U.S.C. 720, to submit a written statement on actions taken or planned on our recommendations to the Senate Committee on Homeland Security and Governmental Affairs and to the House Committee on Oversight and Reform, the congressional committees with jurisdiction over the programs and activities that are the subject of our recommendations, and GAO not later than 180 days after the date of this report. A written statement must also be sent to the Senate and House Committees on Appropriations with the entity s first request for appropriations made more than 180 days after the date of this report. Please send your statement of actions to me at [email protected]. We are sending copies of this report to appropriate congressional committees, the Fiscal Assistant Secretary of the Treasury, the Controller of the Office of Management and Budget s Office of Federal Financial Management, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov/. We acknowledge and appreciate the cooperation and assistance that Treasury and OMB staff members provided during our audit. If you or your staffs have any questions or wish to discuss this report, please contact me at (202) 512-3406 or [email protected]. Contacts points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix III. Appendix I: Status of GAO s Prior Recommendations Related to the Processes Used to Prepare the CFS Table 1 shows the status of GAO s prior year recommendations related to the processes used to prepare the consolidated financial statements of the U.S. government. The abbreviations used are defined in the legend at the end of the table. Appendix II: Comments from the Department of the Treasury Appendix III: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, the following individuals made major contributions to this report: Carolyn M. Voltz and Paul F. Foderaro (Assistant Directors), LaTasha L. Freeman (Auditor-in-Charge), Youssef R. Amrani, Maria Hasan, W. Stephen Lowrey, Fabian J. Mendive, Maria M. Morton, and Kristine A. Papa.

Why GAO Did This Study The Secretary of the Treasury, in coordination with the Director of OMB, prepares the Financial Report of the United States Government , which contains the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. As part of the fiscal year 2018 CFS audit, GAO identified material weaknesses and other continuing control deficiencies in the processes used to prepare the CFS. The purpose of this report is to provide (1) details on new control deficiencies GAO identified related to the processes used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions that Treasury and OMB have taken to address GAO's prior recommendations related to the processes used to prepare the CFS that remained open as of the completion of GAO's audit of the fiscal year 2017 CFS. What GAO Found During its audit of the fiscal year 2018 consolidated financial statements of the U.S. government (CFS), GAO identified control deficiencies in the Department of the Treasury's (Treasury) and the Office of Management and Budget's (OMB) processes used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control that involve the federal government's inability to adequately account for intragovernmental activity and balances between federal entities; reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles; and reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is complete, properly supported, and consistent with the underlying information in the audited entities' financial statements and other financial data. During its audit of the fiscal year 2018 CFS, GAO identified three new internal control deficiencies. Treasury did not have sufficient procedures to analyze and determine whether appropriate disclosures related to new federal accounting standards were included in the draft fiscal year 2018 Financial Report of the United States Government . Treasury did not have sufficient procedures to properly support and consistently report restatements, reclassifications, and adjustments to beginning net position in the draft fiscal year 2018 Financial Report of the United States Government . Treasury and OMB did not have adequate processes and procedures for reporting appropriate information regarding legal contingency losses in the fiscal year 2018 CFS. In addition, GAO found that various other control deficiencies identified in previous years' audits with respect to the processes used to prepare the CFS either were resolved or continued to exist. Specifically, Treasury, in coordination with OMB, implemented corrective actions that resolved the control deficiencies related to two of the 14 recommendations open as of the completion of GAO's fiscal year 2017 CFS audit, and as a result, GAO closed these recommendations. While progress was made, 12 of the 14 recommendations remained open as of March 20, 2019, the date of GAO's report on its audit of the fiscal year 2018 CFS. GAO will continue to monitor the status of corrective actions to address the four new recommendations made in this report as well as the 12 open recommendations from prior years as part of its fiscal year 2019 CFS audit. What GAO Recommends GAO is making four new recommendations—three to Treasury and one to both Treasury and OMB—to address the control deficiencies identified during the fiscal year 2018 CFS audit. In commenting on GAO's draft report, Treasury concurred with the four new recommendations and noted its ongoing commitment to improving federal financial reporting. OMB generally agreed with the draft report and noted its continuing commitment to achieving sound financial management across the federal government.

gao_GAO-20-268

gao_GAO-20-268_0

<1. Background> <1.1. Stages in the Life Cycles of NSF s Major Facilities Projects> Each major facilities project has a sponsoring office from within NSF s seven research directorates. The sponsoring office assesses the scientific merit of a potential project, proposes projects for funding through NSF s MREFC account, and is responsible for overseeing the project during the following five stages of its life cycle. Development. Initial project ideas emerge, and a broad consensus is built within the relevant scientific community for the potential long-term needs, priorities, and general requirements for research infrastructure that NSF may consider funding. Design. Entrance into this stage occurs when the NSF Director approves the proposed research infrastructure as a national priority and the sponsoring directorate makes an award (either through a cooperative agreement or contract) for developing detailed project cost, scope, and schedule for possible construction. This stage is divided into conceptual, preliminary, and final design phases. According to NSF documentation, the goal of the conceptual design phase is to create a comprehensive design that clearly articulates project elements that NSF will consider, such as a description of research infrastructure and technical requirements, a concept of operations, and an initial risk analysis, among others. The preliminary design phase further develops projects through the formulation of a site-specific scope, an accurate budget estimate, a revised and updated project execution plan, and other deliverables to establish a project baseline. In the final design phase, a candidate project will refine cost and contingency estimates, complete recruitment of key staff needed to undertake construction of the project, and develop the necessary documentation needed to undergo final design review. A candidate project will exit the design stage and enter the construction stage after a successful review by the NSF director and other key stakeholders of its project execution plan and authorization of its not- to-exceed total project cost by the National Science Board, as discussed below. Construction. The construction stage begins when NSF makes awards to external recipients for acquisition or construction of research infrastructure. Such awards generally take the form of cooperative agreements, although NSF occasionally uses contracts, according to agency officials. The policies and procedures in NSF s Major Facilities Guide apply to research infrastructure projects regardless of the award instrument employed. According to NSF s Major Facilities Guide, the transition from construction to operations could be a single acceptance event or multiple events depending on the nature of the project, and many projects require an integration and testing phase, followed by a commissioning phase to bring the facility up to the design level of operational readiness. The construction stage ends after final delivery and acceptance of the defined scope of work and facility performance per terms of the award instrument. Operations. The operations stage includes the day-to-day work necessary to operate and maintain the research infrastructure (including refurbishment or upgrade activities) and to perform research. Operations awards, which are separate from construction awards, may be made to the construction award recipients or to a different entity. Depending on the project, initial operations may begin before completion of construction. Integration and testing activities may continue during the operations stage, depending upon the complexity and time needed to reach design specifications. Divestment. Divestment can include the transfer of the research infrastructure to another entity s operational and financial control or the decommissioning of the research infrastructure, including its complete deconstruction and removal. NSF generally decides to divest when the agency or the scientific community determines that the facility is no longer considered an operational priority with regard to advancing science, according to NSF s Major Facilities Guide. NSF funding for the development, design, operations, and divestment stages generally comes from the sponsoring directorate. Funding for the construction stage generally comes from the MREFC account. However, if the sponsoring directorate funds construction, the policies and procedures in NSF s Major Facilities Guide apply if total project costs meet the definition of a major multiuser research facility project under the American Innovation and Competitiveness Act that is, if the costs exceed $100 million or 10 percent of the responsible directorate s annual budget, whichever is less. <1.2. NSF Oversight of Major Facilities Projects> NSF has established an oversight structure for major facilities projects that includes offices from across the agency (see fig. 1). This includes the National Science Board, a policy and advisory body that is part of NSF and consists of the NSF Director and 24 members, drawn from industry and universities, who represent a variety of science and engineering disciplines. The NSF Office of the Director and the National Science Board provide high-level, ongoing oversight of major facilities projects, including the approval of new projects to be included in NSF s annual budget request. Within NSF s Office of Budget, Finance, and Award Management, the Large Facilities Office (1) develops business-related oversight policies for all life-cycle stages with a focus on the design and construction stages and (2) provides assistance on nonscientific and nontechnical aspects of project planning, budgeting, implementation, and management. To that end, the office maintains the Major Facilities Guide, which contains NSF policies for agency staff and recipients on the planning, management, and oversight of major facilities. Prior to requesting the National Science Board s authorization to include a proposed project in a future NSF budget request, the Large Facilities Office provides independent assurance apart from the sponsoring office and external panels that NSF oversight processes have been followed, project plans are construction ready, and construction and operations budgets are justified. In addition, it prepares a bimonthly status report for NSF leadership on all ongoing major facilities in construction and candidate projects in design. NSF also uses external panels of experts to review projects at several points during their life cycles. An external panel may first review a project proposal during the development stage. Separate panels then review the project at the culmination of each of its design phases. In addition, an external panel periodically reviews each project during both construction and operations; according to NSF officials, those reviews are generally on an annual basis. According to NSF officials and policy documents, the agency selects panelists based on the questions that need to be addressed and on the type of review taking place. For example, for panels charged with reviewing all aspects of a project, NSF will generally select panelists to represent the academic and broader national or international research community, as well as experts in administrative aspects of facilities and project management, according to NSF s Major Facilities Guide. Furthermore, the responsible directorate and the Large Facilities Office jointly manage the external panel review process and other NSF staff may attend as observers, according to the agency s Major Facilities Guide. Each panel is to provide NSF with a report summarizing the review s findings and any recommendations to NSF. <1.3. Components of Construction Costs and Schedules of Major Facilities Projects> Under NSF s major facilities construction process, the recipients of design awards develop construction cost and schedule estimates for projects and submit them to NSF for review. In particular, after a project s final design review, the National Science Board authorizes a not-to-exceed award amount and an award duration. According to NSF officials, this finalizes the initial budget request previously submitted to Congress after the project s preliminary design review. The not-to-exceed award amount that the National Science Board authorizes is the amount against which NSF measures cost increases to implement its no cost overrun policy. NSF s Major Facilities Guide defines two components that together make up the total project cost and schedule for the construction of major facilities projects. The total project cost awarded in a project s construction agreement may be less than the not-to-exceed cost but not more. These components of the total project cost and schedule are the following: Performance measurement baseline. During design, the cost, scope, and schedule are refined and eventually become the project baseline. Once the baseline has been authorized and included in a construction award, it is known as the performance measurement baseline. NSF documents the performance measurement baseline in the terms and conditions of the award instrument and requires that any changes to it be made through a formal change control process. The performance measurement baseline does not include the project s budget or schedule contingency. Contingency. This is an amount of budget or time for covering the cost increases or delays that would result if foreseen project risks were to occur. During development of a total project cost estimate, the timing and impacts of such risks are uncertain. As a project progresses, the impacts of risks that materialize may exceed the cost or schedule in the performance measurement baseline and lead to use of the project s budget or schedule contingency. According to NSF s Standard Operating Guidance on budget contingency, it is likely no contingency will be left over by the end of a project because all of it will have been used during normal execution of the project to manage known risks and uncertainties. NSF approval is needed when use of contingency exceeds certain project-specific thresholds, which are described in the project s execution plan and codified in the award. In this report, we identify total project costs for the construction of major facility projects which were developed during the design phase based on the latest estimates available from NSF officials; those estimates are subject to change before construction awards are made. For projects under construction, we identify total project costs based on the amounts awarded in the cooperative support agreements for construction and the not-to-exceed amounts authorized by the National Science Board. Only at the end of the projects when construction is complete and the awards have been closed out will the final total project costs be known. In addition to the performance measurement baseline and budget contingency, a project s not-to-exceed cost that the National Science Board authorized may include the following: Fee. NSF may provide recipients the opportunity to earn a fee (formerly referred to by NSF as a management fee) for major facilities projects. According to NSF s Standard Operating Guidance on negotiation, award, and payment of a fee, such a fee can stimulate efficient performance. Management reserve. NSF, not the award recipient, holds management reserve to manage budget uncertainties, unforeseeable events, and risks that the recipient is not able to manage, according to NSF officials. According to agency officials and the Major Facilities Guide, NSF does not hold a management reserve except in rare circumstances. <1.4. NSF s No Cost Overrun Policy for Major Facilities Projects> Since February 2008, NSF has had a policy to manage cost overruns on major facilities projects. Under this policy, the cost estimate developed at the preliminary design review should have adequate contingency to cover all foreseeable risks. Any cost increases not covered by contingency are generally to be accommodated by reductions in scope. Figure 2 provides a breakdown of the total project cost components in relation to the not-to-exceed award amount. NSF officials said that under this policy, they will only request an increase to the not-to-exceed cost that the National Science Board authorized if the recipient cannot address the increase through use of the project s budget contingency or acceptable reductions to the project s scope. Accordingly, at the preliminary design review, projects must have a prioritized, time-phased list of options for reducing scope during construction, known as scope contingency, and the potential cost savings associated with those options is to total at least 10 percent of the project s baseline. As defined by NSF s Major Facilities Guide, scope contingency is scope that can be removed without affecting the overall project s objectives but that may still have undesirable effects on facility performance. <2. NSF Experienced No Recent Cost or Schedule Increases on Ongoing Major Facilities Projects and Completed Construction of One Project> As of September 2019, NSF continued construction of three major facilities projects with no changes to their authorized total project costs or scheduled completion dates since our March 2019 report. In addition, NSF approved a fourth project to enter the construction stage, completed construction of one project, and advanced two major facilities projects in the design stage. The four major facilities projects under construction have a combined total cost of approximately $1.6 billion (see table 1). Ongoing construction projects. Three projects the Daniel K. Inouye Solar Telescope, the Rubin Observatory and the Regional Class Research Vessels continued construction with no changes to their authorized total project costs or scheduled completion dates since our March 2019 report. Instead, NSF managed cost increases on the projects through the use of budget contingency, as specified under its no cost overrun policy, and managed delays through the use of schedule contingency. For example, the Rubin Observatory utilized $11.9 million in budget contingency and 5 months of schedule contingency to better align testing of the camera within the project schedule due to delays associated with the completion of the dome enclosure and telescope mount assembly, among other delays. The project team for the Rubin Observatory is also evaluating scope reduction options in order to complete the project within its total project cost and by its scheduled completion date of October 2022. New construction project. In February 2019, the National Science Board authorized a not-to-exceed total project cost of $410.4 million for the AIMS project and NSF awarded an initial contract modification for construction. We previously reported that in NSF s fiscal year 2019 budget request, the estimated total project cost for construction of the AIMS project was $355.0 million. By the project s final design review in October 2018, the AIMS team determined that it could not execute the project with the desired scope for this amount because of changing market conditions. NSF evaluated scope reduction options for the project but decided to maintain the project s scope at the higher total project cost of $410.4 million. This change in total project cost did not count as an increase under NSF s no cost overrun policy because the previous amount had not been authorized by the National Science Board as the project s not-to-exceed cost. Completed construction project. In May 2019, NSF completed construction of the National Ecological Observatory Network project within the $35.5 million cost increase authorized by the National Science Board and a schedule increase of 2.8 years (57 percent). In 2011, NSF made the original award for construction of this nationwide network of ecological observation sites which was planned for completion in July 2016 at a total project cost of $433.8 million. In 2017, NSF increased the not-to-exceed cost for the project to $469.3 million. In accordance with NSF s no cost overrun policy, the NEON project implemented scope reductions, such as reducing the number of observation sites from 106 to 81 and eliminating certain scientific instruments at the project s observation sites. The scope reductions resulted in an estimated cost savings of $62.4 million. According to NSF documentation as of November 2019, NSF obligated a total of $458.9 million from the MREFC account for the construction of NEON, $10 million below the authorized total project cost. As of January 2020, NSF extended the construction stage award for NEON to allow for award close-out activities, which NSF officials expected to be complete in August 2020. Projects in design. In addition, in 2019, NSF advanced the design of two major facilities projects in the design stage, the Large Hadron Collider High Luminosity Upgrade (HL-LHC) and the Leadership- Class Computing Facility (LCCF). Under NSF policy, a major facility project s cost, scope, and schedule are not finalized until after the final design review, when the National Science Board authorizes a not-to- exceed cost and an award duration. The not-to-exceed cost that the National Science Board authorized is the amount against which NSF measures cost increases to implement its no cost overrun policy. In September 2019, NSF convened two external panel reviews for the final design of the two separate detector upgrades that make up the HL-LHC program. According to NSF officials, the panels recommended to the NSF Director that the detector upgrades proceed to the construction stage. According to NSF documentation dated November 2019, the HL-LHC program had an estimated total project cost of $150 million for both upgrade projects. However, this amount was subject to change since the projects had not yet been authorized by the National Science Board to advance to the construction stage. According to NSF officials, the National Science Board authorized the total program cost at $153 million in early February 2020, setting the not-to-exceed costs for both awards. The LCCF project entered the conceptual design phase in March 2019. As of September 2019, the LCCF project had not developed an initial estimated total project cost because it had so recently entered design. Further details on the two projects in design are located in appendix II. <3. NSF Has Implemented Two Prior Recommendations on Major Facilities and Has Taken Initial Steps to Address Other Recommendations> NSF has fully implemented two of the six recommendations we made in June 2018 and March 2019 recommendations on policies for estimating the costs of major facilities projects and revising the Rubin Observatory s schedule to better meet best practices. NSF has taken steps to address but has not fully implemented the remaining four recommendations concerning the agency s management of major facilities, specifically our recommendations on policies for developing schedules for major facilities projects, project management competencies of the agency s major facilities project management expertise of award recipients for major facilities ensuring the sharing of lessons learned or best practices on major facilities projects. <3.1. NSF Revised Its Cost Estimating Policies and the Rubin Observatory s Schedule to Better Meet Best Practices> Cost estimating policies. In our June 2018 report, we found that procedures documented in NSF s policies for major facilities projects fully or substantially met many best practices and partially or minimally met others identified in GAO s guide for developing project cost estimates. Specifically, we found that NSF s procedures fully or substantially met seven of the 12 best practices in GAO s cost guide and partially or minimally met the remaining five, such as the best practice for conducting a sensitivity analysis to understand which variables most affect the cost estimate. The American Innovation and Competitiveness Act requires that NSF ensure that its policies for estimating and managing costs and schedules are consistent with the best practices in GAO s cost guide, and NSF requires the same of its recipients. We recommended that NSF revise the agency s policies for estimating the costs of major facilities projects, and for reviewing those costs, to better incorporate best practices. In response, NSF revised its Major Facilities Guide and certain internal Standard Operating Guidance policies that documented procedures for estimating costs. In our current assessment of these revised guidance and policy documents, we found that NSF fully met the five cost estimating best practices in GAO s cost guide that we previously found were minimally or partially met. For example, in our 2018 report, we concluded that NSF s procedures required a sensitivity analysis but did not describe how one is to be conducted. In our updated assessment, we found that NSF s procedures describe the best practice and how it should be applied to NSF major facility cost estimates. Specifically, the procedures describe, among other things, (1) identifying key variables cost drivers, ground rules, and assumptions for inclusion in the analysis, with examples particular to NSF major projects included as part of the procedures; (2) evaluating the effect of these variables on the cost estimate by varying them one at a time; and (3) developing a strategy to deal with the variables to which the estimate is most sensitive. Table 2 provides an overview of our original and updated assessments of NSF s cost estimating policies. Between our June 2018 assessment and our current assessment, NSF s policies substantially or fully met all 12 of the best practices in GAO s cost guide. Rubin Observatory schedule. In our March 2019 report, we found that the Rubin Observatory s schedule could not be considered reliable because it did not substantially or fully meet all four characteristics of a reliable schedule from GAO s schedule guide comprehensive, controlled, well-constructed, and credible, as described in table 3. While the schedule substantially met the comprehensive and controlled characteristics, it partially met five scheduling best practices associated with the well-constructed and credible characteristics. Specifically, we found certain issues related to the construction of the project s schedule, including (1) the sequencing of activities, (2) the schedule s critical path a chain of dependent activities that drive a project s earliest completion date, and (3) the amount of float calculated in the schedule the amount of time by which a project activity can slip before the delay affects the project s estimated completion date. We recommended that NSF ensure that the project s schedule meets the well-constructed and credible characteristics of a reliable schedule, as defined in GAO s schedule guide. Our current assessment found that the revised schedule addressed our recommendation. Specifically, the schedule substantially met four of the five best practices that we previously found had been partially met within the well-constructed and credible characteristics of a reliable schedule and partially met the remaining best practice (ensuring reasonable total float). Between our two assessments, the Rubin Observatory project s schedule substantially or fully met the four characteristics and nine of the 10 best practices in GAO s schedule guide. We consider NSF s actions sufficient to address our recommendation. Table 3 provides our original and current assessments of the Rubin Observatory project s schedule. <3.2. NSF Has Taken Initial Steps to Address Four Recommendations Supporting Its Oversight of Major Facilities> In addition to implementing two of our recommendations, NSF has taken initial steps to address the other four recommendations from our June 2018 and March 2019 reports, but has not fully implemented them. Once NSF completes the steps discussed below, we will evaluate its actions to determine whether they are sufficient to fully address our recommendations. Policies for developing project schedules. In our June 2018 report, we found that NSF s procedures for recipients substantially met one of the 10 best practices for developing project schedules the best practice on conducting a schedule risk analysis. In contrast, NSF s procedures partially or minimally met six and did not meet three of the remaining best practices. For example, we found that NSF s procedures did not meet the best practice of establishing the durations of all activities because the NSF documents we reviewed did not include policy or guidance related to this practice, such as guidance on using realistic assumptions in estimating durations. The American Innovation and Competitiveness Act requires that NSF ensure that its policies for estimating and managing costs and schedules are consistent with the best practices in GAO s schedule guide, and NSF requires the same of its recipients. We recommended that NSF revise its policies for developing schedules for major facilities projects, and for reviewing those schedules, to better incorporate the best practices in GAO s schedule guide. As of November 2019, NSF had updated its internal guidance on standardized cost analysis to include a new section related to schedule reviews to help address this recommendation. This guidance states that the NSF Large Facilities Office will lead analysis of the schedule for each proposed major facilities project, which will include a technical evaluation by the sponsoring office, and may include input from an independent cost estimate and schedule review, or other reviews. As further steps to implement this recommendation, NSF plans to update two other policy and guidance documents, according to NSF officials. Specifically, NSF plans to: develop a new section of the Major Facilities Guide on schedule development, estimating, and analysis and post the guidance for public comment; and develop new internal guidance to help NSF staff more fully utilize external panels to address elements of schedule in addition to cost as part of the panels oversight reviews. According to NSF officials, they plan to complete these actions by the end of fiscal year 2020. Once NSF completes these actions, we will re-assess NSF s procedures against the nine best practices that NSF partially or minimally met or did not meet in the assessment we conducted for our June 2018 report. Project management competencies of NSF s major facilities oversight workforce. In our March 2019 report, we found that NSF had not (1) assessed potential gaps in how well its key major facilities oversight staff met project management competencies or (2) developed human capital plans for its major facilities oversight staff to address any gaps that may exist. Taking these steps would be consistent with leading principles for strategic workforce planning that we and the Office of Personnel Management have previously identified. Therefore we recommended that NSF assess its major facilities oversight workforce to identify any project management competency gaps, develop a plan to address any gaps and time frames for doing so, and monitor progress in closing them. In September 2019, in response to our recommendation, NSF awarded a contract for a proficiency assessment and workforce gap analysis. NSF expects this analysis to assess the core competencies and necessary proficiency levels of agency staff overseeing the major facilities portfolio and promote long-term workforce development. According to contract documentation, the contractor will take the following actions, among others: conduct a proficiency assessment and gap analysis based on a review of existing workforce materials, such as relevant position descriptions, vacancy announcements, performance plans, and other NSF guidance documents; work with NSF staff to refine competency guidance to better meet needs of the agency; and work with NSF to update training plans as necessary, based on the findings in the gap analysis and a review NSF s existing training plan. According to contract documentation, NSF anticipates finishing the competency assessment and workforce gap analysis by the second quarter of calendar year 2020 and the implementation of contract tasks by March 2021. According to NSF officials, depending on the results of the assessment and analysis, improvements to address any identified gaps may involve developing standards of performance for the oversight workforce, identifying training opportunities in support or workforce development, and clarifying minimum competency requirements. Project management expertise of award recipients for major facilities projects. In our March 2019 report, we found that NSF had some procedures in place to help ensure that award recipients had project management expertise, but that the agency had not established criteria for the expertise needed by recipients or how they should demonstrate it. We concluded that, as a result, NSF was at risk of making awards to organizations that may not be well qualified to manage construction of major facilities projects. We recommended that NSF establish criteria for the project management expertise of award recipients for major facilities projects and incorporate the criteria in project requirements and external panel reviews. As of November 2019, NSF had drafted new language for the Major Facilities Guide and related supplemental award terms and conditions for major facilities that would require award recipients to document how project management competencies will be met. NSF officials told us they had shared the draft documents with targeted recipient representatives for review and comment in September 2019. NSF officials stated that the supplemental terms and conditions are planned to be published in fiscal year 2020, with an effective date of June 2020. The officials also said that, for existing awards, the agency will work with recipients on a phased implementation of the new guidance and terms and they will automatically be incorporated into future awards. Sharing of lessons learned or best practices on major facilities projects. In our March 2019 report, we found that NSF formalized a process for identifying and sharing lessons learned on major facilities projects. The process, which NSF refers to as its knowledge management program, responded to a 2015 recommendation by the National Academy of Public Administration and to the American Innovation and Competitiveness Act s requirements that NSF coordinate the sharing of best management practices and lessons learned from major facilities projects. We recommended that NSF ensure, through a requirement or other means, that award recipients for major facilities projects provide information to NSF on any lessons learned or best practices. NSF developed supplemental award terms and conditions for major facilities to require recipients to participate in NSF s knowledge management program. According to NSF officials, among other things, the requirement can be met by recipients: sending appropriate staff to the annual major facilities workshop that NSF hosts to provide a collaborative forum for continuous learning and information sharing among participants; presenting lessons learned or good practices at the annual workshop; participating in a workshop planning committee; or providing lessons learned or good practices to NSF. According to NSF officials, the draft terms and conditions will be included in the same revision as those related to recipients project management expertise, planned for publication in fiscal year 2020. As described above, NSF officials said that for existing awards, the agency will work with recipients on a phased implementation of the new terms and conditions, and they will automatically be incorporated into future awards. <4. NSF Plans to Make Its First Awards for Mid-Scale Research Infrastructure Projects in 2020 and Is Developing Guidance to Manage Projects> <4.1. NSF Plans to Award Its First Set of Mid-Scale Projects in 2020> According to NSF documentation, NSF requested $45 million for fiscal year 2020 within the MREFC account to fund its first set of mid-scale projects with a total project cost between $20 million and $70 million. In response to a solicitation it issued in December 2018, NSF received approximately 50 preliminary proposals for mid-scale projects from research areas spanning all of NSF s directorates, according to NSF officials. NSF invited 14 of these applicants to submit a full proposal and received full proposals from 11. The solicitation specified a list of information each full proposal should contain, including a project summary and description, a budget, and a project execution plan. NSF is currently reviewing the full proposals and expects to award its first portfolio of mid-scale projects in August 2020, according to NSF documentation. NSF s solicitation anticipated that $150 million will be available over five years to fund its first batch of mid-scale projects. According to NSF officials, NSF plans to award subsequent sets of mid- scale projects biennially, depending on the availability of funds for future projects. According to NSF s solicitation, the agency is seeking prospective mid- scale projects that are innovative and potentially transformative, that include a strong component of student training, and that provide unique research capabilities relative to what currently exists in the research community. Based on the definition of mid-scale projects in the American Innovation and Competitiveness Act, the solicitation stated that NSF would consider upgrades to existing major facilities projects currently in operation as candidates for mid-scale projects. The solicitation required full proposals to describe the full life cycle cost and schedule including development, design, implementation, operations, and divestment. According to agency officials, NSF is only seeking to fund construction and acquisition costs from the MREFC account but needs to understand potential cost impacts on other life cycle stages. According to NSF officials, the mid-scale program is designed to identify potential projects with shorter implementation timelines and high levels of readiness as compared to the multiyear, incremental refinements to cost, scope, and schedule that occur with major facilities projects. NSF officials also stated that, to assess the readiness of the mid-scale projects for which full proposals were received, the agency will use an internal proposal review process similar to the final design review process used for major facilities projects. In addition, NSF policies state that there can be multiple inputs to the proposal review process, such as external panels or ad hoc reviews, which ensure that the mid-scale projects NSF awards will reflect the needs and interests of the scientific community. <4.2. NSF Has Developed Flexible Guidance to Manage Mid-Scale Projects> To provide guidance on oversight for mid-scale projects, NSF has included a chapter in its September 2019 update of the Major Facilities Guide to outline minimum recipient requirements and NSF oversight activities for mid-scale projects. In addition, NSF has created a management plan for NSF personnel that outlines procedures for reviewing proposals, selecting mid-scale projects, and managing the award process. NSF last updated the plan in November 2019, and according to NSF officials, the agency will continue to update the plan as it leads its initial set of projects from award to execution. According to NSF officials, oversight requirements for mid-scale projects will be dependent upon the technical scope and complexity of each individual project. As a result, NSF has tailored its guidance to provide the level of oversight commensurate with each project s technical scope, type and mix of work, and risk profile. In addition, NSF is incorporating some aspects of its existing guidance for major facilities projects into its guidance for mid-scale projects. However, NSF officials anticipate that mid-scale projects will be less complex than major facilities projects. The following describes aspects where NSF has adapted its guidance for major facilities projects to the lower level of complexity anticipated for mid-scale projects. Performance measurement baselines. Similar to major facilities projects, NSF requires that the scope, cost, and schedule for mid-scale projects be defined at the time of award. In addition, NSF requires budget management, cost controls, and identification of potential risks and mitigation strategies for mid-scale projects, and its guidance states that budgets should be developed in accordance with GAO s cost estimating best practices. While NSF officials state that NSF will apply substantial rigor in assessing the defined total project cost, mid-scale projects will not be subject to NSF s no-cost-overrun policy. As a result, unlike for major facilities projects, NSF will not require all mid-scale projects to include budget contingency and scope reduction options, both of which are necessary for implementing the no-cost-overrun policy, although it may choose to include contingency in the budgets for certain mid-scale projects. For those mid-scale projects that have budget contingency, they must follow guidance for budget contingency laid out in the Major Facilities Guide, such as obtaining approval from NSF for using budget contingency. Monitoring and assessment. Like major facilities projects, NSF will monitor the award progress of mid-scale projects through periodic reports that provide quantifiable measurements on technical progress as well as cost and schedule performance. Depending on the complexity of each project, annual site visits or reviews may also be conducted. However, recipients of mid-scale projects may use alternatives to an earned value management system to report progress, such as reporting on milestone events or expenditure reports. According to NSF officials, the burden of establishing an earned value management system for some mid-scale projects may outweigh the benefits of using such a system, depending on the technical nature of the project. Project execution plan. According to the Major Facilities Guide, NSF will require a project execution plan for all mid-scale projects to demonstrate how recipients will manage the projects. A project execution plan serves as the stand-alone document that explains all of a project s requirements for execution. According to NSF officials, the project execution plan used for major facilities projects would be excessive for mid-scale projects and may discourage potential proposals. Thus, NSF guidance for mid-scale projects requires only nine of the 16 sections normally required in a project execution plan and allows the recipients to tailor the detail and scope of each section to the specifics of each project. In addition, NSF will not require mid-scale projects to include design and development plans or site and environment information, which are required sections for major facilities projects. Since it is only funding the construction of mid- scale projects and seeking to award projects with high levels of readiness, NSF does not consider these sections to be beneficial in assessing how a recipient would manage a mid-scale project. <5. Agency Comments> We provided a draft of this report to NSF for review and comment. In its comments, reproduced in appendix III, NSF stated that our report provides the agency with an independent assessment of its oversight of projects in design and construction and its stewardship of the MREFC account. With regard to our recommendations on policies for estimating the costs of and developing schedules for major facilities projects, NSF stated it is proud of the progress it has made in meeting GAO best practices for cost estimating on major facilities projects and that it recognizes the remaining work needed to codify NSF guidance on project schedules. NSF also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Director of the National Science Foundation, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6888 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Summaries of the National Science Foundation s Major Facilities Projects under Construction This appendix provides individual summaries of the National Science Foundation s (NSF) four major facilities projects under construction: (1) the Daniel K. Inouye Solar Telescope, (2) the Vera C. Rubin Observatory, (3) the Regional Class Research Vessels, and (4) the Antarctic Infrastructure Modernization for Science. Each project s summary is based on project documents and other information that NSF officials provided and includes the following: An overview of the project and its purpose. A timeline identifying key project dates, including the date of the original construction award, which we report as the start of construction. Project information, such as the project s estimated completion date for construction (including schedule contingency), the type and latest amounts of the awards for construction, the responsible NSF directorate, project partners, and expected duration of operations. Tables summarizing the project s current status and its cost, any cost or schedule increases or scope reductions made under NSF s no cost overrun policy, and changes since our March 2019 report. A summary of the project s cost and schedule performance history. A chart depicting the latest construction award s total project cost for construction, including the performance measurement baseline and budget contingency. If applicable, a chart showing the increase in the construction award s total project cost since the original construction award. Information on remaining project risks and potential for cost or schedule increases, including the amount of remaining contingency and scope reduction options. When completed, the National Science Foundation s (NSF) Daniel K. Inouye Solar Telescope (DKIST), formerly named the Advanced Technology Solar Telescope, will be the world s flagship facility for the study of magnetic phenomena in the solar atmosphere. It will help answer fundamental questions in solar physics and enable understanding of solar variability and activity, which can affect Earth through phenomena generally described as space weather. <6. Project Information> <7. Location: Maui, Hawaii.> Construction of NSF s DKIST project was 94 percent complete as of September 2019. The project was in its 10th year of construction and in the integration, testing, and commissioning phase. Since our March 2019 report, the project completed installation of all telescope optics. Testing of the optics, originally planned for October 2019, was delayed until January 2020 to allow the project to replace a key piece of equipment that is essential to safely perform the testing. Despite the delay, the estimated completion of construction and beginning of full operations remained unchanged at June 2020, including 1.5 months of schedule contingency. Estimated construction completion date, including schedule contingency: June 2020. Construction award: Cooperative support agreements with the Association of Universities for Research in Astronomy, Inc., consisting of 42 U.S. institutional members and five international affiliates. Responsible NSF directorate: Mathematical and Physical Sciences. Project partners: More than 20 U.S. and international organizations. Kiepenheuer-Institut f r Sonnenphysik (Germany) and Queens University Belfast (Northern Ireland) are supplying additional equipment for the project. Expected duration of operations: 50 years. Legend: = cost or schedule increase; = scope reduction. <8. Latest Construction Award> NSF s DKIST project had no changes to its authorized total project cost, June 2020 completion date or project scope since our March 2019 report, which used data as of September 2018. From April to November 2019, NSF approved the project s use of about $6.2 million in budget contingency, with the largest usage of about $4.6 million in August 2019. Project delays requiring use of 3 months of schedule contingency primarily because the project faced challenges with the installation and testing of the mirror systems, as described above accounted for $4.3 million of the $4.6 million. We previously reported that the DKIST project s risk of delays had the potential to increase costs for such items as labor, utilities, real estate, and equipment. NSF officials stated that most of the activities at risk of further delays would be achieved during the testing planned for January 2020. In 2013, NSF increased DKIST s total project cost and the not-to-exceed cost that the National Science Board authorized from $297.9 million to $344.1 million, an increase of $46.2 million (16 percent) since 2010. NSF also delayed the project s estimated completion date by about 2.5 years (31 percent), from December 2017 to June 2020. Prior to the National Science Board s authorization to increase the total project cost, the recipient also reduced DKIST s scope, resulting in estimated cost savings of $5.9 million but generally low expected impacts for the project. According to NSF officials, these cost and schedule increases resulted primarily from unforeseeable legal and administrative challenges to the construction site s environmental permits. Remaining Project Risks and Potential for Cost or Schedule Increases As of September 2019, the DKIST project had $7.8 million of budget contingency remaining $0.4 million more than the estimated remaining risk exposure of about $7.4 million when weighted for the risks probability. The project also had 1.5 months of schedule contingency remaining to help avoid any potential delays in completing construction. According to the project documentation, the largest remaining risk category is project completion and closeout risks. As of October 2019, 10 risks in this category remained, some of which had been partially realized, according to NSF officials, with about $4.0 million in risk exposure when weighted for probability. The remaining risks included staff retention as the construction project nears completion, and damage to or wear of equipment during integration and commissioning. For example, contingency may be needed to make minor repairs to the dome enclosure in preparation for full operations. In accordance with NSF policy, the project maintains a list of scope reduction options, which as of October 2019 included approximately $56,700 in total possible project de-scopes, such as reductions in travel. However, the ability of these remaining de-scope options to reduce costs will continue to decrease as the project continues to spend down remaining funds as it approaches completion. The National Science Foundation s (NSF) Vera C. Rubin Observatory (Rubin Observatory), formerly named the Large Synoptic Survey Telescope (LSST), is an 8.4- meter, wide-field optical telescope. It will initially be used to image the entire visible southern sky every 3 days for a decade using the world s largest digital camera (3.2 billion pixels). Built on a mountaintop in Chile to take advantage of the location s pristine skies, the observatory will collect data and images that will allow for charting billions of galaxies as well as increased knowledge about potentially hazardous asteroids, dark matter, and dark energy. The observatory has the potential to advance every field of astronomical study, from the inner solar system to the large-scale structure of the universe. <9. Project Information> <10. Location: Cerro Pach n, Chile.> As of September 2019, the Rubin Observatory was 75 percent complete and in its sixth year of construction. NSF made the initial operations award in October 2018, and NSF officials anticipate completion of construction and start of full operations in October 2022, including contingency. Since our March 2019 report, the project has experienced delays related to both the telescope s dome enclosure and mount assembly, leading NSF to add the project to the Director s Watch List. Estimated construction completion date, including schedule contingency: October 2022. Construction award: Cooperative support agreement with the Association of Universities for Research in Astronomy, Inc., consisting of 42 U.S. institutional members and five international affiliates. Responsible NSF directorate: Mathematical and Physical Sciences. Project partners: The LSST Corporation, Department of Energy. Expected duration of operations: 50 years. Legend: = scope reduction. <11. Latest Construction Award> Since our March 2019 report, NSF s Rubin Observatory project had no changes to its authorized total project cost and implemented one scope reduction option valued at $1.4 million to increase available budget contingency. In addition, the project utilized $11.9 million in budget contingency and 5 months of schedule contingency to better align the testing of the camera within the project schedule. According to project documentation, the use of schedule contingency was due to delays with completion of the telescope mount assembly and dome enclosure that will house the telescope and other buildings. NSF officials attributed the delays to contractor performance and adverse weather conditions. For example, due to high winds, the project was able to use a crane to complete dome construction for only two days in September 2019. Remaining Project Risks and Potential for Cost or Schedule Increases Project data on the remaining risks and contingencies and the findings of two recent reviews indicate that the final cost of the Rubin Observatory may exceed the not-to-exceed cost authorized by the National Science Board, unless the project implements scope reduction options under NSF s no-cost-overrun policy. As of September 2019, the project had an estimated remaining risk exposure of $26.4 million, which is equal to the remaining budget contingency of $26.4 million. In addition, the project had 3.5 months of schedule contingency remaining as of September 2019 to help avoid any potential delays in completing construction by October 2022. According to project documentation, the project s largest remaining risks included delays in the completion of the telescope s dome enclosure, the installation of the mount assembly, and delivery of the camera from the Department of Energy (DOE). The project team is modifying activity plans to mitigate these delays. For example, the project plans to complete dome enclosure and telescope mount assembly activities in parallel. As part of the Director s Watch List, NSF plans to closely track updates on the project, including potential execution of scope reduction options. In August 2019, NSF and DOE jointly convened an external committee of experts to review the project s construction progress. The committee found that the project may face difficulty in completing the baseline scope within the authorized total project cost. Specifically, the committee expressed concerns with the rate at which schedule contingency has been used (5 months of schedule contingency within the past 18 months), delays in completing the dome due to contractor performance issues, and the risks associated with maintaining an aggressive schedule composed of parallel activities in order to minimize further delays. The review committee recommended that NSF direct the project team to develop a proposal for executing scope reductions in fiscal year 2020 to complete the telescope within an acceptable level of risk at the current total project cost, among other recommendations. Remaining Contingency and Scope Reduction Options As of September 2019 with construction 75 percent complete. Budget contingency: $26.4 million (Equal to the probability- weighted risk exposure of $26.4 million). Schedule contingency: 3.5 months (included in the October 2022 estimated completion date). Estimated value of remaining scope reduction options: $24.8 million. as compared to a separate risk exposure analysis from July 2019 that indicated a 50 percent confidence. The panel recommended that the project report risk based on the analysis with the lower confidence level and conduct more frequent risk exposure analyses based on changes that have occurred, such as the realization or retirement of identified risks, to better inform management decisions. According to NSF documentation, the project team has recently acquired enhanced risk management software for analyzing risk exposure, including the effects of mitigating actions within the schedule. In a July 2019 update to its scope management plan, the project team identified 39 scope reduction items with a total value of $25.0 million. Among them is a de-scope option for reducing the amount of final commissioning surveys that may potentially return $4.3 million of budget contingency and 3.5 months of schedule contingency. According to NSF officials, NSF has yet to evaluate the impact of reducing the surveys to the project s capabilities or operational costs. According to the external panel review convened by NSF and DOE, the project team identified potential scope reductions options valued at $14 million that the project can exercise in fiscal year 2022. However, the panel questioned the feasibility of executing the project s scope reduction options and recommended that the project prioritize viable options while pursuing a no-cost extension to complete the project without an increase to the total project cost. The U.S. Department of Energy (DOE), a cosponsor of the Rubin Observatory, is responsible for delivering the observatory s camera at a cost of $168 million. SLAC National Accelerator Laboratory manages a collaboration of DOE national laboratories and universities to develop, fabricate, and deliver the camera. As of September 2019, the project had the camera integration on the telescope scheduled for September 2021. Budget contingency accounts for the risk of a delayed delivery that would impact integration. The LSST Corporation is a not-for-profit organization representing nearly 40 institutional members and 34 international contributors. It acts as the agent for nonfederal funding contributed to the project and has raised more than $50 million for certain long-lead construction items and additional development efforts. The National Science Foundation s (NSF) Regional Class Research Vessels (RCRV) project will construct three 199-foot vessels to support the nation s ability to conduct fundamental scientific research in the coastal zone and continental shelf, including from the ocean s surface through the water column to the sea floor and subsea floor environment. These vessels will provide enhanced capabilities beyond those of the retiring vessels they will replace. The three vessels research locations will depend on locations of the greatest science demand, but NSF planned to operate the first vessel along the west coast, the second along the east coast, and the third along the gulf coast of the United States. <12. Project Information> <13. Location: Construction site is in Louisiana.> As of September 2019, NSF s RCRV project was 20 percent complete and was in its third year of construction. Since our March 2019 report, the project progressed with construction of the first vessel and began construction of the second vessel in September 2019. NSF also awarded funds for construction of the third vessel, which was scheduled to begin in March 2020, and awarded a cooperative agreement for its future operations to the Gulf-Caribbean Oceanographic Consortium. In February 2019, the RCRV project experienced a partial suspension of work due to the status of necessary production design and modeling deliverables, among other concerns. This resulted in 16 weeks of schedule contingency usage. However, there was no overall increase to the scheduled construction completion date of July 2024. Estimated construction completion date, including schedule contingency: July 2024 for three vessels. Construction award: Cooperative support agreement with Oregon State University, which contracted with Gulf Island Shipyards, LLC. Responsible NSF directorate: Geosciences. Project partners: The U.S. Navy performed initial design for the vessels. Expected duration of operations: 30 years. Construction Status of the Regional Class Research Vessels, as of September 2019 Percentage complete (based on construction of three vessels) aScope changes included are reductions in response to NSF s policy on cost overruns or as part of a cost increase. <14. Latest Construction Award> As of September 2019, the RCRV project had no changes to its authorized total project cost, no changes to its estimated completion date of July 2024 for all three vessels, and no scope reductions. The National Science Board had authorized a not-to-exceed cost of $365.0 million for construction of three vessels. However, the shipyard bid was ultimately lower than expected, reducing the total project cost of building three vessels to $354.0 million. NSF accepted the project s earned value management system in May 2019, following a surveillance review of the system. The review team found that the project s system met the intent of NSF requirements and that its data were reliable. (In our March 2019 report, we reported that NSF conditionally accepted the project s earned value management system in November 2018.) As of September 2019 with construction of three vessels 20 percent complete. Budget contingency: $44.0 million (exceeded the probability- weighted risk exposure of $24.6 million). Schedule contingency: 6 months (included in the July 2024 estimated completion date for three vessels). Estimated value of remaining scope reduction options: $9.8 million. Beginning in February 2019, the RCRV project utilized 16 weeks of schedule contingency and $2.4 million of budget contingency due to a partial suspension of work issued by the construction award recipient, Oregon State University (OSU). OSU was concerned with Gulf Island Shipyards s (GIS) project management capacity and its ability to manage subcontractors, such as engineering vendors responsible for providing design specifications. During the work suspension, GIS developed a corrective action plan that identified eight areas of improvement, such as a subcontract management plan and updated schedules that better align the development of necessary design specifications with construction activities. OSU s management team assessed and monitored GIS s progress on these areas and subsequently lifted the work suspension in May 2019. However, the project continues to face subcontractor management issues. OSU has requested NSF approval for an estimated $6.1 million of budget contingency and 4 months of schedule contingency to compensate for the delays associated with these issues. According to project documentation, this issue may cause the construction completion date of each vessel to slip. Remaining Project Risks and Potential for Cost or Schedule Increases According to project documentation, the project had an estimated risk exposure of $24.6 million and $44.0 million in remaining contingency as of September 2019. With the utilization of 4 months of schedule contingency in 2019, the RCRV project had 6 months of contingency remaining until construction is scheduled to end in 2024. According to project documentation, 12 options for reducing scope were available as of December 2019, with potential savings estimated at $9.8 million. and schedule expertise, which resulted in a decrease in the impact of the risk. In addition, the RCRV project is closely monitoring two risks related to newer technologies and requirements for regional operability of each vessel. First, the project team identified newer technologies for systems such as communications compared to those specified during the design phase. According to project documentation, the project may utilize contingency to integrate such technologies into the vessels. Second, the project may incur additional engineering, labor, and material costs associated with certain potential design changes that NSF and the operating institutions for the three vessels have identified. These design changes are intended to improve quality and performance within the different regions where the three vessels will be operating. The National Science Foundation s (NSF) Antarctic Infrastructure Modernization for Science (AIMS) project will modernize the core infrastructure of McMurdo Station in Antarctica, the largest of three stations operated by NSF s United States Antarctic Program and used by multiple agencies. McMurdo Station serves as a logistics hub for remote field sites and for the Amundsen-Scott South Pole Station. The AIMS project is expected to make environmental and safety upgrades to McMurdo Station and redevelop it into a more compact, energy and operationally efficient core facility to support research. The planned core facility will consolidate critical buildings, such as medical facilities and field science support. <15. Project Information> <16. Estimated construction completion date, including schedule contingency: 2028. Construction award: February and April 2019 modifications to the existing Antarctic support contract with Leidos Innovations Corporation. Responsible NSF directorate: Geosciences. Project partners: Other federal agencies such as the National Aeronautics and Space Administration, National Oceanic and Atmospheric Administration, and the Department of Energy and international programs, such as the Scientific Committee for Antarctic Research. Expected duration of operations: 35 to 50 years.> Construction of NSF s AIMS project was about 6 percent complete as of September 2019. The project was in its first year of construction. In February 2019, the National Science Board approved the project s not-to- exceed cost of $410.4 million, and NSF awarded an initial contract modification for construction equipment and materials to be delivered to California by December 2019, in time for deployment to McMurdo station through two supply vessels. In April 2019, NSF awarded the second contract modification for construction of the first major components of AIMS: the Vehicle Equipment and Operation Center (VEOC) and a new lodging facility structure and exterior shell. According to NSF, the VEOC will facilitate maintenance and repair of both heavy and light equipment ranging from tractors and cranes to trucks, vans, snowmobiles, and field generators. The lodging facility will include space for 285 beds, which the project s final design review panel expected to be adequate to support short- and long-term plans for McMurdo station, including construction needs. As of September 2019, the start of initial operations for the VEOC and lodging facility were planned for 2022 and 2023, respectively, and completion of both facilities was planned for 2022, according to NSF officials. Later phases of the AIMS project will include construction of central services, emergency operations, field science support, and industrial trades facilities. In November 2018, the U.S. Army Corps of Engineers completed an independent cost estimate (ICE) report for the AIMS project. According to NSF officials, the ICE was critical for negotiations with the contractor as NSF utilized data within the ICE, such as labor rates and cost of materials, to verify costs. Specifically, the ICE assisted NSF in determining the reasonableness of the contractor s proposed cost estimate and schedule for the project and associated risks. According to NSF officials, NSF and the contractor resolved all recommendations from the ICE report to NSF s satisfaction prior to setting the not-to-exceed cost. Cost and Schedule Performance History As of September 2019, NSF s AIMS project had no changes to its authorized total project cost, changes to its estimated completion date, or scope reductions since the National Science Board authorized the project s not-to-exceed cost of $410.4 million, which included $67.2 million in budget contingency, in February 2019. Remaining Contingency and Scope Reduction Options As of September 2019 with construction about 6 percent complete. $59.2 million ($7.1 million more than the probability-weighted risk exposure of $52.1 million). 18.4 months (included in the 2028 estimated completion date). By the project s final design review in October 2018, the AIMS team determined that it could not execute the project with the desired scope for the $355.0 million estimate as was previously presented in NSF s fiscal year 2019 budget request because of changing market conditions. In response, NSF convened a review panel, which evaluated scope reduction options such as relocating and reducing bed space in the lodging facility from 285 to 100 beds, which would also entail keeping the current lodging facility in operation instead of demolishing it to make room for a new facility. While it accepted some of these options, such as a reduction of warehouse space within the VEOC, the panel noted that relocation of the lodging facility and a reduction of bed space would have adverse effects on the project. For example, the panel found that constructing a new 100-bed lodging facility in an alternate location would not support the eventual construction of sky bridges. According to the project s Final Design Review report, these sky bridges would improve efficiency by avoiding the need for personnel to put on Antarctic gear before moving between buildings, reduce energy use by reducing the need to open exterior doors, and significantly improve the quality of life for personnel. NSF therefore decided to maintain the 285-bed plan and finalized the total project cost at $410.4 million. and four of 11 procurements for the lodging facility to the 2021 vessel, but NSF officials do not expect significant construction delays as a result. The officials explained that the VEOC procurements are not required for 2020 construction and that the deferral of lodging procurements is expected to be accommodated by re-sequencing activities on site. Remaining Project Risks and Potential for Cost or Schedule Increases As of September 2019, the AIMS project had a risk exposure of $52.1 million and $59.2 million in remaining contingency, and all of the project s 18.4 months of schedule contingency remained available. The project had cumulatively used $7.9 million in budget contingency. Of this, $7.8 million was used during initial award for contract modifications for initial construction, with the remainder used for additional equipment purchases and leases in August and September 2019. As of September 2019, the AIMS project had $14.2 million in high- likelihood risks. The largest remaining risk, with an estimated value of $12.5 million and a 23-day delay, was that subcontractor proposals would exceed planned construction costs. Another such risk was an increase in the estimated base price of key construction materials such as steel, copper wire, concrete, gypsum, and specialty items before the materials were procured. NSF s contractor for the project, Leidos Innovations Corporation, was working with one of its subcontractors to ensure material costs were accurate and consistent with market pricing. In accordance with NSF policy, the project maintains a list of scope reduction options, which as of April 2019 included approximately $34.0 million to $43.1 million in total possible project de-scopes. For example, the largest scope reduction option, with an estimated value of up to $19.1 million, is to remove the new trades shop from the AIMS scope and instead use the current facility. Another option, with an estimated value of up to $4.0 million, is to remove the gymnasium from the emergency operations facility and instead continue to use and maintain the existing gymnasium. Appendix II: Summaries of the National Science Foundation s Plans for Future Major Facilities Projects in Design This appendix provides individual summaries of the two National Science Foundation (NSF) projects that were in design and planned for construction as major facilities projects: (1) the Large Hadron Collider High Luminosity Upgrade and (2) Leadership Class Computing Facility. As of September 2019, no construction funds had been awarded for these projects and all cost, schedule, scope, and design information for these projects was subject to change. Each project s summary is based on project documents and other information that NSF officials provided and includes the following: An overview of the project and its purpose. A timeline identifying key project dates. Project information, such as the expected date for completion of construction; the anticipated type of awards for construction; the responsible NSF directorate; project partners; and expected duration of operations. A summary of the project s current status. A summary of the project s design and construction costs, if available, and the budget account NSF planned to use for construction of the project. Information on potential project risks. The Large Hadron Collider (LHC) is the world s most powerful particle accelerator. The facility s four detectors observe new particles that are produced when high-energy protons are accelerated and collided, providing insight into fundamental forces of nature and the condition of the early universe. Through the National Science Foundation s (NSF) Large Hadron Collider High Luminosity Upgrade (HL-LHC) program, the agency will fund a portion of a larger international effort to upgrade the facility s accelerator and detectors. Specifically, NSF plans to fund the design and implementation of certain parts of the upgrades as two separate projects for the facility s detectors, the A Toroidal LHC Apparatus (ATLAS) and Compact Muon Solenoid (CMS) detectors. The Department of Energy (DOE) is also contributing to upgrades to the LHC s accelerator and to the ATLAS and CMS detectors. <17. Project Information> <18. Location: Geneva, Switzerland.> As of September 2019, NSF s HL-LHC program was approaching its fifth year of design. The program has conducted several required activities to complete the design stage. In September 2019, NSF convened an external panel for the final design review of the program. The panel found that both detector upgrades met the readiness criteria within NSF s Major Facilities Guide to proceed to construction. NSF also convened the internal Facilities Readiness Panel in November 2019 and conducted life cycle cost reviews for each detector upgrade in October 2019, according to NSF officials. Estimated construction completion date, not including schedule contingency: 2026. Construction awards: If approved, planned for 2020 as cooperative agreements with Columbia University (ATLAS detector) and Cornell University (CMS detector). Responsible NSF directorate: Mathematical and Physical Sciences. Project partners: European Organization for Nuclear Research and the Department of Energy. Expected duration of operations: 12 years. According to NSF officials, NSF planned to request National Science Board authorization in February 2020 to make construction awards. As a prerequisite for making the awards in April 2020, NSF received the independent cost estimates for both projects from the Army Corps of Engineers in January 2020. According to NSF documentation, these results align with the current total project cost reviewed during the final design review. According to the Major Facilities Guide, NSF uses independent cost estimates to validate recipient estimates, negotiate awards, check for compliance with GAO best practices and Uniform Guidance cost principles, and inform NSF s cost analysis. According to NSF officials, the estimated completion for both upgrade projects is 2026. According to program documentation, NSF had obligated a total of $24.3 million for the design of its detector upgrades as of September 2019. Funding for the design has come from NSF s Research and Related Activities account, rather than the Major Research Equipment and Facilities Construction account. Planned Contingency and Scope Reduction Options As of November 2019, with finalization of the NSF cost analysis still pending. Budget contingency: $38.9 million as follows $20.0 million for the ATLAS detector. $18.9 million for the CMS detector. Schedule contingency: To be determined. Estimated value of scope reduction options: $15.1 million as follows $8.4 million for the ATLAS detector. $6.7 million for the CMS detector. until authorization by the National Science Board. These figures remained subject to change before completion of the final design phase. According to NSF documentation, the total project cost may increase slightly based on a detailed evaluation of both projects contingency budgets following the final design review. NSF plans to fund the upgrades with separate cooperative agreements for each detector and to monitor each agreement in accordance with its distinct terms and conditions, total project cost, and earned value management metrics, according to agency officials. In August 2019, NSF initiated independent cost estimates of both projects (ATLAS and CMS) under the HL-LHC program, as required by the American Innovation and Competitive Act for projects in the design phase. The U.S. Army Corps of Engineers is conducting the estimates under an interagency agreement with NSF, with contractor support. In addition, NSF is conducting a cost analysis that will be informed by the final design review panels, internal assessments by the NSF s Large Facilities Office and other business units, and the independent cost estimates. DOE s Contributions to Upgrading the Large Hadron Collider DOE s High Energy Physics program helped fund the construction of the Large Hadron Collider and continues to support researchers using the facility as well as upgrades to it. According to DOE s fiscal year 2020 budget request, the department planned to support the upgrades to the ATLAS and CMS detectors at an estimated cost range of $149 million to $181 million for the ATLAS detector and $125 million to $155 million for the CMS detector. The scope of DOE s work on the detectors was to focus on areas where the expertise and infrastructure of the department s national labs were needed, whereas the scope of NSF s work was to focus on areas led by university researchers. In addition, DOE approved upgrades to the accelerator itself with a total project cost of $242.7 million, according to DOE s fiscal year 2020 budget request. NSF plans to fund the construction of the detector upgrades through its Major Research Equipment and Facilities Construction account. While the upgrades would involve separate cooperative agreements for each detector, NSF considers them one program consisting of two distinct projects, according to agency officials. Project Risks and Potential Scope Reduction Options Under NSF policy, a project s cost should include enough budget contingency to cover all foreseeable risks. Following the preliminary design review, the amount of budget contingency included in the construction cost for the upgrades was approximately $38.9 million, or 26 percent of the planned total project cost. At the time of this report, the NSF cost analysis following the final design review was still pending and therefore the estimated amount of contingency is subject to change. NSF policy also directs a project s design to include prioritized, time- phased options for reducing its scope during construction if needed. As of the final design review, the project teams had identified a total of $15.1 million of potential scope reduction options for the projects, which are subject to change throughout the design and construction of a project. According to the projects scope management plans we reviewed, the ATLAS detector has nine options to reduce scope totaling $8.4 million, with the options ranging in value from $0.6 million to $1.7 million. The CMS detector has 17 scope reduction options with a total value of $6.7 million. According to the project s scope management plan, both NSF officials and external panels reviewed and provided input to determine the current scope reduction options. The National Science Foundation s (NSF) Leadership-Class Computing Facility (LCCF) project is intended to provide advanced computational capabilities to enable transformative research in all areas of science and engineering that would not be possible by theory or experiment alone. According to NSF officials, future research using LCCF might include extremely detailed simulations ranging from biological molecules to supernovae and analyses of very large data streams such as satellite images to create high-resolution Earth maps. <19. Project Information> <20. Location: Texas Advanced Computing Center, University of Texas at Austin> Project Status As of September 2019, the LCCF project was in its first year of design; consequently, all cost, schedule, scope, and design information for the project was subject to change. In March 2019, the NSF Director approved the project to enter the design stage as a candidate major facilities project. The project represents the final phase of a two-phase deployment of high-performance computing systems. The first phase known as the Frontera project at the Texas Advanced Computing Center at the University of Texas at Austin was completed in September 2019. According to NSF, at that time, Frontera was the largest high- performance computing system deployed on a U.S. academic campus. The LCCF project will support the design and construction of an upgrade to the Frontera system as well as to the physical facility that will host it. In project documentation, NSF has described the upgrade as providing a substantial improvement in application performance but has not specified the extent of improvement. Estimated construction completion date, not including schedule contingency: Fiscal Year 2025. Construction award: Planned for 2024. Responsible NSF directorate: Directorate for Computer & Information Science & Engineering. Project partners: None. Expected duration of operations: 10 years. In July 2019, NSF awarded both an overarching cooperative agreement for the LCCF project and a cooperative support agreement for the conceptual design phase to the University of Texas at Austin. As of November 2019, the project was focused on leading and participating in activities with experts within the community for high-performance computing. The purpose of these activities was to document the science, technology, and facilities requirements for LCCF, as well as to shape the design and cost of long-lead items, such as the power and cooling infrastructure to service the facility. NSF plans to conduct the conceptual design review in June 2020. NSF s Support for High- Performance Computing Systems NSF has supported high-performance computing capabilities for nearly 4 decades. In 2007, NSF awarded $226.6 million for the Blue Waters high- performance computing system through a cooperative agreement with the University of Illinois at Urbana- Champaign. According to NSF, at the time of its deployment in 2013, Blue Waters was one of the most powerful supercomputers in the world and was one of the fastest on a university campus. Scientists and engineers across the country used the computing and data power of Blue Waters to tackle a wide range of problems, including predicting the behavior of complex biological systems and simulating the evolution of the cosmos. Because of the rapid evolution of computer technology, by 2019, NSF no longer considered Blue Waters to be the leadership computing system for fundamental science and engineering research. Anticipating these technological advances, in September 2018, NSF awarded about $63.0 million to the University of Texas at Austin for the follow-on project to Blue Waters. Frontera was intended to provide three to five times the computing capability and twice the storage capacity to support the increased computational requirements for science and engineering research. NSF also anticipated that Frontera would help inform science requirements and reduce risks for LCCF, which is planned to provide substantially more computational capabilities than both Blue Waters and Frontera. obligated $2 million from its Research and Related Activities account for the design of LCCF. According to the project s cooperative agreement, NSF may provide additional funding to advance the design of LCCF $3.5 million in fiscal year 2020 and $2.5 million in fiscal year 2022 following successful completion of the conceptual and preliminary design reviews, respectively, subject to availability of appropriations. As of September 2019, NSF had not yet formally identified risks for the LCCF project because the project was early in the design stage. NSF requires recipients to develop and follow formalized risk management during the design and construction stages of major facility projects to identify potential risks, assess the nature of those risks, and identify actions that can be taken to either reduce the probability of those risks occurring or reduce their impact to the project. NSF officials told us that an assessment of risks associated with the LCCF project will be part of the conceptual design review, planned for June 2020. According to NSF officials, one anticipated challenge for the LCCF project is the rapid pace of technological change in the field of high-performance computing. The officials stated that forecasting the technology marketplace in the future can be challenging as technology can change radically because of external market forces. Conversely, the rapid pace of change can also be an opportunity if the LCCF project can incorporate the latest technological advances that result in the most advanced computing capabilities. According to NSF officials, taking advantage of such opportunities as late in the design stage as possible will be important for the success of the project. Appendix III: Comments from the National Science Foundation Office of the Director Appendix IV: GAO Contact and Staff Acknowledgments <21. GAO contact Staff Acknowledgements> John Neumann, (202) 512-6888 or [email protected] In addition to the contact named above, Joseph Cook (Assistant Director), Sean Manzano (Analyst in Charge), Louise Fickel, Yvette Gutierrez, Patrick Harner, Douglas G. Hunker, Jason T. Lee, Serena Lo, and Anika McMillon made key contributions to this report.

Why GAO Did This Study NSF supports the design, construction, and operations of major facilities projects–science and engineering research infrastructure such as telescopes and research vessels that typically have construction costs of at least $70 million and may take many years to design and construct. The agency oversees the performance of each project against an authorized total project cost and schedule. NSF currently has four projects under construction at a combined authorized cost of $1.6 billion and two additional projects in design. Prior GAO reports reviewed NSF's cost estimating and schedule policies, as well as project management expertise of its oversight workforce. Senate Report 114-239 and House Report 114-605 included provisions for GAO to review NSF's major facilities projects. Among other objectives, this report (1) describes the cost and schedule performance of NSF's ongoing major facilities projects and (2) assesses the extent to which NSF addressed prior GAO recommendations related to its management of major facilities. GAO analyzed NSF policies and documents for projects in design and construction, interviewed agency officials, and compared NSF's processes to best practices identified in prior GAO work. What GAO Found Since GAO's March 2019 report on the status of its major facilities projects, the National Science Foundation (NSF) had no increases to the authorized total project costs or schedules for its four projects under construction (see figure): The Daniel K. Inouye Solar Telescope was on track to be completed within its $344.1 million cost and June 2020 completion date. NSF was evaluating options for reducing the scope of the Vera C. Rubin Observatory (previously the Large Synoptic Survey Telescope), which it believed might be necessary to keep the project within its $473 million cost and October 2022 completion date. Construction of a second Regional Class Research Vessel began in September 2019 and was anticipated to begin on a third and final vessel in March 2020 at a combined cost of $365 million. The Antarctic Infrastructure Modernization for Science entered the construction phase in February 2019 at a cost of $410.4 million. NSF fully implemented two of the six prior GAO recommendations including revising policies for estimating the costs of major facilities projects and revising the Vera C. Rubin Observatory's schedule to better meet best practices. NSF took steps to address but has not fully implemented the remaining four recommendations on the agency's oversight of major facilities. What GAO Recommends NSF agreed with and has taken initial steps to address four open recommendations from GAO's prior work, including to revise policies for developing schedules and to ensure the sharing of lessons learned for major facilities projects. NSF needs to complete additional steps to fully address the recommendations.

gao_GAO-19-293

gao_GAO-19-293_0

<1. Background> <1.1. USPS s Financial Position and Strategic Goals> USPS s mission is to provide universal postal service while operating as a self-financing entity, but USPS s current financial position is not sustainable. To achieve its mission, USPS must cover its expenses through revenues generated from the sale of its products and services. However, USPS s total operating expenses have exceeded total operating revenue each year since fiscal year 2007, including a $2.6 billion loss from operations in fiscal year 2017 alone (see fig. 1). Moreover, we have reported that USPS s overall financial condition is deteriorating. For example, in August 2018 we reported that USPS had about $149 billion in unfunded liabilities and debt at the end of fiscal year 2017. As a result, USPS s financial condition remains on our list of high- risk areas needing attention by Congress and the executive branch. According to USPS financial documents, its ability to sell innovative products and services will be a key factor in improving its financial condition. Thus, USPS established a strategic goal to innovate faster to deliver value to its customers, by making investments in innovations that respond to rapidly evolving customer needs. A key element of this effort is to accelerate testing of innovative products and services to better serve these needs, according to USPS. While USPS is allowed to develop certain new postal products and services, there are statutory restrictions that currently limit the range of innovations USPS can offer. For example, under current statute, USPS is not permitted to ship alcoholic beverages. Similarly, although USPS is explicitly authorized to provide services to federal executive agencies (e.g., passport services), such authorization does not include services to state, local, and tribal governments. Legislation has been introduced in previous sessions of Congress that would permit USPS to deliver alcoholic beverages and allow USPS to provide property and services to state, local, and tribal governments under certain conditions. According to USPS officials, USPS supports these legislative proposals, which could enhance its ability to offer innovative products and services. <1.2. USPS Postal Innovation Pilot Policies and Responsibilities> According to USPS officials, two USPS handbooks include policies applicable to piloting key innovations. Specifically, the first handbook includes requirements, procedures, and responsibilities for all types of investment programs and projects undertaken by USPS, regardless of size, cost, or complexity. This handbook, for example, requires the identification and documentation of lessons learned for all investments and projects. The second handbook includes requirements and procedures specifically for major operating expense investments. This handbook, among other things, establishes requirements and procedures meant to ensure that new and enhanced products and services consistently meet customer needs, generate new revenue, and strengthen USPS as a business. This handbook further states that USPS has a responsibility to subject new initiatives to rigorous financial analysis, testing, and measurement, to determine whether these initiatives will make a positive financial contribution to the organization and ensure that USPS s leadership has appropriate information for effective decision- making. USPS s Office of Product Innovation generally has lead responsibility for piloting innovations. According to USPS s policies, a project manager is responsible for establishing and coordinating a cross-functional team to design and evaluate the pilot. This team typically includes officials from a variety of USPS departments, such as finance, general counsel, information technology, marketing, and operations. The project manager, with support from the cross-functional team, is responsible for preparing a proposal for the pilot that includes key information, such as the pilot s objectives and performance measures, and overseeing pilot implementation and communication with key stakeholders. In some cases, PRC has a role in overseeing postal innovation pilots. For example, USPS must notify PRC before it pilots any postal product innovation for which it will impose a price (i.e., a pilot that generates revenue for USPS) and must subsequently report quarterly revenue, volume, and cost data. PRC also ensures that certain safeguards are maintained during the pilot, such as limitations on the pilot s duration and revenue. However, according to PRC officials, the commission has limited involvement in other areas of USPS s efforts to develop innovations. <2. USPS Piloted Key Innovations Are Intended Primarily to Generate Revenue or Improve Customers Experience> USPS piloted 24 key innovations from fiscal years 2013 through 2017. For example, USPS piloted an Identity Verification Service that allows users to verify their identity either remotely (i.e., online) or in person at a postal facility. Similarly, USPS piloted an innovation to allow mailers to print shipping labels, track packages, and schedule package pick-ups by accessing USPS data. The primary goal of the majority of these key innovations (16 of 24) was to generate revenue, while the primary goal for the remaining innovations was generally to improve customers experience using USPS products or services (see fig. 2). Appendix I includes a complete list of key innovations USPS piloted from fiscal years 2013 through 2017. The following discussion provides additional information about the 4 key innovations we selected as illustrative examples of USPS s efforts to pilot innovative products and services. Same-Day Delivery: From December 2012 to December 2015, USPS piloted same-day delivery for consumer e-commerce purchases (see fig. 3). According to the pilot proposal, this innovation was intended to generate revenue for USPS by allowing it to leverage its existing delivery infrastructure to capture part of the growing e-commerce market. To determine the potential scalability of same-day delivery, USPS first tested its operational feasibility and potential demand in several major metropolitan areas, including San Francisco, New York, and Phoenix. During the pilot, USPS delivered photos, chocolates, water, electronics, and other goods from 38 participating mailers to consumers in these areas. At the pilot s conclusion, USPS decided to continue offering same-day delivery to interested participating mailers under Priority Mail contracts. Grocery Delivery: From November 2014 to October 2017, USPS piloted a grocery delivery product in nine selected metropolitan areas. According to USPS, the innovation was intended to generate additional revenue by taking advantage of the growing market for grocery delivery. To test the innovation s operational feasibility, USPS required the pilot s sole participating mailer to bring totes containing groceries and other prepackaged goods ordered by customers directly to post offices (see fig. 4). USPS was then responsible for sorting the totes and delivering them to customers. According to its proposal for this pilot, USPS expected grocery delivery to provide a substantial revenue generation opportunity. At the pilot s conclusion, like same- day delivery, USPS decided to continue offering grocery delivery with the participating mailer under a Parcel Select contract. Informed Delivery: From spring 2014 through July 2016, USPS piloted a notification service called Informed Delivery in Northern Virginia and New York. According to USPS, this innovation is intended to bridge the gap between the physical and digital worlds by, for example, emailing customers with a scanned image of the exterior address side of letter-sized mail they should receive later that day (see fig. 5). Informed Delivery can also allow mailers to conduct marketing campaigns by integrating other elements such as hyperlinks to mailers websites into the email and other notifications that customers receive. In its proposal to pilot Informed Delivery, USPS stated the pilot was intended to help USPS understand the service s business opportunity and increase the certainty of its potential benefits, which included retaining mail volume and generating new revenue from large advertisers. In addition, the pilot aimed to generate statistically valid data on how subscribers respond to marketing campaigns that mailers conduct. According to USPS, more than 70,000 customers were actively using the service at the pilot s conclusion. In July 2016, USPS decided to end the pilot and launch the service nationally. According to USPS, about 13 million customers were subscribed to the service as of October 2018. USPS aims to have 40 million customers subscribed to the service by 2020. Keyless Parcel Lockers: Since October 2013, USPS has piloted keyless parcel lockers that allow customers to independently pick up packages in 98 selected post offices. According to USPS, among other things, this innovation is intended to reduce the number of missed package deliveries to customers post office boxes and thereby reduce USPS s delivery costs (see fig. 6). The purpose of the pilot is to assess the performance and use of the lockers and to assess their performance. In October 2013, USPS began pre-testing the technical performance of 10 prototype keyless parcel locker units at post offices in New York City and Northern Virginia. Following this pre-test, in February 2015, USPS approved the installation of 50 made-to-order locker units in selected post offices across the country. Finally, in May 2016 USPS expanded the pilot to include an additional 50 units, including 2 units that a senior USPS official told us were not yet installed. As of November 2018, the pilot is still ongoing. <3. USPS s Policies for Piloting Key Innovations Reflect Some but Not All Leading Practices for Pilot Design and Evaluation> USPS s policies applicable to piloting key innovations fully reflect two of the five leading practices for pilot design and evaluation that we identified in prior GAO work and relevant standards for internal control (see table 1). These policies do not, however, fully reflect the other three leading practices due to policy gaps. Further, we found that USPS had not consistently followed its policies to document lessons learned at the conclusion of each pilot, as discussed below. Senior USPS officials acknowledged that gaps exist in its policies for pilot design and evaluation because they were not developed by USPS to fully reflect all leading practices. These policy gaps limit the extent to which USPS can ensure that it is making good resource allocation decisions based on pilot experiences. Below we further discuss the extent to which USPS s policies reflect the five leading pilot practices we identified as well as how USPS applied these leading practices among the four piloted innovations that we reviewed. Establish appropriate and measurable objectives linked with identified performance measures: We found USPS s policies do not fully reflect this leading practice. While USPS policies require that project managers establish pilot objectives and performance measures, they do not require that each objective be linked with identified performance measures. As a result, some pilots may have objectives without an associated performance measure. For example, although USPS established both objectives and performance measures for each of the four innovations we selected for review, it did not consistently link each established objective to performance measures. USPS s proposal to pilot same-day delivery, for example, had objectives of generating new revenue and improving customers experience. However, while the proposal included performance measures associated with generating new revenue i.e., package volume, gross revenue, and net revenue it did not identify and link any performance measures with its objective of improving customer experience. Similarly, USPS s proposal to pilot keyless parcel lockers included improving customers experience as one of its objectives. However, while the proposal included a variety of performance measures reduction in the number of missed deliveries to post office boxes, locker rate utilization, and on-time locker installation it did not identify and link any performance measures with its improving customers experience objective. Absent such measures, USPS may not know whether customers have experienced an improvement using keyless parcel lockers compared to using manual, keyed parcel lockers. Linking all objectives to performance measures could help ensure that USPS has the performance information to assess the extent to which a pilot has achieved all of its objectives. USPS officials told us that it can be difficult to measure performance for some objectives related to customer experience. While measuring customers experience can be challenging, it is important to understand the extent to which a pilot has achieved all of its objectives. Further, USPS has demonstrated that it can measure improvement in customers experience. For example, during its Informed Delivery pilot, USPS conducted a consumer survey with approximately 5,500 Informed Delivery subscribers to collect data on consumer adoption and satisfaction. In the survey, USPS found that over 80 percent were satisfied or very satisfied with the service. According to USPS officials, this data helped USPS to measure the pilot s success in meeting its objective of improving customers experience. Articulate a methodology for evaluating pilot performance: We found that USPS s policies fully reflect this leading practice because the policies require officials to develop and communicate a methodology for evaluating pilot performance. Articulating such a methodology helps managers to identify the types and sources of performance information necessary to evaluate the pilot. USPS s policies require project managers to work with the pilot s cross-functional team to develop and reach consensus on the methodology. These policies also require the project manager and cross-functional team to identify data needs, data sources, and how the data will be evaluated. For the four innovations we reviewed, we found that USPS articulated a methodology for evaluating the pilot s performance. For example, for the Informed Delivery pilot, USPS identified its customer registration system as the method for tracking progress toward performance measures related to the number of Informed Delivery subscribers. Similarly, in its proposal to pilot keyless parcel lockers, USPS identified its central parcel locker monitoring system as a method of tracking progress toward performance measures related to utilization of keyless parcel lockers. Evaluate pilot performance and identify and document lessons learned: We found that USPS s policies fully reflect this leading practice, but USPS did not consistently follow its policy that requires documenting lessons learned. Specifically, the policies require project managers to evaluate performance and document lessons learned at the conclusion of each pilot. Doing so can enable USPS to identify information needed to make conclusions about the pilot s scalability and ensures that such information will be accessible to inform future related efforts. However, among the key innovations we selected for review USPS had not consistently documented lessons learned (see table 2). USPS officials told us that they discussed lessons learned during ongoing monitoring of pilot performance for these innovations, but had only documented lessons learned for its Informed Delivery pilot. Specifically, USPS identified lessons learned in its July 2016 proposal to launch its Informed Delivery service nationally. In this proposal, we found that USPS identified some lessons learned about the pilot related to user satisfaction and adoption rates. USPS officials told us that this information helped to inform USPS s decision to launch the service nationally. However, USPS officials acknowledged that USPS did not document lessons learned for the other two concluded pilots that we selected for review (same-day delivery and grocery delivery). Senior USPS officials told us that USPS had not consistently documented lessons learned at the conclusion of pilots across the 24 key innovations because it had not developed tools, such as a template, or training that could help ensure such consistency. Without consistently documenting lessons learned for all of its pilots, USPS risks losing information garnered during pilot implementation that could be relevant to future innovation efforts. Doing so can be particularly important because, according to a senior USPS official, officials responsible for pilot projects sometimes retire or leave USPS for employment elsewhere, creating a gap in knowledge of pilot experiences. Standards for internal control underscore the importance of maintaining documentation in order to retain organizational knowledge and mitigate the risk of having knowledge limited to a few personnel. Draw and document conclusions about scalability based on pilot results: USPS s policies do not fully reflect this leading practice. These policies require that project managers draw conclusions based on the results and lessons learned from the pilot. According to USPS officials, conclusions may include determining scalability i.e., whether, how, and when to integrate pilot activities into overall efforts. However, USPS s policies do not specifically require that officials document these conclusions. Documenting conclusions about scalability based on pilot results helps to ensure retention of organizational knowledge related to the pilot that may inform future decisions. Among the three innovations that we selected for review for which the pilots had concluded (i.e., same-day delivery, grocery delivery, and Informed Delivery), USPS officials told us that senior leadership discussed the results and lessons of the pilots and made determinations regarding whether, how, and when to launch them more broadly, but that they did not document these decisions or the rationale for them. By not documenting conclusions, USPS risks losing information that could affect the success of future related efforts and that could inform future USPS leadership of the rationale for maintaining investments in activities upon which pilots were based. Documenting conclusions for innovation pilots can be especially important in cases in which USPS decides to continue or expand pilot activities even when the pilots do not meet all of their intended objectives. For example, USPS s same-day delivery and grocery delivery pilots had revenue objectives, along with associated performance measures; however, neither pilot achieved these objectives. For the same-day delivery pilot, costs exceeded revenue in 12 of the 13 fiscal year quarters in which the pilot was conducted, according to data USPS reported to PRC. Likewise, USPS data indicate it did not reach its annual revenue target for its grocery delivery pilot. Similarly, USPS s pilot of Informed Delivery was intended to generate statistically valid data on how consumers respond to mailer marketing campaigns. However, according to a senior USPS official, the pilot did not generate the data as intended, because no such campaigns were conducted during the pilot. As discussed earlier in this report, USPS did not discontinue any of these three selected innovations when their pilots concluded. Although USPS may have had good reasons to continue with, or more broadly launch, these innovations despite the pilots not meeting all of their objectives, the lack of documentation regarding its reasoning and decisions limits information relevant to whether USPS is making judicious use of limited resources. Ensure appropriate two-way communication at all stages of the pilot with key internal and external stakeholders in order to understand and address their views: USPS s policies do not fully reflect this leading practice. USPS s policies require the involvement of key internal stakeholders in pilots. Specifically, USPS s policies require the involvement of cross- functional teams which include legal, finance, and other departments and varying levels of review during the design and implementation of pilot proposals. However, USPS s policies do not address communication with key external stakeholders. According to USPS officials, some pilot projects may be confidential or have limited or no direct effect on external stakeholders and, thus, communication with external stakeholders may not be appropriate. While external stakeholder communication may not be appropriate with some pilots, such communication, as appropriate, can help to ensure that issues critical to the success of a pilot activity are identified and addressed. Among the innovations that we selected for review, USPS officials explained various steps taken to involve internal stakeholders in the design and evaluation of the pilots, such as the involvement of cross functional teams to develop pilot proposals. Further, while USPS s policies do not address external stakeholder communication, we found that USPS employed strategies for some of the innovations we selected for review to communicate with some external stakeholders i.e., industry associations and mailers. For example, a representative of a postal association told us that USPS shared information and sought input about its Informed Delivery pilot during a quarterly meeting with industry groups. Similarly, a mailer we interviewed told us that USPS had shared information and sought input on the Informed Delivery pilot through direct outreach with the mailer. However, USPS did not consistently employ strategies to communicate with some key external stakeholders among the innovations that we selected for review. Specifically, USPS did not design or implement strategies to obtain feedback from consumers on its pilots for same-day delivery, grocery delivery, or keyless parcel lockers, despite the fact that each of these innovations directly affected consumers. In contrast, as previously discussed, for its Informed Delivery pilot, USPS planned and conducted a survey to obtain consumer feedback, the results of which helped USPS project managers support the proposal to expand the service nationally. Absent communication with all key stakeholders, USPS risks not having a complete understanding of perspectives that could inform the viability of its innovations. <4. Conclusions> In recent years, USPS has sought to compete in a challenging business environment by piloting innovations intended primarily to generate revenue and enhance customers experience. The policies that USPS uses for piloting key innovations fully reflect some leading practices for pilot design and evaluation, such as articulating a methodology for evaluating pilot performance. However, addressing gaps between USPS s policies and leading practices related to linking objectives and performance measures, documenting conclusions, and communicating with key external stakeholders would enable USPS leadership to better assess the outcomes of its pilots, understand the rationale for conclusions about scalability based on pilot results, and gauge customers reactions to innovative products and services. Moreover, developing tools or training to ensure that USPS consistently implements its policy of documenting lessons learned from pilots would provide USPS with key information to inform future related efforts. <5. Recommendations for Executive Action> We are making the following two recommendations to USPS: The Postmaster General should direct the Vice President of Product Innovation to develop policies that fully reflect leading practices for pilot design and evaluation in areas such as linking objectives and performance measures; documenting conclusions about scalability based on pilot results; and communicating with key external stakeholders, as appropriate. (Recommendation 1) The Postmaster General should direct the Vice President of Product Innovation to develop tools, such as a template, or training to help ensure USPS consistently documents lessons learned at the conclusion of pilots, as required by USPS policies. (Recommendation 2) <6. Agency Comments and Our Evaluation> We provided a draft of this product to USPS and PRC for comment. USPS provided a written response, which is reproduced in appendix II of this report. In its response, USPS did not state whether it agreed with our recommendations, but described actions that it plans to take related to each. These actions, if fully implemented, would meet the intent of our recommendations. For example, USPS stated that it would develop policies specifically for pilot design, and would reflect leading practices for pilot design and evaluation based upon best practice research. USPS also noted that it would develop training to ensure consistent documentation of lessons learned from its pilots. USPS added that this planned training would cover best practices for pilot tests. Regarding our first recommendation USPS said that pilots are only one step in a larger process for developing innovations. We agree with this and noted in our report that piloting is one key element of USPS s efforts to innovate. Nonetheless, given USPS s financial position, effectively piloting innovations is a critical step to ensure that USPS invests its limited resources on innovations that are most likely to improve its long- term viability. USPS also stated that flexibility is important in innovation pilots, particularly as it pertains to linking pilot objectives with performance measures. We continue to believe that linking objectives with performance measures is key to effectively evaluating pilots. In so doing, however, there is flexibility to adjust pilot objectives and performance measures as new information is gleaned during the pilot. Finally, with regard to communication with external stakeholders during pilots, USPS said that it communicates consistently with external stakeholders regarding pilots at Mailers Technical Advisory Committee meetings (MTAC). In our report, we noted that USPS employed strategies to communicate with some external stakeholders i.e., industry associations and mailers. We continue to believe, however, in the importance of communication with all key external stakeholders, which may include stakeholders, such as consumers, that do not participate in MTAC meetings. USPS and PRC also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committee, the Postmaster General, Chairman of PRC, 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) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: List of U.S. Postal Service Key Piloted Innovations, Fiscal Years 2013-2017 The U.S. Postal Service (USPS) piloted 24 key innovations from fiscal years 2013 through 2017 (see table 3). Appendix II: Comments from the U.S. Postal Service Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the individual named above, Derrick Collins (Assistant Director); William Colwell and James Leonard (analysts in charge); Barbara El Osta; Geoffrey Hamilton; Gina Hoover; Anthony Jackson; and Laurel Voloder made key contributions to this report.

Why GAO Did This Study USPS faces a challenging business environment that has led to reduced demand for its traditional services and significant financial losses. USPS aims to address this challenge by offering innovative products and services. The success of these efforts will depend, in part, on how effectively USPS tests each innovation's performance on a small scale to determine whether, how, and when to launch an innovation more broadly—a practice known as “piloting.” GAO was asked to review USPS's efforts to develop postal innovations. This report (1) describes key innovations that USPS recently piloted and (2) examines the extent to which USPS's policies reflect leading practices for pilot design and evaluation. GAO analyzed information on USPS pilots from fiscal years 2013 through 2017; compared USPS policies for piloting innovations to leading practices for pilot design and evaluation in prior GAO work and relevant standards for internal control; and selected four key innovations based on various characteristics (e.g., innovation type) to serve as illustrative examples of USPS's piloting efforts. What GAO Found From fiscal years 2013 through 2017, the U.S. Postal Service (USPS) piloted 24 key innovations intended primarily to generate revenue or improve customers' experience. The following four selected innovations illustrate these efforts: Same-Day Delivery: USPS delivered goods consumers bought online or in stores. The pilot sought to test the product's feasibility and revenue potential. Grocery Delivery: USPS delivered groceries to consumers in metropolitan areas. The pilot sought to test the product's feasibility and revenue potential. Informed Delivery: USPS emailed customers an advance image of the mail they would receive. The pilot sought to test the service's potential benefits, such as generating new revenue from advertisers that may use the service. Keyless Parcel Lockers: USPS is testing lockers where customers can independently pick up packages at post offices. The pilot seeks to test the service's operation and potential benefits for USPS and customers. USPS's policies for piloting innovations do not fully reflect the five leading practices for pilot design and evaluation identified in GAO's prior work. The policies fully reflect two of the leading practices because they require articulating a methodology for evaluating pilot performance and documenting lessons learned. The policies do not fully reflect the other three practices because they do not require: (1) linking pilot objectives to identified performance measures; (2) documenting conclusions based on pilot results; or (3) communicating with key external stakeholders, as appropriate. These policy gaps limit the extent to which USPS can ensure that it is making good resource allocation decisions based on pilot experiences. For example, GAO found that USPS did not document its conclusions based on the results of its pilots of same-day delivery, grocery delivery, and Informed Delivery. Documenting conclusions can be especially important when USPS continues to offer the product or service after the pilot has concluded, even though the pilot did not achieve all of its objectives, as was the case with these three innovations. Further, while USPS's policies require documenting lessons learned from its pilots, USPS did not do so for some pilots GAO reviewed. Senior USPS officials said that USPS did not consistently follow this policy because it had not developed tools or training that could help ensure such consistency. As a result, USPS risks losing information that could be relevant to future innovation efforts. What GAO Recommends GAO recommends that USPS (1) develop policies that fully reflect leading practices for pilot design and evaluation and (2) develop tools or training to ensure consistent documentation of lessons learned from pilots. USPS neither agreed nor disagreed with the recommendations but described actions it plans to take related to each.

gao_GAO-20-318

gao_GAO-20-318_0

<1. Background> <1.1. TRICARE s Health Plan Options> Prior to January 1, 2018, TRICARE provided benefits through three main plan options for its non-Medicare-eligible beneficiary population TRICARE Prime, Standard, and Extra. These options varied by enrollment requirements, choices in civilian and military treatment facility providers, and the amount beneficiaries must contribute toward the cost of their care. (See table 1.) The NDAA for Fiscal Year 2017 terminated the TRICARE Standard and Extra plans beginning on January 1, 2018, and introduced TRICARE Select. Beneficiaries who had used the TRICARE Standard and Extra plans as of December 31, 2017 were automatically enrolled in TRICARE Select for the first year of the new plan, but as of January 1, 2019, beneficiaries were required to actively enroll in TRICARE Select. <1.2. TRICARE s Regional Structure and Contracts> DOD uses two regional managed care support contractors to develop networks of civilian providers to serve all TRICARE beneficiaries. Within the regions, contractors are required to develop these networks of providers in areas called Prime Service Areas (PSA), which are geographic areas usually within an approximate 40-mile radius of a military inpatient treatment facility, as well as in areas outside of PSA locations, or non-PSAs. To develop the networks, the contractors enter into contracts with some providers referred to as network providers to treat TRICARE patients at an agreed upon reimbursement rate. Beneficiaries can also receive care from certified nonnetwork providers. However, beneficiaries visiting a nonnetwork provider may have to pay for the care at the time of the visit and later file a claim for reimbursement, whereas beneficiaries visiting a network provider are only responsible for paying a copayment or cost-sharing amount. The NDAA for Fiscal Year 2017 also mandated that DOD ensure at least 85 percent of the TRICARE Select beneficiary population be covered by the TRICARE network of providers by January 1, 2018, and that DOD determine access standards and ensure the program meets or exceeds access standards of high-performing health care systems in the United States for health care appointments. DOD has contracted both of these efforts to the two contractors. <2. Surveys Indicate Beneficiary Ratings of TRICARE Were Generally Unchanged in the First Year of Select, but Ratings of Primary Care Providers Decreased> Non-Prime beneficiaries ratings of TRICARE were generally unchanged during the first year following the transition from TRICARE Standard and Extra to TRICARE Select. Specifically, there was no statistically significant change from the 2017/2018 surveys to the 2019 survey in the percent of beneficiaries who positively rated their health care and their health plans defined as giving responses of 8 or higher (out of 10) on each survey question. In the 2019 survey, 80 percent of beneficiaries rated their health care positively, and 67 percent rated the TRICARE health plan positively. (See fig. 1.) Non-Prime TRICARE beneficiaries also rated three different types of providers and of the three, ratings of primary care providers decreased from the 2017/2018 to 2019 surveys. The percent of beneficiaries who positively rated their primary care providers decreased from 85 to 80 percent in the 2019 survey. We found no statistically significant differences from the 2017/2018 surveys to the 2019 survey in beneficiaries positive ratings of specialty care and mental health care providers, with 83 and 73 percent of beneficiaries reporting positive ratings of their specialty care and mental health care providers, respectively in 2019. (See fig. 2.) <3. Beneficiary Surveys Indicate More Problems Finding Providers in First Year of TRICARE Select, but No Change in Ability to Get Appointments> <3.1. Beneficiaries Were More Likely to Report Problems Finding Providers in the First Year of Select> In the first year of TRICARE Select, a higher percentage of non-Prime beneficiaries reported experiencing problems finding civilian health care providers who accepted TRICARE than before the transition, particularly for specialty care. We found there was a statistically significant increase in the percentage of beneficiaries who reported problems finding a provider that would accept TRICARE from 27 to 32 percent from the 2017/2018 surveys to the 2019 survey. In particular, there was a statistically significant increase in the percentage of beneficiaries who reported problems finding a specialty care provider in the 2019 survey (24 percent) compared to the 2017/2018 surveys (18 percent). The percent of beneficiaries who reported problems accessing primary care or mental health care remained statistically unchanged with 26 and 31 percent reporting problems, respectively, in the 2019 survey. (See fig. 3.) We also found that a higher percentage of beneficiaries located in PSAs reported experiencing problems finding providers, whereas there was no change for beneficiaries located in non-PSA areas. Specifically, from the 2017/2018 surveys to the 2019 survey, there was a statistically significant increase in the percentage of beneficiaries located in PSAs who reported problems finding any type of civilian provider (27 to 34 percent), primary care providers (21 to 29 percent), and specialty care providers (18 to 25 percent). There was no statistically significant change among beneficiaries in PSAs reporting problems finding mental health care providers or among beneficiaries in non-PSAs for any provider types. (See fig. 4.) To help beneficiaries find providers that accept TRICARE patients, managed care support contractors develop networks of providers in PSAs and some non-PSA locations. Each month, these contractors report to DOD the percent of Select beneficiaries who were covered by the TRICARE network of providers, according to contractor-developed measures of adequate access to care. Although nearly one-third of beneficiaries reported experiencing problems finding a civilian provider, DOD officials told us that nearly 100 percent of beneficiaries in the East have had adequate access to a network provider since January 1, 2018, exceeding the 85 percent requirement. For the West, DOD officials said the contractor reported that more than 85 percent of beneficiaries had adequate access to a network provider as of August 2018. According to DOD officials, the two contractors used different methods to ensure adequate access to a network provider: In the East region, the contractor decided to develop networks of civilian providers in the entire region. In the West region, the spread-out geography of the region made it difficult to develop networks of civilian providers throughout the entire region. Therefore, the contractor used mapping software to determine areas within non-PSAs which had large populations of TRICARE Select beneficiaries. As a result, the contractor identified 12 areas in the West region which it called Select Areas to develop additional networks of civilian providers in order to meet the requirement. Contractors also provide resources to beneficiaries to help them identify providers that accept TRICARE patients. Contractors maintain lists of network and other TRICARE-certified providers that accept TRICARE patients, and monitor and report on the accuracy of these lists to DOD monthly. However, contractor representatives noted that providers can decide to accept or not accept TRICARE patients at any time, and these changes are not always reflected in the lists. Contractor representatives explained that if a beneficiary cannot find a provider to accept TRICARE for needed care, the beneficiary can submit a complaint to the contractor. Contractor representatives said that they can address beneficiary complaints by attempting to identify and certify new providers, but noted that some subspecialty providers are not available in all areas. Representatives from one contractor told us that they have identified alternative sources of care when providers are not available. For example, when no civilian psychiatrists were accepting new patients in a remote area, the contractor offered beneficiaries telehealth services from a military treatment facility. <3.2. Beneficiaries Reported Ability to Obtain an Appointment When Needed Was Unchanged in First Year of TRICARE Select> There was no statistically significant change after the transition to TRICARE Select in the percent of non-Prime beneficiaries who reported being able to get an appointment as soon as they needed. In the 2019 survey, 88 percent of beneficiaries reported that they could usually or always obtain an appointment for primary care as soon as they needed and 86 percent reported being able to do so for specialty care. (See fig. 5.) Similarly, about 65 percent of beneficiaries reported waiting a week or less between scheduling an appointment for non-urgent care and meeting with their doctor in the 2019 survey, and 83 percent of beneficiaries reported waiting 2 weeks or less. <4. Surveys Indicate Few Changes in Civilian Providers Acceptance of TRICARE Patients in First Year of Select> There was no change in the percent of civilian providers nationwide who reported accepting new TRICARE patients if they were also accepting other new patients after the transition to TRICARE Select. Across all provider types, 67 percent of providers in the 2019 survey reported accepting new TRICARE patients if they were also accepting other new patients; this percentage was not statistically significantly different from the 2017/2018 surveys. There was also no statistically significant change among specific provider types in the 2019 survey, 47 percent of mental health care providers and about 90 percent of primary care and specialty care providers reported accepting new TRICARE patients if they were accepting any new patients. When we analyzed provider responses by network status and specialty, the surveys indicated a decrease in the percentage of network mental health providers who were accepting new TRICARE patients if they were also accepting other new patients. The percent of these network mental health providers decreased a statistically significant amount from 91 percent in the 2017/2018 surveys to 84 percent in the 2019 survey. (See fig. 6.) However, there was no change in the overall percentage of all network or all nonnetwork providers that were accepting new TRICARE patients if they were also accepting any new patients 93 percent of network and 58 percent of nonnetwork providers in the 2019 survey. When we analyzed provider responses by location, we found that provider acceptance of new TRICARE patients decreased by a statistically significant amount in non-PSAs. Specifically, a lower percentage of providers located in non-PSAs reported accepting new TRICARE patients if they were accepting other new patients, decreasing from 72 percent in the 2017/2018 surveys to 68 percent in the 2019 survey. This percentage did not significantly change for providers in PSAs. (See fig. 7.) There were few changes in the reasons providers gave for not accepting TRICARE patients in the first year of TRICARE Select. (See Table 2 for a list of reasons providers offered in the 2019 survey.) Of 14 categories of reasons that providers gave, there was a statistically significant change in two categories between the 2017/2018 surveys to the 2019 survey. Specifically, the percentage of providers who listed reimbursement as a reason for not accepting new TRICARE patients declined from 11 percent to 8 percent, and the percentage of providers who listed that the doctor was not available or too busy increased from 4 percent to 8 percent. <5. Agency Comments and Our Evaluation> DOD provided technical comments on a draft of this report, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Appendix I: GAO Contact and Staff Acknowledgments <6. GAO Contact> James Cosgrove, (202) 512-7114 or [email protected]. <7. Staff Acknowledgments> In addition to the contact named above, individuals making key contributions to this report include Tom Conahan (Assistant Director), A. Elizabeth Dobrenz and Jeffrey Mayhew (Analysts-in-Charge), Jennie Apter, Alexander Cattran, Jacquelyn Hamilton, Vikki Porter, and Jeffrey Tamburello. Related GAO Products Defense Health Care: TRICARE Surveys Indicate Nonenrolled Beneficiaries Access to Care Has Generally Improved, GAO-18-361 (Washington, D.C.: Mar. 29, 2018). Defense Health Care: More-Specific Guidance Needed for Assessing Nonenrolled TRICARE Beneficiaries Access to Care, GAO-14-384 (Washington, D.C.: Apr. 28, 2014). Defense Health Care: TRICARE Multiyear Surveys Indicate Problems with Access to Care for Nonenrolled Beneficiaries, GAO-13-364 (Washington, D.C.: Apr. 2, 2013). Defense Health Care: DOD Lacks Assurance That Selected Reserve Members Are Informed About TRICARE Reserve Select, GAO-11-551 (Washington, D.C.: June 3, 2011). Defense Health Care: Access to Civilian Providers under TRICARE Standard and Extra, GAO-11-500 (Washington, D.C.: June 2, 2011). Defense Health Care: 2008 Access to Care Surveys Indicate Some Problems, but Beneficiary Satisfaction Is Similar to Other Health Plans, GAO-10-402 (Washington, D.C.: Mar. 31, 2010).

Why GAO Did This Study DOD provided health care to more than 9 million eligible beneficiaries through TRICARE in fiscal year 2018. Most of these beneficiaries were enrolled in TRICARE's managed care plan—TRICARE Prime. However, about 2 million beneficiaries received care primarily from civilian providers through TRICARE's non-Prime options: TRICARE Standard and Extra. Effective January 1, 2018, these two options were eliminated and TRICARE Select was implemented. TRICARE Select has similar benefits for provider choice and obtaining care from civilian providers as TRICARE Standard and Extra, but includes access standards to ensure at least 85 percent of enrollees are covered by TRICARE's network of civilian providers, among other things. The National Defense Authorization Act (NDAA) for Fiscal Year 2008 included a provision for GAO to review results of DOD surveys of non-Prime beneficiaries and civilian providers. Additionally, the NDAA for Fiscal Year 2017 included a provision for GAO to review access to care after implementation of TRICARE Select in 2018. This report addresses both provisions. GAO analyzed DOD's survey results to determine changes after implementation of TRICARE Select in (1) non-Prime beneficiaries' ratings of TRICARE, (2) non-Prime beneficiaries' reported ability to find providers and obtain appointments, and (3) civilian providers' reported acceptance of TRICARE. GAO analyzed the results of the 2017-2019 surveys, and interviewed agency officials and DOD contractors. DOD provided technical comments, which GAO incorporated as appropriate. What GAO Found On January 1, 2018, the Department of Defense (DOD) implemented a new health plan option—TRICARE Select—for beneficiaries who primarily obtain care from civilian providers rather than through TRICARE's managed care plan—TRICARE Prime. DOD surveys indicate few changes in these non-Prime beneficiaries' satisfaction and access to care during the first year following the implementation of TRICARE Select, though GAO cannot directly attribute these differences to implementation due, in part, to other changes in the TRICARE program during the same time frame. Specifically, GAO found the following: There was no change in the percent of beneficiaries reporting positive ratings of their TRICARE health care and health plans—80 percent and 68 percent, respectively—in the first year of TRICARE Select. There was an increase in the percent of beneficiaries reporting problems accessing specialty providers from 18 to 24 percent in the first year of TRICARE Select. However, as the figure shows, there was no statistically significant change in the percent of beneficiaries reporting they received care as soon as needed for primary and specialty care appointments. There was no change in the percent of providers that reported accepting new TRICARE patients if they were also accepting any new patients—about 90 percent of primary care and specialty care providers, and 47 percent of mental health care providers—in the first year of TRICARE Select.

gao_GAO-19-664

gao_GAO-19-664_0

<1. Background> The 22 TCS programs covered by our review varied widely in total donations and number of scholarships awarded. For example, total donations during 2017 ranged from $854,326 in New Hampshire s program to approximately $623 million in Florida s largest program (see fig. 1 and app. I). Of the 17 states operating these programs, Arizona, Florida, and Pennsylvania operate the largest programs in terms of both dollars donated and number of scholarships awarded. These are also the only three states that operate multiple programs per state. Decisions about whether to develop and operate a TCS program as well as how to structure requirements are at the discretion of each state; there is no federal role in establishing these programs. For example, states sometimes choose to establish requirements that SGOs and schools must follow as a minimum condition for participation. Since scholarships are funded through donations rather than state appropriations, the financial impact to states from TCS programs primarily occurs through forgone revenue resulting from the associated tax credits. Various state agencies, SGOs, and participating private schools generally all play a role in administering state TCS programs, with the specific division of responsibilities varying by program. State agencies that are responsible for tax administration, education, or both, generally administer these programs. For example, in some programs, state agencies disseminate information to donors, scholarship students, or the public, and approve SGOs or private schools to participate in the program. SGOs are tax-exempt organizations that are generally responsible for managing some aspects of the donation process such as collecting donations as well as awarding scholarships to students. Participating private schools educate students receiving tax credit scholarships. They sometimes also facilitate donations or inform parents about TCS scholarship awards. Participating schools can vary in terms of characteristics such as their size, religious affiliation, and whether they focus on specific student populations, such as students with disabilities. In September 2018, we issued a report that described state TCS program requirements related to donations and student eligibility for programs operating at the beginning of 2018. In that report, we found that these programs offered tax credits to individuals, businesses, or both that ranged from 50 percent to 100 percent of the donation amount. We also found that most programs set limits on the amount of TCS program donations that could be made per year. In terms of eligibility, we found that TCS programs commonly determined student eligibility based on their household income, with income limits varying widely across programs. <2. TCS Programs Generally Require Financial Audits or Reviews for Participating SGOs and Prohibit Them from Awarding Scholarships to Only One School> States have established requirements that SGOs must follow as a condition of participation in their TCS programs. See figure 2 for key requirements that some states have chosen to put in place for SGOs. <2.1. Financial Requirements> All TCS programs have financial requirements that limit the percentage of donations that SGOs are permitted to use for non-scholarship expenses such as staff salaries and most also require SGOs to undergo annual financial audits or reviews. (See fig. 3.) The limit on the percentage of donated funds that SGOs are permitted to use on non-scholarship expenses ranges from 2 percent to 10 percent for 20 of the 22 programs. The other 2 programs both in Pennsylvania have a limit of 20 percent. About half (12) of programs also require SGOs to follow rules about how donated funds or related interest are managed and spent. For instance, South Dakota requires SGOs to spend all revenue from interest or investments on TCS scholarships. Most (19) programs require SGOs to undergo either an annual financial audit or review. Some of these programs require more extensive audits for SGOs that receive donations over a certain dollar threshold (e.g., over $1 million). Three programs require at least some SGOs to submit proof of fiscal soundness, such as a surety bond or letter of credit. For example, to insure against potential financial loss, Florida requires SGOs to submit a surety bond equal to the SGO s unspent donations. Some programs require SGOs to take steps to guard against conflicts of interest. For example, four programs require SGOs to have a conflict of interest policy or a policy designed to prevent individual financial gain among SGO personnel. For instance, New Hampshire prohibits SGOs from awarding scholarships to children of any SGO employee or to children of any business owner whose business donates to the SGO. About a third (8) of programs prohibit SGOs and participating schools from sharing resources or personnel, while other programs do not include such prohibitions. For example, in Pennsylvania, schools are permitted to operate as SGOs and award scholarships directly to their students. In addition, TCS programs require SGOs to be recognized as tax-exempt organizations by the Internal Revenue Service (IRS), so they generally are also subject to applicable federal requirements for tax-exempt organizations, such as filing an annual information return or notice with the IRS. In addition, SGOs may be subject to applicable state laws for tax-exempt or non-profit organizations. <2.2. Administrative Requirements> Figure 4 shows the number of state TCS programs that had selected administrative requirements for SGOs. All programs require SGOs to register or receive state approval by, for example, submitting an application to the state or providing documentation showing the SGO is a tax-exempt organization. Slightly fewer than half (10) of programs require SGOs to follow rules about the qualifications of SGO leadership personnel. For instance, Nevada requires the SGO s top board member to sign an affidavit stating that no member of the board of directors or SGO employee has ever been convicted of a felony, among other requirements. Nine of the programs have requirements related to marketing and fundraising practices. For instance, Louisiana requires SGOs to send the state any advertisements so state officials can review the materials. Almost all (21) programs require SGOs to report to the state the number or total dollar amount of scholarships they awarded. Also, 19 programs require SGOs to report information about the characteristics of scholarship students, such as household income or geographic location. These programs sometimes choose to require SGOs to report individual student-level information or aggregated information for all of their scholarship students combined. For example, Alabama requires SGOs to report identifying information and scholarship amounts for each student to the state. Alternatively, Georgia requires SGOs to report the number of families of scholarship recipients by income group. <2.3. Scholarship Award Requirements> Figure 5 shows how many programs had key requirements for SGOs related to scholarship awards. Almost all (20) programs prohibit SGOs from awarding scholarships to only one school. Some of these 20 programs require SGOs to allow students to use their scholarships at any qualified school whereas others allow SGOs to work with a subset of two or more schools. The majority of programs prohibit donors from recommending that scholarships go to specific students while fewer programs prohibit donors from directing funds to specific schools. More than half (16) of programs prohibit SGOs from allowing donors to recommend that scholarships go to specific individuals, such as students they know personally. About one-third (8) of programs prohibit SGOs from allowing donors to recommend that scholarship funds be used at a specific school. <3. Most States with TCS Programs Require Schools to Teach Core Subjects and Meet Minimum Attendance Standards; Few Require Financial Audits or Reviews of Schools> In addition to requirements for SGOs, states with TCS programs also have requirements for private schools. See figure 6 for key requirements that some states with TCS programs have chosen to put in place for schools. Some requirements were specific to schools participating in the TCS program and some requirements were for all private schools, regardless of TCS program participation. We counted programs as having a particular requirement as long as the requirement applied to at least some of the participating private schools. <3.1. Academic Requirements> Programs generally have one or more academic requirements for participating private schools. (See fig. 7.) About half (9) of the programs require private schools to register or be approved by the state TCS program before their students can receive TCS scholarships. For example, in Nevada private schools must register with the state by completing a form acknowledging that they will follow program requirements. Other programs, such as Georgia s, require SGOs to determine if private schools meet program participation requirements. Separate from any requirements to register with the TCS program itself, over half (14) of the programs require participating private schools to be accredited by the state or another organization, such as a regional accreditation organization. For example, Pennsylvania requires participating private schools to be 1) licensed by the state, 2) accredited by an association approved by the state, or 3) operated by a religious institution. Private schools participating in most TCS programs are subject to requirements regarding minimum instructional time or student attendance and requirements related to curriculum content or core subjects, such as reading, mathematics, social studies, and science. These requirements may or may not be the same as requirements for all private schools in a state. For example, Nevada requires all private schools, including those participating in its TCS programs, to provide 180 days of academic instruction per year. South Carolina s TCS program generally requires participating private schools to offer the courses required to receive a high school diploma in the state. Eleven programs require schools to give academic tests to TCS students. Of these programs, three require participating schools to administer the same test required of public school students and eight allow schools to select among multiple tests. For example, Louisiana requires participating private schools to give TCS students the same state tests in English and math that are used in public schools, whereas Florida allows participating private schools to choose from a state approved list of norm-referenced tests. These 11 programs also require schools to report TCS students test results to the state, parents, or other entities. For instance, one of Florida s programs requires schools to report test results to a university selected by the state to analyze TCS students test scores. <3.2. Administrative Requirements> Participating schools are often required to ensure their teachers undergo background checks or meet minimum qualifications, and less frequently required to undergo site visits. (See fig. 8.) Most (18) programs require participating private schools to conduct background checks or fingerprinting of employees with direct, unsupervised contact with children. Additionally, 12 programs require schools to ensure teachers meet certain qualifications, such as holding a state-issued certificate or a college degree. For example, Alabama requires all private school teachers to hold teaching certificates issued by the state. Nine of the programs require private schools to permit state or other officials to conduct site visits. In the majority of these programs, site visits are a general requirement for private schools in the state or a component of state accreditation that some or all schools are required to obtain before participating in the TCS program. Across these programs, the frequency of the site visit varies. For instance, Indiana state officials are required to make random site visits to at least five percent of participating private schools each year, while Iowa requires a site visit for all private schools operating in the state at least once every five years. <3.3. Financial Requirements> Among the 22 programs, financial requirements for participating private schools are generally less common than academic and administrative requirements. (See fig. 9.) Most (19) programs have requirements related to student withdrawals, such as requiring schools to report or repay the scholarship when students withdraw from the school for which the scholarship was originally awarded. For example, Illinois requires schools and SGOs to prorate scholarships for students who transfer to another private school during the school year, while Louisiana requires schools to immediately notify the SGO and state if a scholarship student is no longer enrolled. Few (4) programs require schools to complete an annual financial audit or review. Among programs with such requirements, Florida requires schools that receive more than $250,000 in scholarship funds to submit the results of a financial audit to the SGO that awarded the majority of those funds. South Carolina requires all schools to include a copy of an audit or other financial review when they initially apply to participate in the program and annually afterwards. About one-fourth (5) of programs require schools to provide surety bonds or other evidence to demonstrate financial viability. For example, Louisiana requires schools that have operated for fewer than five years and will receive more than $50,000 in TCS funds to either provide a SGO with a surety bond equal to the amount of TCS funds they expect to receive during the school year or other information showing financial viability. Florida requires schools operating for fewer than three years to provide the state with a surety bond equal to the amount of scholarship funds for any quarter. <4. States with the Largest TCS Programs Have SGOs Manage Key Program Features> <4.1. SGOs Manage Donations and Award Scholarships while State Agencies Administer Tax Credits in the Three States> <4.1.1. Donations and Tax Credits> In the three states with the largest TCS programs Arizona, Florida, and Pennsylvania SGOs are generally responsible for recruiting donors while state agencies administer tax credits. (See fig. 10). SGOs generally recruit potential donors and sometimes help them apply for tax credits. SGO officials in all three states described ways they solicit donations, such as meeting with representatives from corporations to promote TCS programs or providing banners and pamphlets for private schools to display. In Arizona where SGOs are permitted to allow donor recommendations for specific schools or students in certain programs SGO and school officials described roles for schools or students and their families in soliciting donations. For example, family members of prospective scholarship students may encourage members of their community to donate and recommend their child or child s school, according to officials from a SGO and a school we visited in Arizona. In addition, SGO officials we spoke with in all three states noted that they help donors navigate the process of obtaining tax credits. For example, officials from a SGO in Pennsylvania described how they can fill out the application for tax credit pre-approval as the donor s delegate or review completed applications for errors before donors submit them to the state. State agencies administer state tax credits based on the rules of each TCS program. Specifically, five of the eight programs in the three states have a maximum total dollar limit on the amount of all scholarship tax credits that can be awarded in a year. In those five programs, the state requires donors to apply for pre-approval of the tax credits to ensure the limit has not been reached and tax credits are still available. In the Florida and Arizona programs that have such limits, state agencies consider all donor applications for tax credit pre-approval on a first come, first served basis. Pennsylvania considers returning donors for pre-approval before considering new donors (while tax credits remain). State officials in Pennsylvania and Florida described different methods for reviewing donors tax compliance before and after they file their taxes and claim the TCS tax credit. Specifically, the Pennsylvania Department of Revenue checks for any outstanding tax liability before approving tax credits for the TCS programs and reviews all tax returns that claim TCS credits to ensure the amount of tax credits claimed does not exceed the amount that was pre-approved. The Florida Department of Revenue reviews tax returns that claim a TCS credit to ensure the amount of tax credits used matches the approved amount that was allocated for the donor. Officials from the Arizona Department of Revenue said it does not have a separate tax compliance review process for its TCS credits. <4.1.2. Scholarship Awards> All three states established scholarship requirements while SGOs managed the scholarship awards process by determining which students are eligible for TCS scholarships, which eligible applicants will receive scholarships, and how much to allocate to scholarship recipients within program limits. In contrast, state agencies have a limited role or no role at all in determining the allocation of scholarships among eligible students, according to state and SGO officials in all three states. However, states may provide guidance documents to help SGOs navigate the state s general policies for the awards process. The number of SGOs awarding scholarships varied across the three states, as did program policies for how those SGOs determine which eligible students receive scholarships. In fall 2017, Florida had two SGOs one of which awarded 99 percent of scholarships. Meanwhile, Arizona s four TCS programs had between 14 and 60 SGOs each and Pennsylvania s two programs had approximately 190 and 260 SGOs each. In addition, as described in table 1, states varied in their requirements for how SGOs prioritize eligible students, the degree to which SGOs may work exclusively with a subset of schools, and whether SGOs may consider donors recommendations when deciding which students receive scholarships. Further, because each SGO is responsible for establishing its own procedures for awarding scholarships within program requirements, a TCS program with many SGOs could have substantial variation in how scholarships are awarded. Prioritizing eligible students: The three states provide varying levels of discretion to SGOs in how they prioritize eligible students when awarding scholarships. For example, Florida s largest program requires SGOs to award scholarships on a first-come, first-served basis with first priority to students who previously received a scholarship, and then to students from lower-income households or who are in foster care; its other program requires SGOs to award scholarships to students on a first- come, first-served basis. Two programs in Arizona and one in Pennsylvania outline requirements for how SGOs must prioritize among eligible students, while the remaining programs do not. Further, in all four Arizona programs and both Pennsylvania programs, SGOs are permitted to set additional criteria for selecting scholarship recipients beyond requirements set by the state, as long as those criteria align with program rules and existing laws. For example, officials we spoke with at one SGO in Arizona noted that their selection committee considers written narratives from students and their parents about the student s character and academic achievement when prioritizing eligible students, among other factors. Working with a subset of schools: State policies about partnerships between SGOs and schools can affect which students receive scholarship awards and where students can use those awards. SGOs in Florida award scholarships to students who can then use their scholarship award at any private school that qualifies to participate in the TCS program. In contrast, Arizona and Pennsylvania allow SGOs to partner with subsets of participating schools and award scholarships exclusively to students at those schools. For example, in Arizona and Pennsylvania, some SGO officials noted that the scholarships awarded through their SGO may only be used at partner schools that shared a religious affiliation with the SGO. Allowing donor recommendations: The TCS programs in the three states also had different rules on whether donors may recommend that scholarships be awarded to particular schools or students. Florida prohibits donors from making scholarship recommendations or designations for specific schools or students. In all Pennsylvania and Arizona programs, donors can recommend or designate donations for specific schools, but SGOs can take different approaches to distributing any such recommended funds. For example, one SGO in Pennsylvania sends recommended donation funds directly to the designated schools and the school decides how to distribute the scholarship funds among eligible students. In Arizona, one SGO tracks the amount of donations donors recommend for each of its partner schools and awards those funds to eligible students enrolled at those schools. Further, Arizona s two TCS programs designed for individual donors (rather than businesses), allow donors to recommend that the funds they donate go to specific students. An official at one SGO we visited in Arizona said they provided its external scholarship award committee with information about students applications, including any student-specific recommendations, to inform the selection process. Pennsylvania programs do not expressly prohibit donor recommendations for specific students. In Pennsylvania, officials from one school that was also a SGO told us that they did not accept student-specific recommendations, while officials in a different SGO described how donors may not make student- specific recommendations, but may designate certain groups of students, such as children of first responders. In addition to establishing program policies regarding how eligible students are selected, the three states also have requirements regarding the amount of scholarship money that can be awarded per student, and SGO officials described different methods for determining the amount and frequency of scholarship awards for each student. Among the schools we visited the proportion of students who received TCS scholarships compared to students who did not receive TCS scholarships varied. For example, in one school in Florida, less than one percent of students received TCS scholarships and in a school in Arizona, school officials told us that about 80 percent of students receive TCS program scholarships. When awarding scholarships, officials at some SGOs we visited chose to issue a limited number of awards at the maximum allowable scholarship amount while others chose to issue scholarships to more students in smaller amounts sometimes for shorter periods. In addition, students in Arizona and Pennsylvania may receive multiple concurrent scholarships from different SGOs, different TCS programs in the state, or both. This approach potentially increases the amount of funding students receive; however, it can also present logistical difficulties for the schools and families of scholarship recipients, according to SGO and school officials. For instance, officials at one school described wanting students to receive as much TCS funding as possible, but said it was also challenging to track the different SGO award cycles, incoming funds, and the projected impact on tuition balances for each student. As part of the scholarship award process, some SGOs we visited told us they collected information about tuition and fees at schools to ensure scholarship award amounts do not exceed school tuition, per program requirements. Costs for tuition ranged from approximately $6,000 per year to approximately $37,000 per year among the schools we visited. <4.2. All Three States Require SGOs to Attest That They Will Follow Program Requirements, Submit Information on Their Operations, and Complete an Annual Financial Audit or Review> To participate in TCS programs, all three states require SGOs to provide a description of some of their operating procedures and regularly report donation and scholarship information. The type of information states collect and how they determine whether SGOs are following applicable TCS program requirements varies. (See table 2.) All three states require SGOs to complete an application to participate in TCS programs, which involves signing a form attesting that the SGO will follow program requirements and providing other types of documentation. This documentation includes evidence that the SGO is recognized as tax- exempt by the IRS, descriptions of the SGO s procedures for awarding scholarships, and other information, depending on the program. When reviewing SGO applications, state officials in all three states described how they check that all required information is included in accordance with program rules, but generally do not evaluate the content. For example, in Pennsylvania, a program official noted that the state agency checks that SGOs submit all required documents and relies on attestation statements signed by SGO officials as an essential step for certifying that SGOs will follow program requirements. In addition, state agencies also generally provide SGOs with some guidance on how to interpret program requirements in all three states. State agencies in both Arizona and Pennsylvania have developed guidance manuals for SGOs. Florida collaborates closely with SGOs to interpret program rules and develop guidance, according to SGO and state officials. In addition to application materials, all three states require SGOs to regularly submit information about donations received, scholarships awarded, and the results of financial audits or reviews. The extent to which these audits or reviews include an assessment of SGO compliance with program requirements varies. For example, in addition to financial audits, Florida also requires the state Auditor General to review SGO operations for compliance annually. According to SGO officials, the Florida Auditor General conducts file reviews and on-site visits during these compliance reviews. In Arizona, the SGO manual includes optional procedures financial auditors may use to determine if SGOs are following certain program requirements as part of their review. Pennsylvania does not require an assessment of SGOs compliance with program requirements as part of its annual financial audit. According to officials, states typically work with SGOs to resolve any compliance issues and state agencies rarely permanently revoke SGOs approval to participate in TCS programs. According to officials in Florida, no SGOs have been removed from the programs due to noncompliance. The officials said that once a SGO has been approved through the states initial application process it is very likely that they will be renewed each year unless a large compliance issue arises. Officials in Pennsylvania noted that they contact SGOs to clarify discrepancies in documentation and have temporarily revoked approval from a small proportion of SGOs that failed to submit required information. Officials in Arizona described one instance where a SGO was decertified due to noncompliance; officials stated that the SGO would be recertified if it resolved the compliance issues and reapplied to be a SGO. <4.3. State and SGO Responsibilities for Monitoring Private Schools Varied in the Three States> State officials in the three states described different approaches to overseeing participating private schools compliance with program requirements. Florida state officials described using a variety of monitoring activities to oversee participating private schools, while Arizona and Pennsylvania state agency officials said they do not conduct ongoing monitoring activities due to the parameters of their statutory authority. (See table 3.) Florida state officials described conducting site visits to schools during the initial application process and when they determine schools are at risk of noncompliance. They also noted their monitoring practices have led them to identify multiple issues of noncompliance at certain schools and, as a result, they have temporarily or permanently suspended those schools from receiving TCS program funds. They said the state also delegates certain monitoring activities to SGOs, such as reviewing financial audit results, following up with schools to resolve any issues resulting from those audits, and reporting those issues to the state. State and SGO officials said that SGOs in Florida may also be responsible for implementing any penalties to schools, such as adjusting scholarship payments to schools that do not meet certain reporting requirements. For all Arizona programs and one of two Pennsylvania programs, officials told us that they generally rely on SGOs to verify that schools receiving scholarship funds meet program requirements. For example, in Arizona, SGOs are responsible for determining if a school qualifies to participate in the state s TCS programs. SGO officials we spoke to in Arizona noted they require schools to sign documents attesting that the school meets the requirements to be a qualified school. In Pennsylvania s Educational Improvement Tax Credit Program, SGOs determine whether schools are qualified to participate and each SGO may approach this differently, according to state officials. For example, in addition to meeting the state s criteria for participation in the program, one SGO we spoke with in Pennsylvania also required schools to be tax-exempt, have a board and budget, and share its religious affiliation. Another SGO we spoke with in Pennsylvania required that a school attest that it meets program requirements. In Pennsylvania s other TCS program (the Opportunity Scholarship Tax Credit Program) state officials told us that they determine whether schools are qualified to participate and do not conduct subsequent monitoring activities. <5. Agency Comments> We provided a draft of this report to the Department of Education for review and comment. Education s comments are reproduced in appendix III. Education also provided technical comments, which we incorporated as appropriate. We also provided relevant excerpts from the report to the appropriate state agencies in each state we reviewed and incorporated their technical changes as appropriate. Education did not comment on the report s findings. Instead, it provided information about the administration s tax credit proposal and made observations about how the scope of TCS programs covered in our report was both similar and different from educational programs that are addressed in the administration s proposal. In its comments, Education further stated that given these scope differences, the GAO report may not fully inform the debate around the administration s proposal. As stated in the draft report, promoting school choice options both private and public through a variety of spending and tax expenditure programs continues to be a topic of national debate. The purpose of this report was to examine state TCS programs that are used to fund scholarships that students can use to attend private elementary and secondary schools by describing: (1) key requirements state TCS programs have chosen to establish for SGOs, (2) key requirements for private schools participating in state TCS programs, and (3) how selected states implement TCS programs and how they assess whether SGOs and participating private schools are following key state requirements. Education stated that the draft report does not note that several TCS programs allow scholarships to be used for educational expenses beyond tuition. As stated in the draft report, some states use tax credit scholarship programs to fund preschool, career and technical education, or public school initiatives; the draft report further noted that these programs are outside the scope of this review. This report is the second of two GAO reports examining K-12 TCS programs. The prior report (GAO-18-679) discussed various ways students can use state K-12 TCS scholarships. Specifically, we reported that, as of SY 2017-2018, more than half of the programs (13 of 22) allowed students to use their scholarship money for costs like transportation and books in addition to tuition, whereas the remaining programs (9 of 22) required scholarship funds to be used for tuition only. Education asserted positive fiscal effects associated with state TCS programs and cited several studies to this end. As stated in the draft report, tax credits are a form of forgone revenue. Assessing the fiscal impact of these programs was not among the purposes of this report. Thus, we did not assess the reliability of these studies or the validity of their results. Education also commented on our decision to exclude Montana s TCS program from the scope of this report. As noted in our report, we did not include Montana s program because it was the subject of pending litigation at the time of our review. Finally, Education noted, as also stated in the draft report, that states and school districts have obligations under the Elementary and Secondary Education Act and the Individuals with Disabilities Education Act to make equitable services available to eligible private school students, including those who participate in TCS programs. We agree and have reported extensively on equitable services in the context of private schools in GAO-16-712 and GAO-18-94. In GAO-18-94, we recommended that Education review information provided by states related to changes in federal special education rights when a parent places a student with a disability in private school and work with the states to correct inaccurate or incorrect information. In that report, we identified some private school choice programs that were providing information that Education confirmed inaccurately described rights under the Individuals with Disabilities Education Act when a student with a disability is moved from a public to a private school. Education agreed with this recommendation a recommendation GAO considers to be among the highest priority of recommendations we have made to the Department. However, Education has not yet fully implemented this recommendation and, as of September 2019, we found that some information Education confirmed to be inaccurate remains in several states private school choice program documents. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Education, 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 (617) 788-0580 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix IV. Appendix I: State Tax Credit Scholarship Program Scholarship and Donation Information of donors: businesses, individuals, or both) 1,957b (both) 15 (business) 795 (business) $1,856 88,109b (individual) $1,450 47,895b (individual) - (both) 286d (business) 23,411b (both) - (both) 6,768b,d (both) 3,054 (both) 153 (both) 79 (both) 69d (business) 71 (business) <6. Number of students receiving> of donors: businesses, individuals, or both) Average donation amount per donor - (both) 1,671 (business) 662 (business) 40 (business) 788d (both) - (business) 1,428 (both) Appendix II: Key Features of Largest Tax Credit Scholarship Programs in Arizona, Florida, and Pennsylvania The profiles in this appendix describe key features of the largest tax credit scholarship programs in Arizona, Florida, and Pennsylvania, as measured in terms of the scholarships awarded in 2017. Information in these profiles was obtained from interviews with state agency and selected scholarship granting organization (SGO) officials and state program documents, and was verified by state officials. GAO did not independently review state laws or regulations. Unless otherwise specified, program requirements are as of school year 2018-2019. <7. Key Requirements for SGOs> <7.1. Financial Limit non-scholarship spending to> 10 percent of donations. Undergo annual audit or financial review depending on amount of donations received. donations. Administrative Receive state approval to operate. Ensure all promotional materials include required language. scholarship awards. Academic Follow guidelines for school curriculum or core subjects. Follow guidelines for minimum instructional time or attendance. Donations: Donors contributed over $68 million during calendar year 2017. The program is open to individual donors only (business donors may fingerprinting for staff. donate through other Arizona programs.) Financial Follow requirements if students withdraw (e.g., report or repay). Donations are eligible for 100 percent tax credits. The program does not limit annual program-wide donations. Individual donors (filing as single) were limited to $569 in tax credits during tax year 2019. Scholarship awards: 34,632 scholarships were awarded between July 1, 2017 and June 30, 2018. All K-12 students who live in Arizona and attend a private school are eligible for the program. SGOs are expected to consider financial need when prioritizing among eligible applicants. Students may receive more than one scholarship from this program and concurrently receive scholarships from other tax credit scholarship programs in the state, up to the full cost of tuition. SGOs may partner with a subset of qualified schools, such as schools with shared religious views or teaching methods. Donors may recommend that their donation fund scholarships at specific schools or be awarded to specific students (within certain parameters). 0 percent of donations in first 3 years and 3 percent afterwards. Provide a surety bond or line of credit. Maintain separate accounts for scholarship funds. Not share resources or personnel with private schools. Have a conflict of interest policy. Undergo annual financial audit. Report information about donations. Administrative Receive state approval to operate. Not have an owner or operator who recently filed for bankruptcy. Limit funds used for marketing. Report on scholarship awards. Academic Register with state. Follow guidelines for minimum instructional time or attendance. Donations: Donors contributed about $623 million during tax year 2017. The program is open to businesses (not individuals). Donations are eligible for 100 percent tax credits. Maximum allowable credit amounts per donor vary from 50 percent to Administer an approved academic test (not necessarily the test used in public schools). 100 percent of tax liability, depending on the type of business tax to which the tax credit is applied. Program-wide limit on tax credits was $698 million in state fiscal year 2017-2018. Administrative Hire teachers who meet minimum qualifications. Ensure background checks or fingerprinting for staff. Undergo state site visits. Scholarship awards: 108,098 scholarships were awarded during school year 2017-2018. Students are eligible for full scholarships if their household income level does not exceed 200 percent of the federal poverty level or if they are in foster care. Financial Undergo annual audit if receive a Students may only receive one tax credit scholarship at a time, up to $7,208 for tuition and fees, as of school year 2017-2018. given amount of scholarships. SGOs must allow students to use scholarships at any private school Provide a surety bond or line of participating in the program. credit if in operation for less than 3 years. Donors are prohibited from recommending that their donation fund scholarships at specific schools or for specific students. Follow requirements if students withdraw (e.g., report or repay). 20 percent of donations. Undergo annual audit or financial review. donations. Administrative Receive state approval to operate. Report information about scholarship awards. Academic Be accredited, licensed by the state, or a religious institution. Follow guidelines for minimum instructional time or attendance. Follow guidelines for core curriculum or academic subjects. Administrative Hire teachers who meet minimum qualifications. Ensure background checks or fingerprinting for staff. Donations: Donors contributed about $87 million during tax year 2017. The program is open to businesses, including special purpose entities Financial Follow requirements if students withdraw (e.g., report or repay). which allow individuals to donate to the program through the entity. Donors are eligible to receive tax credits for 75 percent of their donations if they donate for one year and tax credits for 90 percent of their donations if they donate for two consecutive years. The maximum allowable tax credit amount per donor is $750,000. The program-wide limit on tax credits was $135 million in fiscal year 2017. Donors must apply for pre-approval before claiming tax credits. Past donors may apply for credits before potential new donors apply for any remaining tax credits. Scholarship awards: 37,725 students received scholarships during school year 2017-2018. Students are eligible for scholarships if their household income level does not exceed $85,000, plus $15,608 per dependent in the household (higher for students with disabilities). Students may receive multiple tax credit scholarship at a time. Total scholarship award amount may not exceed the cost of tuition and fees. SGOs may partner with a subset of qualified schools, such as schools with shared religious views or teaching methods. Donors may recommend that their donation fund scholarships at specific schools. Donors are not prohibited from recommending scholarships to specific students. Appendix III: Comments from the Department of Education Appendix IV: Staff Acknowledgments <8. GAO Contact:> <9. Staff Acknowledgments:> In addition to the individual named above, Nagla a El-Hodiri (Assistant Director), Barbara Steel (Analyst-in-Charge), Andrew Emmons, and Jessica L. Yutzy made key contributions to this report. Also contributing to this report were Isabella Anderson, Jeff Arkin, Deborah Bland, Lilia Chaidez, Sarah Cornetto, Caitlin Cusati, Charles Ford, Monika Gomez, Alison Grantham, Kirsten Lauber, Sheila R. McCoy, Mimi Nguyen, Corinna Nicolaou, and Michelle Philpott.

Why GAO Did This Study All TCS programs are state programs. States develop program policies and requirements, including establishing the roles and responsibilities of SGOs and participating private schools. The President's fiscal year 2020 budget request included a proposal for federal tax credits for donations to state-authorized SGOs. GAO was asked to review key characteristics related to accountability in state TCS programs that can fund K-12 educational expenses. This report examines (1) key requirements state TCS programs have chosen to establish for SGOs, (2) key requirements for private schools participating in state TCS programs, and (3) how selected states implement TCS programs and assess whether SGOs and participating private schools are following key state requirements. GAO identified key requirements states may choose to establish related to accountability for SGOs and schools based on relevant research and prior work. GAO also reviewed program documents from all 22 TCS programs to identify whether they had these key requirements as of school year 2018-2019 and then verified this information with state program officials. GAO did not conduct an independent review of state laws and regulations. GAO visited Arizona, Florida, and Pennsylvania, which have the largest TCS programs. In each of these states, GAO reviewed program documents and interviewed officials at state agencies and staff at selected SGOs and private schools (selected to provide variation in size and other characteristics). What GAO Found State tax credit scholarship (TCS) programs—programs that offer state tax credits for donations that can fund scholarships for students to attend private elementary and secondary schools—have established various key requirements for the scholarship granting organizations (SGO) that collect donations and distribute awards. For example, all 22 TCS programs in operation as of January 2019 require SGOs to register with or be approved by the state and limit the percentage of donations they can use for non-scholarship expenses. In addition, almost all of these programs—which received over $1.1 billion in donations and awarded approximately 300,000 scholarships in 2017—also require SGOs to undergo annual financial audits or reviews (19 programs). Fewer programs have requirements about SGO fundraising practices (9 programs) or the qualifications of SGO leadership personnel (10 programs), such as restrictions on officials having previous bankruptcies. States also have various key requirements that apply to private schools that enroll students with TCS scholarships. For example, private schools in most of the 22 programs must follow certain academic guidelines related to curriculum content (18 programs) and instructional time (19 programs), and have staff undergo background checks (18 programs). Schools in fewer programs are required to conduct academic testing (11 programs), ensure their teachers have specified qualifications (12 programs), or undergo an annual audit or financial review (4 programs). The three states with the largest TCS programs—Arizona, Florida, and Pennsylvania—implement and oversee their programs in different ways. In all three states, state agencies administer the tax credits while SGOs are generally responsible for managing donations and awarding scholarships; the details of these processes varied based on the requirements of each program. For example, Arizona and Pennsylvania's programs allow donors to recommend that funds go to specific schools, which can affect how SGOs solicit donations and award scholarships. Florida does not permit recommendations. All three states require SGOs to report on operations and undergo annual financial audits or reviews, while the states differ in how participating private schools are overseen. Florida's TCS programs use multiple monitoring methods, while all Arizona programs and one of two Pennsylvania programs generally rely on SGOs to confirm that schools comply with program requirements.

gao_GAO-20-373

gao_GAO-20-373_0

<1. Background> In 1999, DOE issued a report stating that, based on experience from a decade of planning and conducting cleanup work at the sites for which it is responsible, complete restoration to levels acceptable for unrestricted use could not be accomplished at many of its sites. According to the report, a variety of hazards would remain at many DOE sites after these sites had been cleaned up in accordance with applicable requirements. These hazards include long-lived radionuclides left in place in soils or contained in on-site disposal cells and residual contaminants in surface water and groundwater. The report cited technical challenges such as lack of existing technology for completely removing some types of waste and economic limitations such as prohibitive costs to employ available technology as reasons why these hazards would remain. As a result, DOE reported that long-term management would be needed at these sites to ensure that the cleanup remedies i.e., the actions, systems, or other measures put in place to clean up a site would protect human health and the environment from these hazards into the future. Several DOE organizations, including the Office of Environmental Management (EM), were responsible for long-term management of post- cleanup sites until the department established LM in 2003. As of the end of fiscal year 2019, LM had assumed responsibility for 100 sites across the United States, including sites in Alaska and Puerto Rico (see fig. 1). <1.1. Roles and Responsibilities for Cleanup of Sites> Several different entities conducted cleanup of sites before LM assumed responsibility for the sites. These different entities conducted cleanup under a variety of authorities: EM. Established in 1989, DOE s EM is responsible for the cleanup of legacy waste that resulted from the development and production of nuclear weapons and government-sponsored nuclear energy research dating back to World War II and the Cold War. Such waste includes radioactive waste, spent nuclear fuel and nuclear material, and contaminated soil and water, among other things. EM cleaned up 83 of the 100 sites that are now within LM s portfolio. Key laws that governed EM s cleanup of these sites include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 as amended (CERCLA); the Resource Conservation and Recovery Act of 1976 as amended (RCRA); and Title I of the Uranium Mill Tailings Radiation Control Act of 1978 (UMTRCA). Title I of UMTRCA authorizes a cleanup program for uranium mill tailings sites which produced uranium for nuclear weapons and other defense purposes that were no longer operational as of 1978, the year of the law s enactment. DOE is generally responsible for financing the cleanup of these sites. EM also cleaned up sites that are now within LM s portfolio under the Formerly Utilized Sites Remedial Action Program (FUSRAP). This program was established in 1974 to identify, investigate, and clean up sites where radioactive contamination remained from Manhattan Project and early Atomic Energy Commission operations. EM was responsible for cleaning up FUSRAP sites until 1997, when Congress directed the U.S. Army Corps of Engineers (USACE) to assume responsibility for the cleanup work of the remaining designated FUSRAP sites. USACE. USACE cleaned up 10 FUSRAP sites that are now within LM s portfolio. Under a memorandum of understanding signed by DOE and USACE in 1999, DOE is responsible for the long-term management of FUSRAP sites after USACE completes cleanup. Key requirements that govern USACE s cleanup of FUSRAP sites include CERCLA and the National Oil and Hazardous Substances Pollution Contingency Plan. Private licensees. LM s portfolio includes seven sites cleaned up by private licensees, i.e., commercial operators who were permitted to operate uranium mills or other facilities under a license from the Nuclear Regulatory Commission (NRC). In all except one case, private licensees cleaned up these sites under Title II of UMTRCA, which assigned responsibility to the licensee for reclamation of uranium mill sites operating on or after the law s enactment in 1978. When a private licensee has completed all cleanup requirements, NRC approves transfer of a site to LM for long-term management. Cleanup activities conducted by these entities included decontaminating, decommissioning, and demolishing buildings; containing and disposing of a variety of hazardous and radioactive wastes; excavating and stabilizing contaminated soil; constructing engineered disposal cells for contaminated materials; containing and treating contaminated surface water and groundwater; and preparing the land for future public, industrial, or commercial use. Depending on the legal and regulatory framework governing cleanup, other agencies or groups may have played a role in setting cleanup standards and helping to select a site s cleanup remedy. For example, sites cleaned up under Title I of UMTRCA must meet regulatory cleanup standards established by the Environmental Protection Agency (EPA). For certain sites cleaned up under CERCLA and RCRA, DOE has entered into agreements with EPA and the relevant state regulator regarding the necessary cleanup actions, and EPA and the state have provided input in selecting the cleanup remedy. As cleanup of a site nears completion, LM works with the entity responsible for cleanup to prepare the site for transition into LM s portfolio. The transition process for a given site may take up to 5 years, during which time LM and the cleanup entity develop a long-term surveillance and maintenance plan. Depending on the authority under which a site has undergone cleanup, this plan may require approval by regulators such as EPA or NRC. Other transition responsibilities include identifying and preserving records and checking that administrative institutional controls and other real property instruments are in place. DOE considers site cleanup to be complete when, among other things, short-term cleanup activities have been completed and long-term cleanup measures, such as groundwater treatment, are in place. According to a DOE document, ongoing groundwater remediation continues at many sites after the official completion of cleanup because of the long timeframes required to capture and remediate contaminated groundwater. <1.2. Scope of LM s Mission and Activities> Once LM acquires a site, it places each site into one of three categories based on the actual or anticipated long-term surveillance and maintenance activities associated with the site. LM has nine category 3 sites, which require the most intensive surveillance and maintenance due to the extent of residual contamination, according to LM officials. These sites typically have an ongoing remediation system such as a groundwater treatment system, according to officials that LM must monitor and maintain. LM has 49 category 2 sites, which require routine inspection, monitoring, and maintenance. LM has 42 category 1 sites, which require management of records or stakeholder requests for information. LM also maintains a list of 52 sites that, as of September 2019, are expected to transition into its portfolio over the next three decades. Figure 2 illustrates sites transition from cleanup entities and their categorization. Appendix II provides additional details about the current sites in LM s portfolio as of fiscal year 2019, and appendix III provides details about sites that, as of September 2019, are scheduled to transition to LM by 2050. According to LM officials, LM does not have a schedule or process for retiring sites from its portfolio. Depending on the sites clean- up standards and intended reuse, LM will likely be managing some sites for centuries. LM s budget includes funding for other activities that are not directly associated with its 100 sites. These activities include conducting an inventory of abandoned defense-related uranium mines, overseeing pensions and post-retirement benefits for former contractor workers at closed DOE sites, and leading and coordinating DOE s environmental justice activities. As of fiscal year 2019, LM s overall budget was about $159 million. <1.3. DOE s Environmental Liabilities> Federal accounting standards require agencies that are responsible for cleaning up contamination to estimate future cleanup and waste disposal costs and to report such costs in their annual financial statements as environmental liabilities. According to these standards, environmental liability estimates are to include probable and reasonably estimable costs of cleanup work. Environmental liability estimates do not include cost estimates for work for which reasonable estimates cannot currently be generated, such as cleanup costs at sites where no feasible remedy exists, according to the standards. In fiscal year 2019, DOE reported $505 billion in environmental cleanup and disposal liabilities, of which about $64 billion are categorized by DOE as other legacy environment costs. LM s environmental liability is part of this category, along with several other types of environmental liability costs. <2. LM s Environmental Liability Was Estimated at $7.35 Billion in Fiscal Year 2019 and Will Likely Grow as LM Acquires Additional Sites> LM estimated its environmental liability in fiscal year 2019 at $7.35 billion, an amount that has been relatively stable over the last 5 years. However, LM expects its environmental liability to increase as it acquires additional sites, according to LM officials. <2.1. LM s Environmental Liability Largely Reflects the Costs of Long-Term Surveillance and Maintenance of Its Sites> According to LM financial data, LM s environmental liability estimate in fiscal year 2019 was $7.35 billion. LM s guidance defines its environmental liability as an estimate of life-cycle costs associated with five main activities determined by DOE occurring over 75 years (see fig. 3). LM develops guidance on how its site managers should estimate their sites environmental liability. In accordance with this guidance, site managers are to develop estimates of the direct costs over the upcoming 75-year period. They are also to determine a certain amount of contingency to account for potential changes in LM s project scope because of unknown and unpredictable events over the upcoming 75- year period. As shown in figure 4, LM activities related to long-term surveillance and maintenance of its sites accounted for about $3 billion or 40 percent of its fiscal year 2019 environmental liability. LM activities related to program direction and to archives and information management each accounted for about 23 percent and 22 percent, respectively, of LM s fiscal year 2019 environmental liability, and activities related to asset management and to communication, education, and outreach combined for about 15 percent. Of LM s approximately $3 billion in costs for long-term surveillance and maintenance, LM s category 3 sites the nine sites that require the most intensive level of management accounted for almost half of these estimated costs (see fig. 5). The Rocky Flats site in Colorado accounted for the largest share of this portion of the liability (about $452 million), and the Fernald Preserve site in Ohio accounted for the second-largest share (about $308 million). Long-term surveillance and maintenance responsibilities for category 1 and category 2 sites, transition costs associated with sites that LM will acquire in future years, and other program-wide activities such as exploring new technologies and operating a laboratory accounted for the remaining share (about $1.5 billion) of LM s environmental liability related to long-term surveillance and maintenance. <2.2. LM s Environmental Liability Has Generally Remained Stable in Recent Years, with Some Notable Fluctuations at Individual Sites> LM s total environmental liability has generally remained stable in recent years, although there have been some notable fluctuations at individual sites. In fiscal years 2015 through 2018, LM s total environmental liability remained between $6 billion and $7 billion per year, and increased to slightly over $7 billion in fiscal year 2019 (see fig. 6). Most notably, LM s total environmental liability increased by about $2 billion (about 41 percent) between fiscal years 2014 and 2015. LM officials attributed this increase to adopting a more thorough approach for estimating future costs associated with sites scheduled to be transferred from USACE under FUSRAP. LM officials said that, before fiscal year 2015, LM had used a standard cost estimate for all of USACE s sites, which resulted in an underestimate of the associated liability. According to LM officials, in fiscal year 2015 LM began estimating costs based on individual sites specific conditions, which allowed LM to capture more potential costs. Similar to LM s overall environmental liability, the long-term surveillance and maintenance portion of LM s environmental liability has generally remained stable in recent years, though individual sites have seen some notable changes. From fiscal year 2015 through 2018, LM s environmental liability related to long-term surveillance and maintenance remained between about $3 billion and $3.5 billion. Similar to LM s overall environmental liability, the long-term surveillance and maintenance portion of LM s liability saw a more significant increase between fiscal years 2014 and 2015, from about $2.2 billion to about $3.4 billion. At the site level, of LM s nine category 3 sites, the Fernald Preserve and Mound sites in Ohio are examples of sites that have had mostly steady decreases from fiscal year 2014 to 2019, which LM officials attributed in part to adjustments to groundwater treatment strategies at Fernald Preserve as well as transferring ownership of most of the Mound site to another party. In contrast, several other sites (including Rocky Flats and Grand Junction in Colorado and Weldon Spring in Missouri) saw overall decreases from fiscal year 2014 to 2016 followed by steady increases from fiscal year 2016 to 2019, which LM officials generally attributed to costs of site maintenance at Rocky Flats, construction at Weldon Spring, and planning activities for the potential closure of the disposal cell at Grand Junction. LM officials provided additional details on specific factors driving sites changes in environmental liability. For example: At the Fernald Preserve site, the long-term surveillance and maintenance liability has decreased overall from about $367 million in fiscal year 2014 to about $308 million in fiscal year 2019 (about a 16 percent decrease). The site manager for Fernald attributed this decrease to improvements in the site s groundwater treatment strategy. In 2014, LM made changes to optimize the site s pump-and- treat system (which brings contaminated water above ground so that it can be treated and contaminants removed) by increasing pumping from the wells in the portion of the site with the most contamination, according to the site manager. Further, the site manager said that this change increased the amount of water coming from the more contaminated areas, making the water treatment more efficient and cost-effective in the long-term. At the Mound site, the long-term surveillance and maintenance liability has decreased from about $124 million in fiscal year 2014 to about $68 million in fiscal year 2019 (about a 45 percent decrease). According to LM officials, this decrease is in part due to a transfer in ownership. Specifically, LM transferred ownership of the majority of the site to the Mound Development Corporation to sell or lease parcels of the land to third parties for commercial use. Transferring ownership meant that LM gave up some of its responsibilities and their associated costs (such as maintenance and repairs at buildings that are now privately owned), although it continues to fulfill ongoing groundwater treatment and records management responsibilities. At the Rocky Flats site, the long-term surveillance and maintenance liability has increased substantially since fiscal year 2016, from about $269 million to about $452 million in fiscal year 2019 (about a 68 percent increase). According to the site manager for Rocky Flats, this increase can be attributed to additional costs needed to repair aging infrastructure. Specifically, a landfill on the site, which was constructed in the 1950s, has been damaged by erosion in recent years, and LM is currently undertaking a large-scale project to repair and stabilize it after previous repairs failed to provide a long-term fix. This project, which is due to be completed in the summer of 2020, includes installing about 260 steel anchors of up to 95 feet in length into the soil around the landfill. These anchors are intended to keep the soil intact while drains route groundwater away from the areas of the landfill that are particularly vulnerable to erosion. <2.3. LM s Environmental Liability Is Likely to Grow as LM Acquires More Sites in Future Years> LM s environmental liability is likely to grow as it acquires more sites in future years, even as LM takes steps to reduce the environmental liability associated with its current sites, according to LM officials. According to an LM document, as of September 2019, LM is scheduled to acquire 52 additional sites by 2050, including six category 3 sites, 45 category 2 sites, and one category 1 site. Since LM does not account for the environmental liability related to long-term surveillance and maintenance for a portion of its sites until it acquires them, LM officials could not tell us by how much its total environmental liability will increase as a result of acquiring these sites. However, officials said that some sites transitioning to LM in the future will be increasingly complex, which will likely mean increased long-term surveillance and maintenance costs. In particular, one official told us that the FUSRAP sites LM is set to acquire from USACE will be larger and have more extensive residual contamination than FUSRAP sites that LM had previously acquired. As a result, these sites will likely require LM to undertake more extensive and costly long-term surveillance and maintenance activities, according to this official. At the same time, LM officials said they are taking steps to help reduce the environmental liability at LM s current sites, such as exploring ways to improve the cost-effectiveness of managing residual groundwater contamination. For example: At the Shiprock site in New Mexico, LM has initiated an environmental assessment to evaluate the impacts of removing an evaporation pond into which contaminated groundwater is being pumped, according to the site manager. The site manager also told us that removing this pond could mean reducing the scope of the site s water pumping activities and ultimately adopting a different groundwater treatment strategy that could prove to be more efficient. Further, the site manager said that this removal would result in reduced long-term surveillance and maintenance costs associated with ongoing repairs to the pond. At the Tuba City site in Arizona, LM is conducting an environmental assessment to weigh options for a new groundwater treatment strategy. According to the site manager, the current strategy, which involves injecting clean water into the site s contaminated aquifer to flush out contamination, does not cost-effectively address the root cause of the groundwater contamination. Among other options, LM may use its assessment to seek alternate concentration limits accompanied by restrictions to grazing and water use, which LM officials said could be a cost-effective way to manage residual contamination. <3. LM Faces Several Challenges and Has Not Planned for Those That Require New Cleanup Work or Address Climate Change Risks> LM officials we interviewed identified a number of challenges that LM faces in providing long-term surveillance and maintenance of sites. In particular, officials identified challenges related to three main areas: (1) the performance of remedies on its sites, (2) environmental conditions, and (3) new requirements and regulations. LM is taking some actions to address the challenges that officials identified. However, it has not planned for how to address challenges with remedies at some sites that may require additional cleanup work outside the scope of its expertise and resources, and it has not developed plans to assess and mitigate challenging environmental conditions that may become more frequent or intense because of climate change. <3.1. Challenges with the Performance of Remedies Could Require New Cleanup Work> According to LM officials, LM faces challenges with cleanup remedies not performing as predicted or intended at some sites. For example: At the L-Bar site in New Mexico, officials told us that the disposal cell, which was constructed by a private licensee under UMTRCA Title II and holds about 2.1 million tons of radioactive mill tailings, began experiencing erosion problems shortly after NRC transferred the site to LM in 2004. This erosion is threatening to undermine the disposal cell, according to LM officials (see fig. 7). At the Monticello site in Utah, monitored natural attenuation the groundwater treatment remedy originally agreed to by DOE, EPA, and the Utah state regulator proved ineffective in meeting cleanup goals within a few years of being implemented and of the site being transferred to LM. As a result, in 2015, LM implemented a pump-and- treat approach that reduced contamination; however, officials told us that the efficacy of this approach has declined over time, and LM is again seeking to change the remedy. To address challenges related to the performance of remedies, LM is currently undertaking a risk analysis effort to rank sites according to several types of risks, including the risk that a site will not attain compliance with cleanup goals or that compliance will not be maintained into the future. According to LM officials, LM plans to use the results of the risk analysis to inform decisions about where to focus resources, to identify systemic technical challenges, and to identify possible opportunities for reducing LM s environmental liability, such as through technology development. LM is also addressing challenges related to remedy performance by updating some sites remedies. For example, LM has implemented an erosion monitoring program for the L-Bar site and, at the Monticello site, is collecting data that could allow it to seek regulatory approval for a new groundwater compliance strategy, according to LM officials. LM officials said that, in general, they consider such updates to be routine and to fall within LM s mission to provide long-term surveillance and maintenance of these sites. Nonetheless, LM officials told us that as LM acquires additional sites and as remedies age, future challenges related to remedy performance could result in the need for more extensive work, including active cleanup work that is outside the scope of LM s mission, capabilities, and resources. We found that LM has developed agreements and procedures for addressing such challenges at sites cleaned up by USACE, but has not developed such agreements and procedures for sites cleaned up by EM or by private licensees under Title II of UMTRCA. Specifically, regarding sites cleaned up by USACE under FUSRAP, under the 1999 memorandum of understanding between DOE and USACE, USACE is responsible for carrying out additional cleanup actions when it determines such actions are necessary. In addition, LM guidance related to transition and transfer of FUSRAP sites includes examples of situations in which LM would return a site to USACE for additional cleanup, such as situations in which routine monitoring identifies new areas of contamination. Conversely, for sites where EM was responsible for active cleanup, a 2005 memorandum co-signed by the leadership of LM and EM includes a brief statement about the need for LM and EM to coordinate in instances of significant remedy failures. LM officials told us that structural or engineering damage could signify evidence of a significant remedy failure, but said that such criteria have not been documented. They also said that LM has not defined a process by which such failures would be addressed. Finally, LM officials said that there is no mechanism in place under UMTRCA for LM to return a site to NRC or to seek recovery of costs from a private licensee for any additional cleanup that needs to be done. According to agency officials, LM has not developed agreements or procedures for addressing challenges that require active cleanup work at sites cleaned up by EM because LM has not yet encountered such instances at any of its sites. They also noted that LM has been more focused on long-term surveillance and maintenance and the process of transitioning sites into its portfolio from EM and private licensees, rather than a process for moving sites back to these entities if a cleanup remedy fails. However, under federal internal control standards, management is to design control activities to achieve objectives and respond to risks, such as by clearly documenting internal control in management directives, administrative policies, or operating manuals. By working with EM and NRC to develop agreements and procedures for identifying and addressing circumstances at LM sites that require new cleanup work beyond the scope of LM s mission, capabilities, and resources, LM can help ensure mitigation by the most appropriate entity of the risks to human health and the environment that such instances would present. <3.2. Challenging Environmental Conditions May Become More Frequent or Intense> LM faces challenges with environmental conditions at the sites some of which may become more frequent or intense and, according to its mission, LM must react to these challenges to ensure the sites remain protective of human health and the environment. For example: At the Rocky Flats site in Colorado, officials told us that extreme rainfall events over the past few years have caused soils covering an on-site landfill to slump, or slip downhill. In particular, rainfall during 2015 the site s wettest year on record, according to LM officials caused a 20-foot slump in the landfill. The Boiling Nuclear Superheater site in Puerto Rico and the Pinellas County site in Florida were both in the path of Hurricane Irma in 2017, though neither site sustained substantial damage. At the Weldon Spring site in Missouri, the site manager said that tornadoes pose a risk to the site s infrastructure, and that a strong tornado in 2013 damaged the site s interpretive center. To address challenges related to environmental conditions, LM has been repairing damages caused by extreme weather events. For example, at the Rocky Flats site, LM is undertaking a major project to repair and stabilize its aging landfill, as discussed earlier. At the Weldon Spring site, LM installed a tornado shelter in 2014 and is currently building a new interpretive center. In addition, according to the 2020 LM Site Sustainability Plan, LM has taken a number of steps to implement emergency and security measures, such as completing emergency drills and tabletop exercises. The U.S. Global Change Research Program which coordinates and integrates the activities of 13 federal agencies that research changes in the global environment and their implications for society reported in its November 2018 Fourth National Climate Assessment that climate change is playing a role in the increasing frequency of some types of extreme weather, such as extremely heavy rainfall and hurricanes; these are environmental conditions that have presented challenges at LM sites. The assessment reported that climate models are consistent with temperature and precipitation extremes becoming more frequent, more intense, or longer in duration, which may make certain natural disasters more frequent or more intense. As a result of the significant risks posed by climate change and the nation s fiscal condition, in February 2013, we added Limiting the Federal Government s Fiscal Exposure by Better Managing Climate Change Risks to our list of areas at high risk for fraud, waste, abuse, and mismanagement, or most in need of transformation. In our March 2019 update to this high-risk area, we reported that the federal government needs to improve the resilience of facilities it owns and operates, and land it manages, against the effects of climate change. In addition, in October 2019, we found that EPA needs to improve management of risks from climate change at Superfund sites where remedies may need to be operational indefinitely (see sidebar). We Found That EPA Should Take Additional Actions to Manage Risks from Climate Change Superfund is the federal government s principal program to address sites with hazardous substances. It was established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and is administered by the Environmental Protection Agency (EPA). EPA lists some of the most seriously contaminated sites on the National Priorities List (NPL) and has recorded over 500 contaminants at those sites. Some NPL sites are located at federal facilities, where departments such as the Department of Energy are responsible for cleanup. However, most NPL sites are nonfederal, where EPA generally carries out or oversees the cleanup conducted by one or more potentially responsible parties. In October 2019, we reported that available federal data on flooding, storm surge, wildfires, and sea level rise suggest that about 60 percent of all nonfederal NPL sites are located in areas that may be impacted by these potential climate change effects. According to EPA officials, remedies at nonfederal NPL sites may have to be operational indefinitely, during which time the potential effects of climate change may become more extreme. We found that EPA has taken some actions to manage risks from the potential impacts of climate change effects at nonfederal NPL sites, but that its actions did not fully align with essential elements of enterprise risk management. For example, we found that EPA officials do not always have direction to ensure that they consistently integrate climate change information into site-level risk assessments and risk response decisions, according to EPA officials. Without providing such direction, EPA cannot ensure that remedies at nonfederal NPL sites will protect human health and the environment in the long-term. We made four recommendations to EPA, including that it provide direction on how to integrate information on the potential impacts of climate change effects into risk assessments and risk response decisions at nonfederal NPL sites. EPA agreed with one recommendation and disagreed with the other three. We continue to believe that all four are warranted. LM s 2016-2025 Strategic Plan acknowledges the challenges posed by climate change. To support the objective of improving the long-term sustainability of environmental remedies, the plan includes a strategy to assess the effect of climate change on environmental remedies and develop plans to mitigate significant impacts. However, LM provided minimal information about ongoing or planned efforts to carry out this strategy. Specifically, the 2020 LM Site Sustainability Plan, which officials said provides information about LM s future plans to adapt to changing climate conditions, includes the term climate change one time, in reference to sustainable buildings not to remedies. The plan describes one pilot project conducted at the Monticello site to evaluate the site s main climate stressors and capacity to adapt to those stressors, but it does not describe whether or how LM intends to use the results of the pilot project, such as any specific plans to roll out the project to other sites. Aside from the 2020 LM Site Sustainability Plan, LM officials said they have a goal to review sites conceptual models, which predict how remedies should perform under different conditions, with the aim of updating the assumptions in the models to better account for real-world conditions. However, LM did not provide details about how it intends to meet this goal, such as a schedule for implementing this review across its sites. According to LM officials, LM has not developed a plan or schedule for reviewing sites conceptual models because of competing priorities. In addition, LM officials told us they have not assessed the effects of climate change or developed plans to mitigate those effects because of a lack of concern about the risks posed by climate change. Specifically, site managers in charge of several of LM s category 3 sites including Rocky Flats, which has the highest environmental liability of LM s 100 sites and is currently implementing the large-scale project described above to address erosion caused by extreme precipitation told us that they have not assessed the potential effects of climate change on their sites because they do not believe climate change is a concern. Recognizing the federal government s significant role in managing climate-related disaster impacts, GAO s Disaster Resilience Framework provides three broad principles that those who oversee or manage federal efforts can consider when analyzing opportunities to enhance their contribution to national disaster resilience. For instance, under the information principle, the framework states that accessing authoritative, understandable information can help decision makers to identify current and future risk and the impact of risk-reduction strategies. In addition, the integration principle states that integrated analysis and planning can help decision makers take coherent and coordinated resilience actions. By developing plans to assess the effect of climate change on LM s sites and to mitigate any significant impacts and, as part of these plans, incorporating principles from GAO s Disaster Resilience Framework, as appropriate, LM could better ensure that its remedies will protect human health and the environment in the long term. <3.3. Regulators Update or Adopt New Requirements, Making Remedies No Longer Compliant With Standards> According to LM officials, LM faces challenges when regulators update or adopt new requirements and regulations for contaminants, meaning that remedies in place when LM received a site may no longer meet standards. For example: At several sites, such as the Fernald Preserve and Mound sites in Ohio and the Rocky Flats site in Colorado, LM officials told us they are investigating for per- and polyfluoroalkyl substances (PFAS) or vapor-forming chemicals, which are emerging contaminants that EM was not required to address when cleaning up these sites. EPA has published information regarding potential impacts to human health and the environment from these and other emerging contaminants. Federal regulatory standards issued by EPA in the future could affect LM sites. At the Bluewater site in New Mexico, LM officials said that the state recently adopted an updated, more stringent uranium drinking water standard. Under the new standard, the area of groundwater that is considered contaminated is much larger than the area of groundwater considered contaminated under the standard in place when NRC approved transfer of the site to LM, according to officials. To address challenges related to new requirements and regulations, LM is monitoring changes to federal and state standards. For example, LM participates in interagency working groups, such as a PFAS working group led by DOE s Office of Environment, Health, Safety, and Security. Participation in the working groups helps LM monitor the evolution of a federal PFAS regulatory standard, according to LM officials. In addition, LM officials told us that they routinely review state and federal regulatory changes, with the aim of providing sites time to prepare for any changes. LM also evaluates its surveillance and maintenance practices against current regulatory and best management requirements to identify any gaps. For instance, in 2018, the contractor that provides support services to LM reviewed site management practices listed in UMTRCA Title I and II sites site management plans against current regulatory requirements. The review identified a number of discrepancies between practices and requirements. For example, the review found that some site management plans were developed many years ago and had not been updated to reflect changes in remedy requirements. LM indicated it planned to take steps to address the discrepancies identified by this review. For example, LM is planning to update its site management plans to include the most current remedy requirements for each site. <3.4. Conclusions> At many sites contaminated from nuclear weapons production and nuclear energy research dating back to World War II and the Cold War, completely eliminating risks to human health and the environment is unlikely. LM is responsible for protecting human health and the environment from the risks that remain after other entities have cleaned up these sites, and its mission is long-term LM sites will require surveillance and maintenance for hundreds or even thousands of years. Over this period, the likelihood that cleanup remedies will experience performance challenges is high, and these challenges may exceed the scope of LM s mission, capabilities, and resources. LM acquires sites from several cleanup entities, but has not developed agreements or procedures with EM or NRC for addressing challenges that require new, active cleanup work. By working with EM and NRC to develop agreements and procedures for identifying and addressing circumstances at LM sites that require new cleanup work beyond the scope of LM s mission, capabilities, and resources, LM can help ensure mitigation by the most appropriate entity of the risks to human health and the environment that such instances would present. Environmental conditions also present challenges to LM s sites, and some of these conditions may become more frequent or intense in the future, according to the 13-agency U.S. Global Change Research Program. To ensure the long-term protectiveness of remedies, it is important for LM to understand how climate change may affect its sites. LM s strategic plan includes a strategy to assess the effects of climate change on its sites, but the agency provided minimal information about how it plans to carry out this strategy. GAO s Disaster Resilience Framework outlines a set of principles that those who oversee or manage federal efforts can consider when analyzing opportunities to enhance their contribution to national disaster resilience. By developing plans to assess the effect of climate change on LM s sites and to mitigate any significant impacts, and, as part of these plans, incorporating principles from GAO s Disaster Resilience Framework, as appropriate, LM could better ensure that its remedies will protect human health and the environment in the long term. <4. Recommendations for Executive Action> We are making three recommendations to DOE: The Secretary of Energy should direct the Director of LM and the Assistant Secretary of the Office of Environmental Management to develop agreements and procedures for identifying and addressing circumstances at LM sites that require new cleanup work beyond the scope of LM s mission, capabilities, and resources. (Recommendation 1) The Secretary of Energy should direct the Director of LM to work with the Nuclear Regulatory Commission to develop agreements and procedures for identifying and addressing circumstances at LM sites that require new cleanup work beyond the scope of LM s mission, capabilities, and resources. (Recommendation 2) The Secretary of Energy should direct the Director of LM to, as called for in LM s strategic plan, develop plans to assess the effect of climate change on LM s sites and to mitigate any significant impacts. These plans should incorporate principles from GAO s Disaster Resilience Framework, as appropriate. (Recommendation 3) <5. Agency Comments and Our Evaluation> We provided a draft of this report to DOE for comment. In its comments, reproduced in appendix IV, DOE agreed with our three recommendations. In its letter, DOE officials stated that in response to our first two recommendations, it plans to work with DOE s Office of Environmental Management and the Nuclear Regulatory Commission to develop agreements and procedures for identifying and addressing new cleanup work beyond LM s mission scope of long-term stewardship. DOE officials also stated that in response to our third recommendation, LM will develop site assessment and mitigation plans, taking into account any significant effects of climate change and incorporating principles from GAO s Disaster Resilience Framework, as appropriate. DOE also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committee, the Secretary of Energy, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: DOE Office of Legacy Management s Nine Category 3 Sites as of Fiscal Year 2019 Rocky Flats site (Colorado) Shiprock Disposal site (New Mexico) Tuba City Disposal site (Arizona) Weldon Spring site (Missouri) DOE considers site cleanup to be complete when, among other things, short-term cleanup activities have been completed and long-term cleanup measures, such and groundwater treatment, are in place. Appendix II: List of DOE Office of Legacy Management s 100 Sites as of Fiscal Year 2019 Appendix III: List of 52 Sites Transferring to the DOE Office of Legacy Management by Fiscal Year 2050, as of September 2019 DOE Office of Environmental Management (EM) Planned transfer in FY 2022 Durita Disposal site East Tennessee Technology Park site Gas Hills East Disposal site Gas Hills North Disposal site Ray Point Disposal site Split Rock Disposal site Planned transfer in FY 2023 Bear Creek Disposal site Hazelwood site private licensee U.S. Army Corps of Engineers (USACE) Appendix IV: Comments from the Department of Energy Appendix V: GAO Contact and Staff Acknowledgments <6. GAO Contact Staff Acknowledgments> David C. Trimble, (202) 512-3841 or [email protected]. In addition to the contact named above, Amanda K. Kolling (Assistant Director), Katherine Killebrew (Analyst in Charge), and Rachel Pittenger made key contributions to this report. Also contributing to this report were Mark Braza, Ellen Fried, Susan J. Irving, Richard Johnson, Keegan Maguigan, Katrina Pekar-Carpenter, Dan Royer, and Doris Yanger.

Why GAO Did This Study After over 70 years of nuclear weapons production and energy research at hundreds of sites across the country, DOE faces over $500 billion in environmental liabilities associated with cleanup of hazardous contamination and long-term management of these sites. LM is responsible for the portion of these liabilities associated with long-term management of sites after active cleanup has been completed. LM oversees 100 sites across the country. Depending on the sites' clean-up standards and intended reuse, LM will likely be managing some sites for centuries. Senate Report 116-48 accompanying the National Defense Authorization Act for fiscal year 2020 includes a provision for GAO to review LM's operations, including the nature of its environmental liability. This report examines (1) LM's environmental liability, and (2) any challenges LM faces in managing its sites and how it is addressing those challenges. GAO analyzed data on LM's environmental liability; interviewed officials at LM headquarters and those responsible for the nine sites requiring the most intensive level of management; and reviewed relevant policies, procedures, and guidance. What GAO Found The environmental liability of the Department of Energy's (DOE) Office of Legacy Management (LM) was estimated at $7.35 billion in fiscal year 2019 and, according to LM officials, is expected to grow as LM acquires more sites (see figure for LM's current sites). Long-term surveillance and maintenance activities associated with radioactive and hazardous waste, such as treating residual groundwater contamination, account for about 40 percent of the costs. LM's environmental liability has generally remained stable over the past 5 years. As of September 2019, LM is scheduled to receive 52 additional sites by 2050, and officials expect LM's environmental liability to grow as a result. Officials said LM is taking steps to reduce its environmental liability at its current sites, such as exploring alternative approaches for reducing residual contamination. LM officials identified challenges in providing long-term surveillance and maintenance of sites related to: (1) the performance of remedies that contain or reduce contamination, (2) environmental conditions, and (3) new regulatory requirements. LM is taking some actions to address these challenges. For example, at its Rocky Flats, Colorado, site, LM is repairing an aging landfill that was damaged by extreme rainfall events. However, LM has not yet planned for how to address challenges at some sites that may require new cleanup work that is not in the scope of LM's expertise and resources. By developing agreements and procedures with the entities that would be responsible for conducting this new cleanup work, LM can help mitigate risks to human health and the environment. In addition, LM has not made plans to assess the effects of climate change on its sites or to mitigate those effects, as called for in its strategic plan. By developing plans to assess the effect of climate change on its sites and to mitigate any significant impacts, LM could better ensure that its remedies will protect human health and the environment in the long term. What GAO Recommends GAO is making three recommendations, including that DOE develop agreements and procedures for circumstances that require new cleanup work and that it develop plans to assess and to mitigate the effects of climate change on its sites. DOE agreed with all three recommendations.

gao_GAO-19-443

gao_GAO-19-443_0

<1. Background> <1.1. The U.S. Freight Rail System> The U.S. freight rail network is a private industry that moves about 40 percent of U.S. freight across about 140,000 miles of track. Freight railroads are responsible for the safety of their trains, tracks, and personnel. These railroads rely on their revenues for funding to perform track inspections and maintenance. Close to 600 freight railroads operate in the United States, and they are divided into three classes according to revenues. The seven Class I freight railroads, those with approximately $447.6 million or more in annual revenue over 3 consecutive years, account for more than 90 percent of the annual revenues of the railroad- freight industry and employ 90 percent of railroad employees. Class I freight railroads move freight over long-haul routes and face competition from each other and from other freight-shipping modes, such as trucks and barges. Class II and III railroads tend to operate over much smaller geographic areas than Class I railroads and employ fewer people. Trains operate on different types of train tracks, including main line tracks the primary rail arteries trains use to travel and sidings, which are primarily auxiliary tracks for trains to pass one another. Trains can be stored, sorted, and assembled in railyards. Railroads use main line and sidings to enable trains to enter and leave the yard. Outside railyards, some sections of main line track have sidings that lead to a parallel set of rails to allow trains to pass one another. In addition, some portions of main line track consist of two or more parallel sets of track to allow trains to pass one another or travel in opposite directions. See figure 1 for an illustration of different track types and siding. <1.2. Freight Train Operations> <1.2.1. Train Makeup and Handling> Train makeup refers to the placement of individual railcars that make up a train. A typical train consists of a locomotive the power and control unit where the train operator sits at the front of the train followed by connected railcars. The lead locomotive pulls the train and provides control for other functions, including braking. Freight trains carry a variety of freight using different types of railcars that vary in capacity, length, and weight. When assembling a train, railroads consider a variety of factors such as each car s weight, length, freight, and whether it is loaded or empty when determining its position in the train. Train make up is also dependent on external conditions, such as variations in terrain and weather conditions. Railroads can place radio-controlled locomotives, called distributed power (DP) units, throughout trains to spread out pulling and pushing power, which we discuss in more detail below. Proper train makeup is critical for ensuring a train is able to effectively negotiate track and prevent derailment, according to FRA. Improperly assembled trains are more susceptible to derailment, in part because of vertical, longitudinal, and lateral forces throughout the train also known as in-train forces that can affect the stability of a train on its tracks, depending on a variety of factors, including the train s speed and terrain. For example, excessive in-train forces can cause a long, heavy train to pull apart or climb off the track upon a change of grade (e.g., going up or down hills) or when the train enters a curve. Unit trains which carry a single commodity, such as coal or oil, to one destination experience in-train forces that are easier for railroads to model and engineers to predict because the railcars are generally uniform in size and weight. In comparison, determining train makeup is more complex in mixed freight trains, which can experience more unpredictable in-train forces resulting from railcars of different weights, lengths, and freight (e.g., bulk goods such as grain and coal, consumer goods such as automobiles, or hazardous materials). For example, if a train is assembled in a manner in which empty railcars alternate with loaded, heavy railcars, braking can create compression at the couplers and cause buckling when an empty train car is compressed between heavier railcars and derails from the train tracks. <1.2.2. Braking and Distributed Power> Freight trains in the United States utilize air-braking systems to control speed and stop. A conventional air-braking system is controlled by an air pressure signal from the leading locomotive, which sends a signal through the train to engage brakes. Because each railcar receives this signal sequentially, it takes multiple seconds for railcars at the end of the train to receive the air pressure signal and begin braking, depending on the train s length. The application of air brakes generates in-train forces, as railcars at the front of the train that have applied brakes will be pushed by railcars further back that have not yet received the air signal. Other technologies, including two-way end-of-train devices and DP, are frequently used by U.S. railroads in conjunction with conventional brakes to provide improved braking performance or other benefits. End-of-train devices measure brake pressure and transmit this information via radio signal to the front of the train. An end-of train-device can also engage air brakes at the rear end of a train in an emergency to decrease the time required to apply the brakes on all cars. As previously mentioned, railroads can also place radio-controlled locomotives, called DP units, throughout trains to spread out pulling and pushing power and improve braking. For example, engineers can engage a DP locomotive s air brakes at the same time as a leading locomotive to decrease the time needed to activate brakes throughout the train. (See fig. 2.) Engineers can also use a locomotive s dynamic brake system, which uses traction generated by the engine, to slow a train. While most railroads employ conventional brakes, railroads can also employ electronically controlled pneumatic brakes which provide an electronic brake signal instantaneously throughout a train allowing railcars to brake faster than with conventional air brakes. As we previously reported, electronically controlled pneumatic brakes reduce the in-train forces that occur during braking when individual cars push and pull against one another. <1.2.3. Train Crews> Freight trains in the United States generally operate with two crew members the conductor and the engineer. The conductor is responsible for the train, freight, and crew. The engineer operates the locomotive, including application of air brakes, dynamic brakes, and any radio- controlled DP locomotives. Train crews use hand-held radios to communicate when they are working in different parts of the train. For example, if the crew detects a train maintenance issue, the conductor may need to leave the locomotive and walk the length of the train to address the problem. In these situations, the conductor may use a hand- held radio to communicate. <1.3. The Role of Federal Agencies and States> <1.3.1. FRA and States> The U.S. Department of Transportation (DOT) is responsible for ensuring the safety of the transportation system. Within DOT, FRA is the primary federal agency responsible for formulating railroad safety policies and regulations and for monitoring and enforcing railroads compliance with requirements. FRA s mission is to enable the safe, reliable, and efficient movement of people and goods. FRA provides regulatory oversight of the safety of U.S. railroads, including both passenger and freight. FRA issues and enforces safety regulations including requirements governing track, signal, and train control systems, grade-crossing warning systems, mechanical equipment such as locomotives and railcars, and railroad-operating practices. In developing most of its regulations, FRA seeks input from the railroad industry and other organizations through its Railroad Safety Advisory Committee. FRA provides oversight of railroad safety through a variety of activities, including periodic inspections and enforcement actions. FRA has safety inspectors and specialists in eight regional offices that are primarily responsible for the enforcement of federal laws and regulations related to railroad safety. FRA conducts inspections of railroads to monitor compliance with safety regulations, such as those governing the transport of hazardous materials, among other issues. In addition, 31 states conduct inspections for compliance with federal safety regulations. FRA trains state inspectors to enable them to conduct inspections according to FRA s standards. In addition to these activities, FRA conducts other types of safety oversight to reduce train accidents, such as analyzing railroad safety data, investigating accidents, and reviewing complaints. FRA also funds research and development to support its safety oversight. FRA s Office of Research, Development, and Technology conducts research to understand railroad safety risks and improve safety. This work contributes information used to inform FRA s development of regulations, standards, and best practices. <1.3.2. Other Federal Agencies> Other federal agencies also have roles in overseeing freight railroads, such as through promoting safety or regulating railroad industry economics. For example, NTSB is an independent federal agency that produces safety studies and investigates transportation-related accidents across all transportation modes to determine probable causes, identify safety issues, and make recommendations to prevent recurrences. STB oversees significant rail-service matters and resolves rate and service disputes between railroads and their customers, known as shippers. Class I railroads report data to STB on the amount and type of freight they transport. STB produces and releases statistical data derived from the railroad s submitted data. <2. Freight Train Length Has Increased, and Railroads Identified Advantages to Operating Longer Trains> According to officials from all seven Class I freight railroads and representatives from AAR, FRA, STB, and other stakeholders we interviewed, freight train-length has increased in recent years; however, the data are limited. According to data that two Class I railroads provided to us, their average train length increased over the 10-year period of 2008 through 2017 by about 1,500 feet for one railroad (from about 6,000 to 7,500 feet, or up to about 1.4 miles) and about 1,200 feet for the other railroad (from about 4,900 to 6,100 feet, or up to about 1.2 miles). These data represent an increase in the average length of a train of about 25 percent for both railroads. Two additional Class I railroads reported average train lengths between about 5,800 and 6,600 feet for the year 2017. However, we were not able to verify increases more broadly because FRA, STB, and AAR do not collect comprehensive data on train- length in feet, and while such data are collected by Class I railroads, they are not publicly available. Officials from two Class I railroads stated that operating longer trains is not a new practice, and one official noted that the railroad has been operating trains in excess of 10,000 feet in selected rail corridors for almost 30 years. Officials from AAR added that increases in train length over time have likely been gradual. While two Class I railroads provided data on average freight train-length over time, officials from each of the seven Class I railroads stated that they operate longer trains. Railroad officials said they operate these trains in certain rail corridors that have the capacity to accommodate longer trains, and not over their entire rail networks. For example, officials from one Class I railroad said they are running on a daily basis a 12,000-foot train which is about 2.3 miles long and another reported that twice weekly it operates a 16,000-foot train which is about 3 miles long on a route linking the mid-west to the west coast. Both of these Class I railroads noted that longer trains such as these are a small percentage of the trains they operate. More specifically, one of these railroads reported that over the previous 24 months, about 1 percent of its train-miles were traveled by trains over 10,000 feet long, and the other reported that about 2 percent of its current train-miles were traveled by trains over 10,000 feet long. Other data describing the average number of railcars per train and average weight of trains indicate an overall increase over the past 10 years. However, these measures are not proxies for freight train-length since the length and weight of railcars can vary significantly depending on their design and freight. Class I railroads are required to report data, such as the freight car-miles, to STB annually, and AAR aggregates and makes this information publicly available in various publications. We analyzed these data and found that the average number of railcars per freight train across all Class I railroads increased from 71.0 to 73.2 railcars per train (an increase of about 3 percent) from 2008 through 2017. Additionally, FRA and some Class I railroad officials stated that railroads operate freight trains that have more than twice this average number of railcars including trains with 150 railcars or more. Similarly, the average train weight increased from about 5,978 tons to 6,577 tons per train (an increase of about 10 percent) from 2008 through 2017. Class I railroad officials said that there are advantages to operating longer freight trains in some rail corridors and that operating longer trains is part of strategic planning for many railroads for a variety of reasons. Officials from all Class I railroads stated that they operate longer trains in some rail corridors as a way to increase efficiencies, such as fuel efficiency, and decrease costs by reducing the number of train crew and other costs. Additionally, railroad officials said that running longer trains can mean that they do not need to operate as many trains officials from six Class I railroads specifically indicated they are operating fewer shorter trains as a result of operating longer trains. Further, Class I railroad officials stated that market forces, such as competition from the trucking industry, create an incentive for them to increase efficiency. Class I railroad officials also stated that the use of certain technologies, such as DP locomotives, enables them to operate longer trains more safely. Other Class I railroad officials attributed their increased usage of longer trains to capital improvements on railroad tracks, such as lengthening the sidings to accommodate longer trains. <3. Stakeholders Identified Considerations for Safely Operating Longer Freight Trains and Potential Impacts on Communities> <3.1. Considerations for Operating Longer Trains Include Train Makeup and Handling and Crew Training> <3.1.1. Train Makeup and Handling> While the need for proper train makeup and handling are not unique to longer trains, it is particularly important for their safe operation, according to stakeholders we spoke with. As previously discussed, the length of each train and its makeup the manner in which its cars and locomotives are arranged can affect the forces involved on a moving train. Stakeholders we spoke with said that the consequences of improper train makeup may be more pronounced in longer trains especially in situations with extremes in track grade, curvature, or weather conditions and may add to the challenges of operating longer trains. For example, FRA has investigated accidents in which it determined that train makeup and handling were the probable cause and contributing factors in train derailments of longer freight trains. According to officials from FRA, NTSB, railroad employee unions, and other stakeholders, longer mixed- freight trains may be more difficult to handle than unit trains in certain circumstances due to variations in car length and weight and the extent to which additional DP locomotives are employed. Stakeholders noted that placing additional DP locomotives within a train can improve train handling and prevent train separations and derailments. Stakeholders added that using DP can also help improve air brake performance and reduce braking response time, as previously discussed. In addition, according to stakeholders, use of properly positioned DP locomotives can improve radio communication between the lead locomotive and rear DP locomotives on longer trains. Union representatives added that in their view, the safest train-braking operations are when DP locomotives are used in conjunction with electronically controlled pneumatic brakes. According to representatives from AAR and Class I railroads, however, freight railroads have faced challenges with these braking systems, including reliability issues, as we have noted in a previous report. While there are no comprehensive federal regulations that govern train makeup, including use of DP locomotives, representatives of Class I railroads told us they consider a variety of factors when determining train makeup to ensure safe operation of all of their trains, including tonnage, train-length, and terrain. According to one railroad, using software to determine train makeup and predict train handling needs is an industry standard and critical best practice. Another railroad told us they use computer simulations to develop rules for train makeup in order to operate longer and heavier trains. Some railroads told us they impose length and weight restrictions on specific routes to ensure safe train operation and manage corridor capacity. Union representatives and rail experts we spoke with told us that in their view, railroads do not always properly assemble their longer trains, for example placing heavy railcars behind lighter railcars, a practice that can increase the likelihood of derailment. These stakeholders also said that railroads do not always use DP with longer trains, which experts attributed to the extra cost of deploying additional locomotives. We did not independently verify how the railroads we spoke with assemble or operate longer trains. <3.1.2. Training Crews to Operate Longer Trains> Stakeholders we interviewed said that it is essential that crews are properly trained to operate longer freight trains. FRA regulations require railroads to train and certify their train crews. More specifically, FRA requires qualified locomotive engineers to demonstrate proficiency in operating trains in the most demanding type of service they may be permitted to perform, which includes operating longer trains. Railroads are required to conduct annual performance evaluations of engineers to ensure that they can safely operate trains according to federal railroad safety requirements. Representatives of Class I railroads told us they train their crews on trains and simulators with various routes, scenarios, and train lengths. However, union representatives said that some railroads do not provide sufficient training for crews to operate longer trains, and that some locomotive engineers and conductors lack the necessary training and experience to handle longer trains, a situation that can be challenging even for properly trained crew. As discussed later, FRA is planning to review this issue when it performs planned audits of Class I railroads training programs. Stakeholders we interviewed identified additional challenges for crews when operating longer freight trains related to crew members fatigue. For example, according to FRA, union representatives, and other stakeholders, a longer train may require crew members to walk a long distance if the train stops unexpectedly. For example, when there is a mechanical or other problem that causes a train to stop, the conductor may have to walk from the lead locomotive to the problem area and back again. This could mean walking 4 miles to the end and back on a 2-mile- long train. Also, according to FRA officials, as with any train that is left unattended, the crew must apply a sufficient number of handbrakes to prevent unintended movement. With longer and heavier trains, railroads may require additional handbrakes to be applied. According to union representatives, such physically demanding tasks can increase crew fatigue. <3.2. Longer Trains May Impact Grade Crossings in Communities> Stakeholders we interviewed expressed divergent views about whether longer trains may increase or decrease blockages at grade crossings. Our prior work has noted a connection between the volume of freight rail traffic and the potential for grade-crossing blockages to increase. In 2014, we found that trends in freight flows, if they continue as expected, may exacerbate congestion issues in communities, particularly along certain corridors. FRA officials told us that complaints about blocked highway-rail grade crossings have increased in recent years. They noted that blocked crossings are a local concern and it is not clear the extent to which longer freight trains are contributing to increases in reporting about such blockages. According to FRA, trains sometimes block crossings for a limited time or for hours if an accident or mechanical problem occurs. They noted that such blockages can be created by trains of any length and that in their experience, railroads prioritize movement of longer trains, making it less likely that such trains would be responsible for prolonged blockages of crossings. Furthermore, officials from FRA and Class I railroads and others we spoke with pointed out that longer trains may decrease the frequency of blocked crossings, as railroads may run fewer trains. In contrast, officials from the National League of Cities, as well as state and local officials we spoke with, expressed concerns over increased frequency of longer trains and their impact on grade crossing safety. Although they also acknowledged that trains of any length can block grade crossings, they raised concerns that longer trains prolong the duration of a blockage and can block more crossings concurrently, making it harder for vehicles to find an alternate route around the train. Consequently, these stakeholders are concerned that longer trains create increased delays for emergency responders and increase the likelihood of unsafe behavior among motorists and pedestrians, as outlined below. Delayed emergency response. According to national, state, and local officials we interviewed, longer trains pose concerns about the potential for emergency response delays if responders encounter a train blocking one or more crossings and cannot quickly find an alternate route around it. (See fig. 3.) For example, officials in Mount Victory, Ohio, reported that 22 freight trains travel through their town daily, including a 16,000-feet train, which is nearly 3 miles long. This train blocks 4-to-5 grade crossings concurrently, which increases the time to access parts of the town, according to local officials. Our prior work has found that blocked highway-railroad grade crossings can have significant impacts on emergency response time and outcomes. For example, we reported an instance of a fire that destroyed a house while train traffic blocked the only two crossings in the town and prevented fire crews from responding in time. In another example, a local official in Texas said that one Class I railroad assembles trains and conducts brake checks on the main line tracks because the trains are too long to fit into sidings and railyards. Executing such procedures on mainline track has blocked grade crossings for up to several hours and poses safety challenges for surrounding communities, according to this local official. As a result of situations like these, communities are looking for ways to mitigate delays in emergency services when emergency vehicles must find ways around blocked grade crossings. For instance, some local officials in Washington and Ohio said they have revised their emergency response plans to avoid grade crossings that are likely to be blocked. Motorist and pedestrian behavior. Stakeholders we spoke with expressed concerns that longer trains may increase the likelihood of unsafe behavior among motorists and pedestrians. For example, fatalities can occur when motorists or pedestrians engage in risky behavior such as trying to make it across the tracks before an approaching train reaches the crossing. Moreover, pedestrians have been known to crawl over, through, or under stopped trains (see fig. 4). For example, local officials in Ohio and Texas told us that they have witnessed children crawling through stopped trains to get to school. Research sponsored by FRA has identified driver behavior as the main cause of highway-rail grade crossing collisions, but other factors such as train and traffic volume can contribute to the risk of a crash occurring. Although there are no current federal regulations that directly address blocked crossings or limit the amount of time trains can block grade crossings, some states and localities have attempted to address this issue. For example, some states and localities have passed laws limiting the duration of blocked crossings and proposed fines for railroads, but state and local officials and other stakeholders we spoke with said that federal law preempts such efforts. Other states and local communities have attempted to address blocked crossings through studies and communication with federal agencies and railroads, with mixed success. For example, the Texas Department of Transportation has undertaken mobility studies for the towns of El Paso and Laredo to identify options to address blocked crossings, such as constructing bridges or underpasses. According to officials with the Texas Department of Transportation, these studies identified alternatives that may help alleviate some of the vehicular/rail conflicts if they were implemented; however, the implementation of alternatives for any potential projects are constrained by the availability of funds. In other examples, local officials from Ohio and Illinois told us they have contacted Class I railroads and FRA to find solutions when idle trains lead to blocked crossings, especially when emergency access is a concern but continue to face challenges. Class I railroads and FRA officials said they work with local communities to find solutions to these issues. Additionally, state and local officials noted that they do not have access to information on the length of trains that travel through their communities. Some added that freight railroads are not required to provide such data and that local efforts to gather this information, such as through videotaping train movements and analyzing data, are costly. This circumstance makes it challenging for state and local officials to assess the extent to which longer trains may or may not be contributing to blocked crossings. <4. FRA Is Studying Operational Risks of Longer Trains but Lacks a Strategy for Sharing Research Results and Is Not Fully Assessing Community Risks> <4.1. FRA Is Studying Operational Risks of Longer Freight Trains> In the fall of 2017, FRA began a study to understand operational risks of long freight trains. The study is examining issues related to train makeup and handling, including the use of DP locomotives, crew training and fatigue, and braking performance for longer trains. The study intends to identify strategies to reduce any risks identified. According to FRA, as the railroad industry has increased the length of freight trains, past accepted practices for train makeup and handling may not be appropriate for longer trains. For example, according to FRA, the current performance standard for air brakes was last updated in 1947 and based on tests for trains with up to 150 cars. FRA officials stated the study will conduct air brake tests to evaluate brake performance for trains with 150-to-250 railcars and use this data to conduct computer simulations of trains in a variety of configurations for example, with and without DP and with DP locomotives at different locations throughout a train to evaluate in-train forces. According to FRA officials, this information will help FRA determine whether rail safety issues exist for trains with over 150 railcars and if regulatory actions are necessary. The study employs a two-phase approach that includes data analysis, literature review, computer simulations, and brake testing. FRA officials said the agency plans to complete the first phase of its study and issue a report by the end of 2020 and issue a report on the second phase by the end of 2021. Table 1, below, outlines specific tasks of the study by phase. As we previously mentioned, FRA provides oversight of railroad safety through a variety of activities to ensure compliance with regulations, such as conducting inspections of railroad operations and reviewing and approving new and materially modified railroad crew training programs. According to FRA officials, these activities address safety for all freight trains, including longer trains. In addition to these activities, FRA plans to begin new, more in-depth audits of Class I railroads training programs on a systematic basis in 2019 to determine whether engineers are being adequately trained to operate longer trains and perform other types of demanding service. According to FRA, these audits will determine whether locomotive engineer certification programs are in compliance with federal rail safety regulations. For example, federal regulations require that railroads provide training to their engineers through classroom lessons and in trains or simulators on the most demanding type of service they may be called upon to perform. According to FRA officials, this would include operation of longer freight trains in challenging terrain. FRA plans to audit the training programs of three Class I railroads by the end of 2019, selected based upon safety risk factors, with additional audits of other railroads planned for the following year. Once the audits are complete, FRA plans to discuss its findings with each audited railroad and make recommendations for improvements, as needed. <4.2. FRA Lacks a Strategy for Sharing the Results of Its Study on Longer Trains> While FRA s study to assess operational safety risks of longer trains is under way, the agency lacks a current, documented strategy for how it will use and share the results of its research with relevant stakeholders. According to FRA officials, after internal review and approval, the agency routinely shares its research results at conferences and on its website. However, FRA s strategic plan for research and development, which outlined how the agency shares research results and engages with internal and external stakeholders in support of FRA s rail safety mission, expired in 2017. More specifically, this plan outlined key internal and external stakeholders and their roles including labor and industry partners and specific outreach strategies, such as holding periodic, public events to present FRA s research and development. This plan also stated that FRA s research provides the scientific and technological basis for its rulemaking and regulation enforcement and that effectively sharing the results of its studies increases the likelihood that its research will have real world impacts. According to FRA officials, the agency is currently updating its strategic plan for research and development, which will outline FRA s goals and objectives for its research, and expects to finalize the plan by the summer of 2019. FRA does not have any other documented policies in place for how it will use or disseminate the results of its study. Federal internal control standards call for management to communicate quality information using appropriate methods both internally and externally in order to achieve an entity s objectives and respond to risks. Further, our work on best practices for strategic planning has found that formulating specific strategies and linking them with goals and objectives is critical for agencies to achieve these goals and objectives. In addition, we previously identified generally accepted research standards for sound studies, standards that include presentation of results. These standards call for relevant stakeholders to be informed of research results and any recommendations upon completion of a study. The Transportation Research Board a part of the National Academies of Sciences, Engineering, and Medicine which provides research-based solutions to improve transportation, among other things has found that organizations that develop processes and a systematic approach to implementing research are more effective and efficient at applying research results. FRA s study is a first step for determining how, if at all, makeup and handling for longer trains as well as their crews needs may differ from shorter trains. If study results are effectively shared with relevant stakeholders, then those best situated to act on the results may be more likely to do so. For example, FRA officials who have rulemaking and enforcement authority could identify and implement changes needed to improve the safety of longer train operations, such as by issuing relevant guidance, rulemaking, or other actions. Similarly, external stakeholders, such as Class I railroads and workers, would have the opportunity to use study results to inform their practices and policies, such as making changes to internal train-makeup rules or operators training programs for longer trains. As FRA updates its strategic plan for research and development, formulating specific strategies for how it will share its research results with internal and external stakeholders would help to ensure FRA is in the best position to achieve its research goals and objectives in support of the agency s mission of enabling the safe, efficient, and reliable transportation of people and goods. <4.3. FRA Is Not Fully Assessing Community Impacts Related to Longer Trains> While FRA is taking steps to assess operational safety risks of longer trains through its study and other efforts, it is not assessing whether longer freight trains impact communities by blocking more grade crossings. Safety at grade crossings has been a longstanding issue in the United States, and according to stakeholders we spoke with, some of these issues may be exacerbated by longer trains. In 2006, as part of its report on the impacts of blocked grade crossings on emergency response services, FRA stated that future growth in rail and highway traffic will likely increase blocked crossings, and more recently FRA officials stated that this is still the case. In addition, while collisions at grade crossings have declined over time, FRA also expects the risk of grade-crossing incidents to grow as both rail and highway traffic increase during the next decade. However, FRA officials also stated that there is no evidence that more blocked crossings results in more grade-crossing incidents. Further, according to FRA, the agency is not in a position to address community- specific public safety issues. We have previously reported that the amount of time that grade crossings are blocked depends on a number of factors and is typically a function of the number, speed, and length of trains. Although there are no federal regulations directly addressing blocked grade crossings, to gauge the extent of reported instances of blocked crossings, in early 2018, FRA began to track data on the location of blocked-crossing complaints from state rail-safety managers in nine states. FRA officials stated they intend to use this data to identify communities where frequently blocked grade crossings are reported and work with the railroads and communities for resolution. However, FRA officials said they do not plan to explore any potential impacts of longer trains on grade crossings in communities, as FRA officials have stated they do not believe that longer trains are having an impact on blocked crossings. For example, FRA does not plan to use any of the information gathered in its longer train study which will include a sampling of the routes longer trains travel to inform the agency s work on blocked crossings because FRA officials stated that they do not expect the study will yield relevant information. State and local officials we spoke with, as previously mentioned, expressed concerns about the potential for longer trains to increase the number of blocked grade crossings, causing delays for emergency responders and affecting the behavior of motorists and pedestrians. Federal internal control standards state that effective use of information and communication are vital for an entity to achieve its objectives. These standards call for management to use quality information relevant, reliable information that is current, complete, accurate, accessible, and timely to achieve an agency s objectives and respond to risks. Further, we previously identified essential practices for agencies to help manage risks and identify opportunities that could impact the achievement of agencies goals. These risk-management practices call on agencies to systematically identify risks and use the best information available to assess them. Community officials acknowledged that while they believe longer trains are making blocked crossings worse, they do not have access to information needed to confirm this observation. As previously discussed, some local communities continue to face challenges after reaching out to FRA and Class I railroads to find solutions to issues related to grade crossings. As these issues continue to evolve and FRA works to identify locations where blocked crossings are reported, working with railroads and local communities to identify any potential impacts of longer trains on grade crossings would help FRA to determine whether and how longer trains are affecting these communities and what could be done to address those impacts. In addition, it would allow FRA to determine whether it should take additional action to ensure that longer trains are operating safely and to work with railroads to minimize their impact to the communities through which they travel. <5. Conclusions> FRA faces a challenging task in assessing the safety impacts of longer trains and has taken some important steps to collect needed information through its study of longer trains operations. However, without documented strategies for how it plans to communicate the results of its research, FRA may lose an opportunity to effectively work with internal and external stakeholders such as railroads, railroad workers, and local communities to address any risks of operating longer trains in support of the agency s mission of enabling the safe, efficient, and reliable transportation of people and goods. In addition, local community officials we spoke with raised concerns that longer trains are creating safety risks by causing emergency response delays and exacerbating dangerous motorist and pedestrian behavior, but acknowledged that they lack access to information on longer trains. FRA, however, is uniquely positioned to assess whether these concerns have merit. As FRA has stated, it expects that future growth in rail and highway traffic will increase incidences of blocked crossings and the risk of grade-crossing incidents. As traffic continues to grow including railroads potential increased use of longer trains having better information could be useful to FRA and other stakeholders. Without examining the potential impacts of longer trains on local communities, including on blocked grade crossings, FRA may lose an opportunity to identify what, if any, additional actions should be taken to ensure the safety of longer trains and the communities through which they travel. <6. Recommendations> We are making the following two recommendations to FRA: The Administrator of FRA should develop a strategy for sharing FRA s research results with internal and external stakeholders and implement that strategy for its research on the safety impacts of very long trains. (Recommendation 1) The Administrator of FRA should work with railroads to engage state and local governments to (a) identify community-specific impacts of train operations, including longer trains, where streets and highways cross railroad rights-of-way and (b) develop potential solutions to reduce those impacts. (Recommendation 2) <7. Agency Comments> We provided a draft of this report to DOT, NTSB, and STB for their review and comment. In its comments, reproduced in appendix I, DOT concurred with the recommendations. DOT and STB also provided technical comments, which we incorporated as appropriate. NTSB had no comments. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Transportation, the Chairman of NTSB, the Chairman of STB, 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 have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the U.S. Department of Transportation Appendix II: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Andrew Huddleston (Assistant Director); Jean Cook (Analyst in Charge); Jason Coates; Philip Farah; David Hooper; Rosa Leung; Gail Marnik; John Mingus; Madhav Panwar; Malika Rice; Kelly Rubin; and Michelle Weathers made key contributions to this report.

Why GAO Did This Study In 2017, the U.S. freight rail system moved over 1.5-billion tons of goods. The largest freight railroads—Class Is—dominate the industry and account for more than 90 percent of its annual revenue. In recent years, railroad workers and local communities have expressed safety concerns related to longer freight trains, and recent accidents involving such trains are currently under investigation by FRA. FRA does not currently place limits on freight train length. GAO was asked to review the safety and other impacts of longer freight trains. This report examines: (1) changes in freight train length over time, (2) safety considerations for operating longer freight trains, and (3) the extent to which FRA is assessing any safety risks. GAO reviewed relevant statutes, regulations, and federal agencies' reports and plans; analyzed available data on freight train length from railroads; and interviewed federal officials and various stakeholders, including state and local officials and first responders from five states (selected to represent different railroads and regions), and officials from the railroad industry, unions, and advocacy groups. What GAO Found Freight train length has increased in recent years, according to all seven Class I freight railroads. Data on train length are not publicly available; however data provided to GAO by two Class I railroads indicated that their average train length has increased by about 25 percent since 2008, with average lengths of 1.2 and 1.4 miles in 2017. Officials from all seven Class I railroads said they are currently operating longer than average trains on specific routes, although some said such trains are a small percentage of the trains they operate. One railroad said it runs a 3-mile-long train twice weekly. Officials identified increased efficiencies and economic benefits among the advantages of longer freight trains. Stakeholders said that the arrangement of train cars and locomotives—known as “train makeup”—and the potential for blocking highway-railroad crossings are issues to consider to safely operate longer freight trains. To prevent derailment, stakeholders said it is important that longer trains are arranged appropriately and that crews are trained to operate them. While Class I railroads and others said that longer trains may decrease the frequency of blocked crossings, some state and local officials said these trains can prolong their duration, posing challenges for emergency responders unable to cross the tracks. The Federal Railroad Administration (FRA) is studying the safety risks of and strategies for operating longer trains. As part of the study, FRA plans to analyze train-handling and braking capabilities under varying conditions. FRA officials said they plan to share their research results with relevant stakeholders; however, FRA currently has no documented strategy for sharing the results of its research. FRA officials are also analyzing which parts of the country are reporting frequently blocked crossings. However, FRA officials said they do not plan to use information from either of these efforts to determine whether longer freight trains might contribute to increases in blocked crossings, and the officials believe the issues are unrelated. Developing and implementing a strategy for sharing FRA's research results and identifying any potential impacts of longer freight trains on highway-railroad crossings would enable FRA and stakeholders to better determine what, if any, actions are needed to ensure the safe operation of longer freight trains. What GAO Recommends GAO recommends that FRA develop and implement a strategy to share the results of its study on longer trains and work with railroads to engage state and local governments to identify and reduce impacts of longer freight trains on highway-railroad crossings. FRA concurred with GAO's recommendations.

gao_GAO-20-133

gao_GAO-20-133_0

<1. Background> Federal agencies depend on computerized information systems and electronic data to process, maintain, and report essential information, and to operate and control physical processes. Virtually all federal operations are supported by computer systems and electronic data, and agencies would find it difficult, if not impossible, to carry out their missions and account for their resources without these cyber assets. Hence, the security of these systems and data is vital to public confidence and the nation s safety, prosperity, and well-being. However, computer networks and systems used by federal agencies can be riddled with security vulnerabilities both known and unknown. These systems are often interconnected with other internal and external systems and networks, including the internet, thereby increasing the number of avenues of attack. Cybersecurity incidents continue to impact federal entities and the information they maintain. According to DHS s U.S. Computer Emergency Readiness Team (US-CERT), agencies reported 31,107 information security incidents in fiscal year 2018. These incidents involved several threat vectors, such as web-based attacks, phishing attacks, and the loss or theft of computer equipment, among others. These incidents and others like them can pose a serious challenge to economic, national, and personal privacy and security. Safeguarding federal computer systems has been a long-standing concern, with 2020 marking the 23rd anniversary since GAO first designated information security as a government-wide high-risk area. We expanded this high-risk area to include safeguarding the systems supporting our nation s critical infrastructure in 2003, protecting the privacy of personally identifiable information in 2015, and establishing a comprehensive cybersecurity strategy and performing effective oversight in 2018. Most recently, we continued to identify federal information security as a government-wide high-risk area in our March 2019 high-risk update. Beginning in fiscal year 2015 and continuing through fiscal year 2019, we made approximately 1,700 information security related recommendations. These recommendations identified actions for agencies to take to strengthen their information security programs and technical controls over their computer networks and systems. Nevertheless, many agencies continue to be challenged in safeguarding their information systems and information, in part, because they have not implemented many of these recommendations. As of the end of September 2019, approximately 650 of our prior information security related recommendations had not been implemented. <1.1. Federal Law and Policy Outline Key DHS Responsibilities in Securing Online Information and Systems> DHS plays a key role in the cybersecurity posture of the federal government and in the cybersecurity of systems that support the nation s critical infrastructures. Specifically, FISMA gave DHS responsibilities for administering the implementation of agency information security policies and practices for non-national security information systems, in consultation with OMB. One of DHS s responsibilities is to issue binding operational directives to federal civilian agencies that align with OMB s policies, principles, standards, and guidelines. These directives apply to the federal civilian agencies that fall under DHS s FISMA authorities, but do not apply to national security systems or certain systems operated by the Department of Defense or the intelligence community. See appendix II for a list of agencies to which the directives apply. In introducing the authority to issue binding operational directives, the Senate report accompanying FISMA 2014 noted that OMB would continue to have federal information security enforcement responsibilities through its budget powers and its discretion in setting overarching information security policies. Accordingly, OMB has issued several memorandums regarding cybersecurity, including: OMB M-15-01, Fiscal Year 2014-2015 Guidance on Improving Federal Information Security and Privacy Management Practices, required DHS to perform regular scans of public facing segments of federal civilian agency networks for vulnerabilities on an ongoing basis, as well as in response to newly discovered vulnerabilities. OMB has since rescinded this memorandum and replaced it with guidance for fiscal year 2018-2019 (M-19-02). OMB M-15-13, Policy to Require Secure Connections Across Federal Websites and Web Services, requires that all publicly accessible federal websites and web services only provide services through a secure connection using hypertext transfer protocol secure (HTTPS). OMB M-19-02, Fiscal Year 2018-2019 Guidance on Federal Information Security and Privacy Management Requirements, provides agencies with guidance and deadlines to comply with FISMA and reaffirms the value of agencies identifying and prioritizing their high value assets (HVA) as directed by DHS and OMB. OMB M-19-03, Strengthening the Cybersecurity of Federal Agencies by Enhancing the High Value Asset Program, expands the HVA program to support and provide guidance to both Chief Financial Officers Act (CFO Act) and non-CFO Act agencies in HVA identification, assessment, remediation, and incident response. Under M-19-03, an agency may designate federal information or a federal information system as a HVA when it falls under one or more of the following categories: Informational Value. The information, or the system that processes, stores, or transmits the information, is of high value to the federal government or its adversaries. Mission Essential. The agency that owns the information or information system cannot accomplish its primary mission essential functions, as approved in accordance with the National Continuity Policy, found in Presidential Policy Directive 40 (PPD-40), within expected timelines without the information or information system. Federal Civilian Enterprise Essential. The information or information system serves a critical function in maintaining the security and resilience of the federal civilian enterprise. <1.2. DHS s Roles and Responsibilities for Binding Operational Directives> Several entities within DHS have responsibilities for the binding operational directives. The department s Cybersecurity and Infrastructure Security Agency s (CISA) Cybersecurity Division is the lead entity for initiating, developing, issuing and overseeing the implementation of the directives. CISA oversees the Federal Network Resilience (FNR) division and the National Cybersecurity and Communications Integration Center (NCCIC) in carrying out specific roles related to the directives. Federal Network Resilience. FNR manages the coordination process for the directives, and oversees implementation of required actions at federal civilian agencies. To do so, FNR collects initial recommendations for new directives, drafts the directives, conducts agency outreach, and tracks agencies implementation of the directives. FNR is to collaborate with OMB, NIST, the National Security Council, federal chief information officers (CIOs), and chief information security officers (CISOs) on cybersecurity risk management and operational governance and training; conduct operational assessments for agencies; and assist agencies in identifying areas to improve cybersecurity. National Cybersecurity and Communications Integration Center. NCCIC is the federal civilian coordinator for information sharing concerning cybersecurity risks, incidents, analysis, and warnings with federal and nonfederal entities. The National Cybersecurity Assessments and Technical Services (NCATS), a group within NCCIC, conducts automated network and vulnerability scans of federal civilian agencies internet-accessible systems to identify vulnerabilities and configuration errors. Based on these scans, NCATS produces weekly cyber hygiene reports for each agency. The weekly reports describe vulnerabilities detected, affected systems, and mitigation guidance. In addition to the weekly reports, since early June 2019, NCATS has provided agencies with daily notification of any newly detected critical and high severity vulnerabilities. NCATS also conducts reviews of agencies high value assets, including security architecture and risk and vulnerability assessments on an ongoing basis. <1.2.1. Other Federal Entities Assist in Coordinating Binding Operational Directives> In addition to the DHS components described previously, several other entities assist in coordinating the binding operational directive process. Specifically, DHS s FNR division coordinates with: Chief information officers and the Federal CIO Council: Federal agencies CIOs and the council serve as a source of input for new directives. The council is the principal forum for improving agency practices related to the design, acquisition, development, modernization, use, sharing, and performance of federal information resources. Chief information security officers and the Chief Information Security Officer Council: Federal agencies CISOs and the council discuss pending directives. The CISO Council, which is a subcommittee of the Federal CIO Council, collaborates to share information, transfer knowledge, and develop a unified approach to address federal IT security challenges. Small Agency Council: Members discuss pending directives and the potential impacts on small agencies. The council is a voluntary management association representing about 80 small agencies. National Institute of Standards and Technology (NIST): NIST experts are to ensure that binding operational directives do not conflict with NIST standards and guidelines. NIST is responsible for developing standards and guidelines that include minimum information security requirements for federal agencies. To this end, NIST has issued guidance to agencies in implementing an information security program. For example, Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publication 800-53, provides guidance to agencies on the selection and implementation of information security and privacy controls for systems. General Services Administration (GSA): GSA coordinates with DHS and OMB, on an as-needed basis, to align cybersecurity services offered in its commercial IT contracts with DHS requirements for assessments, penetration testing, and additional cybersecurity services available to agencies, particularly related to HVAs. <1.3. Binding Operational Directives Address Known Cyber Threats, Risks, and Vulnerabilities> DHS developed and issued eight binding operational directives from May 2015 through April 2019 to address known cyber threats, risks, and vulnerabilities. These directives instruct agencies to, among other things: mitigate critical vulnerabilities discovered by DHS s NCCIC through its scanning of agencies internet-accessible systems; better secure their HVAs by participating in risk and vulnerability assessments (RVA) and security architecture reviews (SAR) conducted on their assets; and address several urgent vulnerabilities in network infrastructure devices identified in a NCCIC analysis report. Table 1 provides a list of the directives and their issuance dates. <2. DHS Has Designed, but Not Fully Implemented, a Directive Process> DHS designed a process to develop and oversee the binding operational directives, but it has not followed key components of the process. Specifically, DHS has not involved stakeholders early in directive development and has not consistently overseen agencies implementation of some directives through validation of reported results. <2.1. DHS s Process for Developing and Implementing Directives> FISMA requires that DHS develop and oversee the implementation of binding operational directives to safeguard federal information and information systems from a known or reasonably suspected information security threat, vulnerability, or risk and to implement the policies, principles, standards, and guidelines developed by the director of OMB, such as OMB memoranda M-19-03 and M-19-02. Pursuant to FISMA, DHS designed and is using a draft process for developing and overseeing the implementation of cybersecurity binding operational directives. According to CISA officials, the department was to follow this process since issuance of the second directive on securing high value assets (BOD 16-01) in June 2016. In October 2017, DHS documented the process, which it has since updated. According to CISA officials, as of January 2020, this document was still in draft and was undergoing internal agency review. According to the draft process, DHS is to engage in five steps to develop and implement binding operational directives (as discussed below and in more detail in appendix III): 1. Identify a potential directive topic and determine the extent to which it needs to be addressed. DHS s FNR is to identify topics for new directives from a wide variety of sources, including technical assessments, operational findings of cybersecurity issues, and discussions with external partners such as the Federal CIO Council, NIST, or OMB. FNR is to consider, among other things, whether or not a potential directive topic could be best addressed using the directive process, as well as considering its potential value and impact. Once a topic is identified, FNR officials are to conduct research on the topic and solicit feedback from stakeholders, such as DHS CISA representatives, federal agency chief information officers and chief information security officers, and relevant OMB, NIST, and GSA officials. Once the research is completed, FNR is to make a determination on whether to proceed in developing a directive. 2. Develop a draft directive, send it to relevant stakeholders for review, and obtain approval to issue it. After FNR officials develop the draft directive, they are to send it to relevant stakeholders (e.g. CISA, OMB, NIST, and the DHS Office of General Counsel) for a review of the scope and contents of the directives. FNR staff are to incorporate any feedback from stakeholders into the draft directive and then send it to the CISA director for approval and issuance. 3. Distribute the approved directive to all relevant agencies. FNR officials are to notify agencies of the directive s issuance via an email and a telephone call within 24 hours of the signing of the directive. In addition, FNR may choose to publicly post the directive to the DHS website. After FNR distributes the directive, agencies are to begin to address the directive s requirements. 4. Implement and report on agencies efforts and progress in addressing the directive requirements. A CISA team is to review agency compliance with the directive through directive-related scans and compliance checks. The team is to distribute scorecards that indicate agency compliance with the directive requirements. 5. Close out the directive. DHS is to close a directive after it has validated that all of the requirements listed in the directive have been completed by all federal executive branch departments and agencies; the directive is no longer necessary because it has been revoked, suspended, or codified into law; or the directive needs to be amended. <2.2. DHS Has Not Coordinated with Key Stakeholders Early in the Development Process> FISMA requires DHS to consult with NIST, consider NIST s standards and guidelines, and ensure that the directives it plans to implement do not conflict with NIST s established standards and guidelines. Consistent with this requirement, DHS s draft process calls for CISA to coordinate with stakeholders, such as NIST and GSA, early in the directive identification process to incorporate their input as a necessary part of executing the directive process. CISA has not coordinated with key stakeholders early in the development process. According to NIST officials in the Information Technology Laboratory/Computer Security Division, which is responsible for working on directive issues, CISA coordinates with them to ensure that a new directive does not conflict with NIST guidance, but does not do so early in the process. Specifically, the NIST officials stated that often DHS did not reach out to NIST on the most recent directives until 1 to 2 weeks before they were to be issued, and then did not incorporate the NIST technical comments that were provided. As a result of the lack of timeliness in DHS s outreach to NIST, the directives may not include all key technical considerations. In addition, CISA also has not coordinated with GSA on the directives early in the development process. For example, officials in GSA s Office of the Chief Information Officer told us that CISA did not coordinate with them on vendor issues before the directive on email and web security was issued. CISA officials acknowledged that, in the past, the agency mainly relied on an ad hoc approach to coordination and did not always coordinate early in the planning process with stakeholders, including NIST and GSA, even though early coordination is called for in the current DHS process. CISA officials also explained that, in certain circumstances, they may need to accelerate the development process when a directive needs to be issued quickly due to elevated risk, such as the directive on addressing threats to network devices in response to a specific hacking threat. CISA officials told us that they have begun to have a more formalized coordination process with key stakeholders, including NIST and GSA. NIST officials also noted that DHS and NIST have started regular coordination meetings to discuss directive-related issues earlier in the process. Nevertheless, CISA has yet to determine when in the directives development for example, during early development and at directive approval coordination with specific entities should occur. Until CISA addresses this, a lack of effective coordination with stakeholders in the early stages of directives development process and later in implementation is likely. This could result in directives that do not fully address key technical considerations, leaving agency systems at risk of being exposed to threats or vulnerabilities. <2.3. CISA Has Not Validated Agencies Actions on All Directives> FISMA requires DHS to oversee agencies implementation of its binding operational directives. To do this, DHS has outlined a process for validating agencies reported results as part of the Close Out step of its directives process. As part of this process, CISA is supposed to validate that agencies have addressed all requirements before a directive is considered to be fully implemented. Guidance from OMB and executive orders also emphasize using a risk-based approach to information security. Specifically, to protect against cyber threats, agencies must make decisions about how to most effectively secure their systems and data, based on an assessment of the risks they face. CISA has not validated agencies actions on all five selected directives. Specifically, the agency validated the implementation of two directives by using cyber hygiene scanning and provided weekly reports to the 99 executive branch civilian agencies. However, for the three other directives, CISA relied on agencies to self-report implementation and did not independently validate that the requirements had been met. According to CISA officials, the agency had to rely on agency submissions for these three directives because many of the potentially impacted devices were inside the agencies networks and were not visible to CISA s scans, or were weaknesses identified in specific information security processes that CISA could not assess via scanning. For example, one directive required agencies to address vulnerabilities in specified network infrastructure devices internal to the network and then report to CISA either (1) completion of the actions, or (2) a plan of actions and milestones to complete the actions. The officials added that it is the agency s responsibility to manage its own plan of actions and milestones, including verifications, and that they are not able to independently validate all of the actions because of a lack of an automated mechanism to detect findings inside agency networks and the lack of resources to do manual assessments. While we recognize that CISA does not have the automated tools or capacity to independently validate every self-reported action taken by agencies to meet binding operational directive requirements, CISA can take a risk-based approach to validation. Guidance from OMB and executive orders emphasize risk-based approaches to information security. However, CISA did not take a risk-based approach, and it also did not have a strategy in place to check selected agency-reported actions to validate their completion. Without taking such an approach or having a strategy in place, the likelihood for requirements to not be completely or correctly addressed is increased. This could leave computer networks and systems used by federal agencies riddled with security vulnerabilities both known and unknown. <3. Binding Operational Directives Often Have Been Effective in Addressing Cybersecurity Risks, but DHS Faces Challenges in Fulfilling Directive Requirements> Agencies implementation of the directives has resulted in improvements that better safeguard federal information systems from a known or reasonably suspected information security threat, vulnerability, or risk. For example, according to DHS and agency data, in response to the directive on Critical Vulnerability Mitigation (BOD 15-01), agencies were able to mitigate about 2,500 out of about 3,600 critical vulnerabilities within 30 days of detection. However, not all agencies had been able to address all the directives requirements within the required timelines established in four out of the five directives we reviewed. Moreover, DHS faced constraints in implementing the HVA program. Agencies and DHS cited a number of reasons for not fulfilling the requirements, including a lack of resources and technical expertise, as well as vendor constraints and operational issues. The five directives are discussed below and in more detail in appendix IV. <3.1. Agencies Are Implementing Binding Operational Directives, but Not All Within Established Timelines> The civilian executive branch agencies to which the five selected binding operational directives apply are implementing and reporting on the requirements as called for in the directives. These five directives identify specific requirements to address known cyber threats, risks, and vulnerabilities and time frames for agency compliance, as well as requirements regarding how agencies are to report their progress on implementation of each directive to DHS. However, not all agencies are doing so within the directives established timelines (see directive details that follow). <3.1.1. BOD 15-01: Mitigation of Critical Vulnerabilities on Internet-Accessible Systems Has Improved Since the Directive s Issuance> Issued on May 21, 2015, BOD 15-01, Critical Vulnerability Mitigation directed agencies to mitigate critical vulnerabilities discovered by DHS s NCCIC through cyber hygiene scans of agencies internet-accessible systems. Agencies were to mitigate critical vulnerabilities within 30 days of NCCIC s notification. If agencies were unable to mitigate critical vulnerabilities within 30 days, they were to provide plans and status updates to DHS on a monthly basis until each vulnerability was fully addressed. According to DHS and agency data, since the directive issuance in 2015, the federal civilian agencies were able to mitigate about 2,500 out of about 3,600 critical vulnerabilities within 30 days of detection. Specifically, according to NCATS data, as of May 2018, the median number of days agencies were taking to mitigate critical vulnerabilities from the point of initial detection had been reduced from approximately 16 days (May 2015 to May 2016) to 6 days (from May 2017 to May 2018). In addition, the agencies increased the percentage of critical vulnerabilities closed within 30 days of initial detection, from about 58 percent (May 2015 to May 2016) to 85 percent (from May 2017 to May 2018). See table 2 for more information on the critical vulnerability mitigation timeframes. In its fiscal year 2017 report to Congress on federal cybersecurity directives, DHS reported that the agencies were able to address vulnerabilities more quickly due, in part, to DHS setting clear expectations and timelines regarding mitigating critical vulnerabilities through its directive. Prior to the directive, there was no requirement for patching critical vulnerabilities within a certain time frame. As a result of the faster vulnerability mitigation, agencies are reducing the time their systems and networks are exposed to the cybersecurity risks associated with critical vulnerabilities. In addition to the federal civilian agencies improvements in critical vulnerability mitigation, the 12 selected agencies showed improvement in the average time needed to mitigate critical vulnerabilities. Specifically, in the third year after the directive issuance, according to NCATS data, four of the 12 selected agencies reported no critical vulnerabilities and five agencies reported a reduction in the average time needed to mitigate them. For example, one agency reduced the time it took to mitigate critical vulnerabilities from about 60 days to about 17 days on average. Further, all of the 12 selected agencies increased the percentage of critical vulnerabilities closed within 30 days of initial detection, from about 61 percent (from May 2015 to May 2016) to about 90 percent (from May 2016 to May 2017). While all covered agencies did not always meet the 30-day requirement, their mitigations were validated by DHS and reached 87 percent compliance by 2017. Officials attributed the recent decline in percentage mitigated to a 35-day partial government shutdown. Figure 1 provides information on the percent of critical vulnerabilities agencies (federal civilian agencies and the 12 we reviewed) were able to mitigate within 30 days, as required under the directive. In April 2019, DHS rescinded BOD 15-01 and replaced it with BOD 19-02, Vulnerability Remediation Requirements for Internet-Accessible Systems. This directive expands the requirements for agencies from addressing only critical vulnerabilities to addressing both critical and high vulnerabilities. Agencies are now required to mitigate critical vulnerabilities within 15 days of the vulnerabilities being identified through NCATS scanning (rather than within 30 days, as previously required), and to mitigate high vulnerabilities within 30 days of identification. According to the directive, if agencies are not able to mitigate the identified vulnerabilities in the required timeframes, they are to submit a remediation plan to DHS outlining constraints, interim mitigation actions, and estimated completion dates. <3.1.2. BOD 16-02: Federal Agencies Addressed Threats to Selected Network Infrastructure Devices, but Most Did Not Do So within the Established Timeline> Issued on September 27, 2016, BOD 16-02, Threat to Network Infrastructure Devices, addressed several urgent vulnerabilities in network infrastructure devices identified in an August 2016 NCCIC report. The report identified a known threat across federal networks and provided technical mitigation solutions. Specifically, it addressed hacking tools targeting firewalls, Cisco Adaptive Security Appliance devices, and devices running Cisco Internetwork Operating System (specifically the integrity of its ROM Monitor program). This directive required agencies to perform all mitigation actions identified in the NCCIC analysis report within 45 days, and to report either full mitigation or provide a detailed plan explaining constraints preventing mitigation. Agencies that were unable to achieve full mitigation within 45 days were instructed to provide monthly status updates until full mitigation was completed across their networks. According to DHS s March 2019 report to OMB, within 6 months of issuance, the federal civilian agencies were able to remediate approximately 50 percent of impacted devices through patching and through upgrading outdated software. CISA reported that agencies completed all requested actions by October 2018, which was 2 years past the deadline. According to CISA officials, agencies were not able to meet the timeline due to remediation challenges, such as replacing large amounts of end-of-life devices, replacing mission critical devices, and adjusting default configurations on impacted devices. While CISA did not independently validate agencies actions in addressing the vulnerabilities as the devices were internal to the network, CISA reported that agencies secured over 11,000 network infrastructure devices across the federal civilian government (see figure 2). In addition to the federal civilian agencies status, five of the 12 selected agencies reported full mitigation of the risks outlined in the directive requirements within the 45-day deadline (November 14, 2016). An additional five agencies did not report full mitigation within 45 days, but provided detailed plans of action and milestones to DHS every 30 days thereafter until full mitigation, as required. These five agencies had completion dates ranging from April 2017 to October 2018. The remaining two agencies were unable to demonstrate that they had completed the directive requirements. However, DHS reported that the covered federal civilian agencies were able to complete all actions associated with this directive by October 2018. <3.1.3. BOD 17-01: Agencies Removed Risky Software Products from Their Information Systems in Response to a Stated Threat> Issued on September 13, 2017, BOD 17-01, Removal of Kaspersky- branded Products, required federal civilian agencies to (1) determine whether the agency had Kaspersky-branded products on its information systems within 30 days (October 13, 2017); (2) develop a plan to remove such products from its information systems within 60 days (November 13, 2017); and (3) begin implementing its plan for removal within 90 days (December 13, 2017) and provide DHS with updates every 30 days until the products were fully removed from agency information systems. According to DHS s fiscal year 2017 report to Congress, by April 2018, officials from federal civilian agencies had either attested that Kaspersky- branded products were not present on their information systems or removed such products, as required by the directive. Similarly, officials at the 12 selected agencies stated and reported that they performed the required analysis to identify the use or presence of Kaspersky-branded products and reported to DHS by the 30-day deadline (October 13, 2017). Of these, 10 agencies reported that they did not find the use or presence of Kaspersky-branded products in its information systems. One agency found Kaspersky-branded products in its systems but removed the product before the 60-day planning deadline. The remaining agency identified the use or presence of Kaspersky-branded products in its information systems and developed a detailed plan of action and provided status reports to DHS every 30 days until completion on December 6, 2017. Subsequently, these requirements were enacted into law in the National Defense Authorization Act for Fiscal Year 2018, which further prohibited federal agencies from using products and services developed or provided by Kaspersky Labs. <3.1.4. BOD 18-01: Agencies Have Made Progress on Most Email and Web Security Requirements, but Many Have Yet to Fully Address the Requirements> Issued on October 16, 2017, BOD 18-01, Enhance Email and Web Security, required agencies to implement specific security standards that have been widely adopted in industry to ensure the integrity and confidentiality of internet-delivered data, minimize spam, and better protect users who might otherwise fall victim to a phishing email that appears to come from a government-owned system. As such, this directive required several actions related to email and web security with three different due dates: within 90 days (by January 2018), within 120 days (by February 2018), and within 1 year (by October 2018). Tables 3 and 4 outline the email and web security requirements and appendix V provides more detailed information on these requirements. The federal civilian agencies had made significant progress in addressing individual email and web security requirements of the directive. However, few agencies had fully addressed all of the directive s email and web security requirements for all domains. A domain is a unique identifying address assigned to an internet-accessible system such as .gov or dhs.gov, and an individual agency may have multiple domains. NCATS scans each agency domain and measures it against the individual email and web requirements. According to our analysis of NCATS May 2019 scanning data, the agencies were between about 83 to 99 percent complete in addressing each individual email and web requirement across all domains (see figure 3). Similarly, three of the 12 selected agencies, were 100 percent complete in addressing each individual email and web requirement for all domains. In addition, the remaining nine agencies domains were from about 82 to almost 100 percent complete in addressing the individual email and web requirements. However, according to NCATS March 2018 agency scanning data, only three of 83 agencies (4 percent) had fully addressed all of the directive s email and web security requirements due within the 120 day deadline across all of their domains. Within 1 year of issuance, according to NCATS October 2018 scanning data, six of 83 agencies (7 percent) had fully addressed all directive requirements. According to NCATS May 2019 scanning data, three additional agencies fully addressed the requirements. However, three agencies had fallen out of compliance (leaving the total compliance rate at 7 percent). Compliance with the email and web security requirements was slightly better for the 12 selected agencies. According to NCATS March 2018 scanning data, one of the 12 selected agencies fully addressed the directive s requirements due at the 120 day deadline (8 percent). Within 1 year of issuance, according to NCATS October 2018 scanning data, one additional agency fully addressed the requirements (17 percent). According to NCATS May 2019 scanning data, three of the 12 agencies fully addressed the requirements (25 percent). See figure 4 for details. One of the key challenges that agencies have experienced in implementing the directive s email requirements is related to strengthening email security by disabling the 3DES weak email cipher. Specifically, according to CISA s March 2019 report to OMB, more than 50 agencies are dependent on email vendors that do not allow agencies to disable the 3DES cipher. FNR officials stated that after several agencies informed them of having vendor constraints, DHS started to work with vendors on behalf of the agencies. As a result, DHS issued a temporary exception in September 2018, 7 months after the initial deadline, for those agencies encountering this vendor constraint. According to CISA s March 2019 report to OMB, in February 2019, one of the vendors began retiring the weak email cipher 3DES, but has not set a firm timeline on when it will be fully retired. In a June report to OMB, DHS stated that another email vendor had released a tool that agencies could implement to address the requirement to remove the weak email cipher 3DES. As of the end of April 2019, seven of the 12 selected agencies were affected by this vendor issue. CISA officials noted that they are working with industry officials, including at a leadership level, to ensure they understand when 3DES will be fully disabled. Once that happens, CISA reported that they will provide agencies with any additional support needed to address vendor management issues and the associated email and web requirements. Additionally, FNR officials stated that many agencies struggled to implement a DMARC-related requirement on their systems due to its complexity. FNR officials noted that they have provided agencies with training through a non-profit organization and hosted a variety of outreach events, including presentations, to help agencies work through the complexity of implementing DMARC. <3.1.5. BOD 18-02: Agencies Are Participating in DHS-led Assessments, but DHS and Agencies Have Not Been Able to Complete the Assessments and Mitigations in a Timely Manner> Issued on May 7, 2018, the purpose of BOD 18-02, Securing High Value Assets, is to enhance DHS s approach to secure the federal government s high value assets (HVAs) from cybersecurity threats. It replaces an earlier directive and requires agencies to: 1. Identify and submit coordination points of contact for HVA assessments within 7 days of issuance of the directive. 2. Submit a current and prioritized HVA list inclusive of all agency components within 30 days of issuance of the directive and review the agency HVA list and provide quarterly updates to DHS. 3. Participate in DHS-led assessments of HVAs, if selected. 4. Ensure identified major or critical weaknesses are mitigated within 30 days of receipt of the risk and vulnerability assessment (RVA) reports and/or security architecture review (SAR); notify DHS that each identified weakness was addressed; and report the status of any remaining major or critical weaknesses to DHS every 30 days until full remediation. As stated earlier, in an RVA, the assessor uses a number of techniques to identify weaknesses in the security posture of a given HVA; for a SAR, the assessor analyzes the architecture of the HVA and develops recommendations for improving HVA security related to system design and interconnections. Techniques for RVA assessments can include network mapping, vulnerability scanning, phishing tests, wireless assessments, web application assessments, and database assessments. A SAR provides a holistic analysis of how an HVA s individual security components integrate and operate, including how data is protected during operations. According to a DHS report to OMB, assessments can identify HVA weaknesses that require significant network design changes and extended timelines to resolve. In December 2018, OMB issued a memorandum that expanded the definitions of HVAs, instructed agencies to prioritize their HVAs, and instructed agencies to conduct assessments of HVAs as directed by DHS. Subsequently, CISA issued supplemental guidance for BOD 18- 02 that divided HVAs into three tiers based on criticality and impact. The guidance defined Tier 1 systems as systems of critical impact to both the agency and the nation; Tier 2 systems as ones that have a significant impact on both the agency and the nation; and Tier 3 systems as those with a high impact on the agency. In addition, the supplemental guidance outlined the following required reviews: Tier 1 HVAs require one RVA and one SAR to be led by DHS every 3 Tier 2 HVAs require one RVA and one SAR to be conducted by an independent assessor or third party every 3 years, and Tier 3 HVAs require one RVA and one SAR agency self-assessment every 3 years. In response to the directive and supplemental guidance, most of the federal civilian agencies have taken several steps to address the requirements, including identifying points of contact; submitting current and prioritized HVA lists, if appropriate; participating in DHS-led assessments if selected; and beginning to address identified weaknesses. Specifically, CISA s October 2019 data showed that federal civilian agencies have reported a total of 851 HVAs (212 Tier 1 and 639 Tier 2 and Tier 3 systems). In addition, CISA s October 2019 data showed that at the beginning of October 2019, DHS had conducted 61 assessments in fiscal year 2018 and 73 in fiscal year 2019. This includes a mix of both RVAs and SARs. DHS has also taken steps to identify major or critical weaknesses from the HVA assessments. Specifically, CISA s October 2019 data showed that, as of the end of September 2019, the 134 assessments identified 196 major or critical weaknesses. DHS and the agencies have not completed the required assessments and mitigations consistent with OMB guidance and DHS policy. To address the review requirement for Tier 1 HVAs in accordance with the OMB and DHS-defined frequency of assessments, DHS should complete at least a total of 142 assessments a year. However, DHS completed only about half of the required annual assessments this year (with 73 assessments completed in fiscal year 2019). In addition, DHS has yet to issue the guidance, standards, and methodologies for Tier 2 or Tier 3 HVA assessments, which are to be conducted by third parties and agencies, respectively. As a result, agencies cannot begin conducting assessments for the remaining 639 HVA systems. Further, agencies have not been able to mitigate the identified weaknesses within the required timeframes. Specifically, CISA s October 2019 data showed that of the 196 major or critical weaknesses identified government-wide, agencies were not able to mitigate 160 within the required initial 30-day time frame; 75 major or critical weaknesses were still not mitigated as of early October 2019. Similarly, for the 12 selected agencies we reviewed, CISA s October 2019 data showed that as of early October, the department performed a total of 58 assessments, which resulted in the discovery of 86 major or critical weaknesses. However, 64 of these major or critical weaknesses were not mitigated within the required initial 30-day time frame, and 32 major or critical weaknesses were still not mitigated as of early October 2019. In addition to the above requirements, DHS established a government- wide performance metric for agencies to address 45 percent of critical/high severity weaknesses discovered through HVA assessments within 30 days of them being reported, as required by the directive. However, DHS reported that agencies were only addressing these weaknesses within 30 days about 30 percent of the time. According to DHS, this shortcoming is largely due to the variety and difficulty of weaknesses identified by affected agencies in each calendar quarter, as well as the different maturity levels of agencies in addressing these weaknesses. Further, the performance metric for addressing the HVA weaknesses is not fully aligned with the directive s requirements. Specifically, while the directive states that agencies should address weaknesses within 30 days, the directive also states that if the senior accountable officer for risk management at the agency determines that a risk cannot be adequately addressed within 30 days, the agency must develop and submit a remediation plan to DHS for its review. However, DHS s metric does not provide for such an option. In implementing this directive, DHS recognized the need to measure the extent to which agencies are addressing the requirements and, therefore, improving government-wide cybersecurity. However, without a performance metric that is aligned with the binding operational directive process DHS has established, it will be challenged in demonstrating the overall efficacy of a binding operational directive in achieving cybersecurity goals. <3.2. Agencies Identified Challenges Meeting Directive Timelines While DHS Faced Constraints in Implementing the HVA Assessment Program> Agency and DHS officials reported that agencies faced technical and resource challenges in addressing the various directive requirements within established timelines. This is consistent with challenges reported by officials at the 12 selected agencies. DHS has recognized these challenges and taken actions on them. However, DHS faces a variety of challenges in implementing the HVA program that remain outstanding. <3.2.1. Agencies Reported Various Challenges in Meeting Timelines> Agencies reported various challenges in addressing the directive requirements within the established timelines. The challenges included (1) outdated systems that require costly updates or replacements before they can be brought into full compliance; (2) the lack of specialized expertise to address technical requirements; (3) the complexity of achieving full DMARC compliance; and (4) general issues associated with addressing weaknesses in agency HVAs. To address the first and second challenges (outdated systems and specialized expertise), in its March 2019 report to OMB, DHS provided the following considerations for OMB: (1) examine agency budgets to ensure agencies are deploying all available resources and capabilities against threats to government networks and data; (2) provide supplemental funds to agencies to support implementation of current and future binding operational directives; and (3) examine agency budgets to ensure agencies are deploying all available resources to obtain specialized training for staff or to hire specialized skill sets. According to CISA officials, OMB has contacted agencies that listed budget as a constraint in their plan of action and milestones and is currently discussing how OMB can provide assistance. DHS has also provided support to agencies in addressing the third challenge on DMARC. For example, CISA officials stated that they offer webinars focused on DMARC implementation to those agencies that do not have necessary technical expertise. With regard to the fourth challenge on HVAs, DHS reported that agencies government-wide faced a variety of challenges in addressing the weaknesses in their HVA programs, including issues with network segmentation and vulnerability to phishing attacks. In general, according to DHS, these types of weaknesses may not be easy to address within the required 30 days because they require long term planning and training, system or device procurement, and system integration and testing. The 12 selected agencies concurred with DHS s view of the challenges they faced in addressing outstanding weaknesses associated with their HVAs. For example, one agency reported an enterprise-level deficiency related to an HVA that requires significant changes to its network design, with a projected remediation timeline of over a year in its plan of action and milestones. Another agency stated that it was unable to fully address a critical weakness within the DHS 30-day timeline, but did develop a remediation plan for the weakness and reported its progress to DHS as appropriate. In addition, another agency reported that it did not fully address a weakness within 30 days and also did not submit the required monthly reports. DHS reported that it has established an HVA Community of Interest with federal civilian agencies to identify and promote best practices within agencies and improve the security and privacy posture of HVA systems. Continued support from OMB and DHS in addressing the technical and resource constraints facing the agencies in addressing the requirements set in the directives will allow agencies to react quickly, efficiently, and effectively to the requirements of the directives. <3.2.2. DHS Has Encountered Challenges in Fulfilling Its Responsibilities for the HVA Assessment Program> While OMB guidance and DHS policy are clear on DHS s responsibilities and time frames for the directive on the HVA program (BOD 18-02), DHS has yet to complete its HVA activities in a timely manner. Specifically, the HVA program manager within CISA stated that the department did not have sufficient resources to do all of the required assessments. As noted earlier, thus far, DHS has only conducted about half of the annual assessments required in DHS s own supplemental guidance. The official stated that the department was now reassessing the prioritization and planning process of the HVA program. Further, CISA officials reported that they do not expect to issue the guidance, standards, and methodologies on Tier 2 and 3 HVAs until at least the end of fiscal year 2020. However, agencies cannot begin conducting Tier 2 third-party or Tier 3 agency self-assessments on HVA systems until DHS develops and issues the guidance, standards, and methodologies for these reviews, potentially leaving these critical systems at risk. Moreover, a CISA official stated that DHS will need to work with GSA to add qualified contractors for Tier 2 assessments to the appropriate GSA contract vehicle. The official stated that there is an ongoing effort with GSA to get contractors for third-party assessments certified by DHS added to the GSA schedule. According to DHS officials from the HVA office, the department is now reassessing key aspects of the program. However, it does not have a schedule or plan for completing this reassessment, or to address outstanding issues on completing required assessments, identifying needed resources, and finalizing guidance to agencies and third parties. Without such a schedule and plan, agencies may continue to face prolonged cybersecurity threats. <4. Conclusions> Although DHS has designed a process to develop and oversee the implementation of binding operational directives, it is not following all the steps in the draft process. Specifically, the department has not involved key stakeholders, such as NIST and GSA, early in the process. Additionally, although guidance from OMB and executive orders emphasize risk-based approaches to information security, CISA did not take such an approach in validating selected agency-reported actions. Until DHS addresses the coordination and validation issues, the likelihood is increased that directives will not fully address key technical considerations and requirements are not fully addressed. Federal civilian agencies have made many significant improvements in cybersecurity by implementing the directives requirements. However, an important performance metric for addressing vulnerabilities identified by HVA assessments does not align with the process DHS has established. Further, DHS has only completed about half of the required assessments for fiscal year 2019. In addition, DHS does not plan to issue the guidance, standards, and methodologies on Tier 2 and 3 systems until at least the end of fiscal year 2020. Given these shortcomings, DHS has been reassessing key aspects of the HVA program. However, there was no schedule or plan for completing the HVA reassessment and for addressing the outstanding issues on completing the required assessments, identifying needed resources, and finalizing guidance for Tier 2 and 3 systems. Without such a schedule and plan, agencies may continue to face increased and prolonged cybersecurity threats. <5. Recommendations> We are making four recommendations to the Department of Homeland Security: The Secretary of Homeland Security should determine when in the directive development process for example, during early development and at directive approval coordination with relevant stakeholders, including NIST and GSA, should occur. (Recommendation 1) The Secretary of Homeland Security should develop a strategy to independently validate selected agencies self-reported actions on meeting binding operational directive requirements, where feasible, using a risk-based approach. (Recommendation 2) The Secretary of Homeland Security should ensure that the binding operational directive performance metric for addressing vulnerabilities identified by high value asset assessments aligns with the process DHS has established. (Recommendation 3) The Secretary of Homeland Security should develop a schedule and plan for completing the high value asset program reassessment and addressing the outstanding issues on completing the required high value asset assessments, identifying needed resources, and finalizing guidance for Tier 2 and 3 HVA systems. (Recommendation 4) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DHS for review and comment. We also provided informational copies of the report to the other agencies involved in the review: OMB; NIST; the Departments of Education, the Interior, Justice, and the Treasury; the Federal Deposit Insurance Corporation; the Federal Retirement Thrift Investment Board; the General Services Administration; the National Aeronautics and Space Administration; the Securities and Exchange Commission; the Social Security Administration; and the Tennessee Valley Authority. In written comments (reproduced as appendix VI), DHS agreed with our recommendations and described steps planned or under way to address them. For example, in its written response, DHS noted that the department is working to formalize a risk-based strategy to validate agency results with an estimated completion date of September 30, 2020. It also added that the department is working with OMB to address the need for independent validation. DHS and NIST also provided technical comments on the draft report, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Acting Secretary of Homeland Security. 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) 512-6240 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. GAO staff who made key contributions to this report are listed in appendix VII. Appendix I: Objectives, Scope and Methodology Our objectives were to evaluate (1) the Department of Homeland Security s (DHS) process for developing and overseeing the implementation of binding operational directives (directives) and (2) the effectiveness of the directives, including agencies implementation of directive requirements. To address our first objective, we reviewed DHS documentation, including its policies and process information related to departmental development, approval, and coordination of the directives. We also reviewed DHS written requirements and process for overseeing how agencies are implementing the directives. In addition, we reviewed requirements from law and guidance including the Federal Information Security Management Act of 2014 (FISMA), and memoranda from the Office of Management and Budget (OMB). We evaluated DHS s process against these requirements. Further, we interviewed officials from DHS, OMB, and National Institute of Standards and Technology (NIST) to obtain their views and verify the information provided. To address our second objective we selected five binding operational directives that had active requirements at the time we were designing our review and analysis in December 2018. These were: BOD 15-01, Critical Vulnerability Mitigation Requirement for Federal Civilian Executive Branch Departments and Agencies Internet- Accessible System, issued May 21, 2015. (This directive was revoked and replaced by BOD 19-02, Vulnerability Remediation Requirements for Internet-Accessible Systems in April 2019.) BOD 16-02, Threat to Network Infrastructure Devices (designated as closed by DHS, March 2019), issued September 27, 2016 BOD 17-01, Removal of Kaspersky-branded Products, issued BOD 18-01, Enhance Email and Web Security, issued October 16, BOD 18-02, Securing High Value Assets, issued May 7, 2018 We then randomly selected a sample of 12 agencies from the civilian executive branch agencies, to which DHS directives apply, to determine the extent to which these agencies have taken steps to address the directives requirements. Specifically, we randomly selected agencies from among those that had reported actual cybersecurity expenditures of over $30 million in fiscal year 2017 (the most recent data available at the time we began our review). The 12 selected agencies were (1) Department of Education; (2) Department of Homeland Security; (3) Department of the Interior; (4) Department of Justice; (5) Department of the Treasury; (6) Federal Deposit Insurance Corporation; (7) Federal Retirement Thrift Investment Board; (8) General Services Administration; (9) National Aeronautics and Space Administration; (10) Securities and Exchange Commission; (11) Social Security Administration; and (12) Tennessee Valley Authority. We developed a data collection instrument based on the directives requirements. We administered the data collection instrument to the selected agencies and collected supporting documentation, such as compliance reports, corrective plans of action/plans of actions and milestones, and remediation plans and responses to the requirements outlined in five directives (15-01, 16-02, 17-01, 18-01, and 18-02). In addition, we reviewed the directives and other relevant requirements as well as DHS s process for evaluating agency actions to address the requirements and to develop binding operational directive-related performance metrics. We also reviewed DHS s fiscal years 2018 and 2019 annual performance reports and quarterly performance report updates, fiscal year 2019 reports to OMB, and fiscal years 2016 and 2017 reports to Congress on agencies (government-wide) implementation status of binding operational directives. We assessed steps DHS was taking to measure agencies performance against DHS s established metrics. Specifically, we reviewed the 99 civilian executive branch agencies and 12 selected agencies performance against the specific directives requirements. We analyzed agency documentation, including status reports and plans of action and milestones, as well as scanning data from the National Cybersecurity and Communications Integration Center for both selected agencies and government-wide. We also reviewed DHS performance reports regarding the extent to which DHS s government-wide performance metrics for mitigation of vulnerabilities on internet-facing systems and for closure of certain vulnerabilities on high value assets align with agencies existing requirements from OMB and DHS, such as closure timelines of selected types of vulnerabilities and weaknesses. We compared these performance reports and metrics with existing requirements found in DHS s directives to assess whether they were aligned. In addition, we reviewed detailed scanning data and output from a data analysis tool from DHS s database to determine the extent to which the 99 civilian executive branch agencies and our selected 12 agencies are mitigating vulnerabilities on internet-accessible systems and whether or not they are being mitigated within given timeframes. In addition, to analyze the implementation of email and web security requirements, we reviewed detailed scanning data on the status of the 99 civilian executive branch agencies and our selected 12 agencies. To assess the reliability of the scanning data and related DHS analysis that we used to support the findings in this report, we interviewed agency officials to determine the steps taken to ensure the integrity and reliability of the data and reviewed relevant documentation to substantiate the evidence obtained through interviews with agency officials. We determined that the data used in this report were sufficiently reliable for the purposes of our reporting objectives. We supplemented our analyses with interviews of DHS and selected agency officials to obtain their views on the steps they have taken to address the directives requirements. We conducted this performance audit from October 2018 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. Appendix II: List of Federal Agencies to Which Binding Operational Directives Apply Appendix III: Binding Operational Directives Process Within the Department of Homeland Security (DHS) Cybersecurity and Infrastructure Security Agency s Cybersecurity Division, the Federal Network Resilience (FNR) is responsible for managing the process for developing and overseeing the binding operational directives, including coordination and implementation. The process is documented in the department s draft Cybersecurity Division Binding Operational Directives Process and outlines five steps and their substeps: Step 1: Identify and Determine. This step includes three substeps 1.1 triggers, 1.2 business case development, and 1.3 socialization. The identification of a directive begins with a trigger that identifies a particular topic. The trigger may be from an administrative priority, technical assessment, operational finding, or discussions with external entities such as the Federal Chief Information Officer Council, National Institute of Standards and Technology (NIST), Office of Management and Budget (OMB) or a private sector organization. Once a topic is identified, FNR officials conduct research on the topic and solicit feedback from stakeholders. FNR then directs topics to the Binding Operational Directives Discussion Group. According to the draft process, recommended members of this group include representatives from Cybersecurity and Infrastructure Security Agency (CISA) and ad hoc and external partners, such as OMB officials, federal CIOs and chief information security officers (CISO), NIST officials, and General Services Administration officials. During substep 1.1, the group should decide whether to proceed to substep 1.2, business case development for a directives topic. The group maintains an online repository for proposed topics, active directives, and topics that have been previously considered, but archived for future use or historical documentation purposes. During business case development, a lead within the discussion group researches risks, threat actors, and mitigation strategies. The group incorporates information from subject matter experts and programs that provide information on current threats facing agencies and mitigation actions (e.g., Continuous Diagnostics and Mitigation and EINSTEIN). Once drafted, the business case is sent to FNR leadership, such as the Director and Deputy Director, for review. In the socialization substep 1.3, the discussion group may obtain additional feedback through various outreach efforts or through CIO, or CISO Council meetings. Step 2: Develop and Approve. This step includes two substeps 2.1 table top and 2.2 BOD material finalization. In step 2, FNR staff draft the directive. A table top exercise is an optional step that FNR staff may take to test required actions at selected agencies. As part of drafting the directive, the FNR staff coordinates with stakeholders, such as National Cybersecurity Assessments and Technical Services (NCATS), OMB and selected other agencies to develop an action plan template. This template instructs agencies on how to track and submit their progress on a particular directive. In addition, the team drafts a communications plan to disseminate directive-related information to agencies and the public. During substep 2.2, BOD material finalization, the action plan template and communications plan are sent along with the draft directive to all associated stakeholders (e.g. FNR, OMB, NIST, and Department of Homeland Security (DHS) Office of General Counsel) for review. After FNR staff incorporate any additional feedback, the draft directive package is then sent to the CISA Director for signature and then release. Step 3: Distribute. This step includes three substeps 3.1 notification, 3.2 baseline evaluation delivery, and 3.3 begin mandatory actions. According to FNR officials, the approval of a directive is the start of several processes in this step. During substep 3.1, all affected federal civilian agencies receive notification through an email and a directive issuance call within 24 hours of the signing of the directive. In addition, the DHS website (cyber.dhs.gov) and the OMB MAX portal may post the directive depending on the content of the directive. The notification of the directive is followed with agency baseline evaluation delivery, substep 3.2. As part of this substep, the validation team, including representatives from NCATS, may deliver baseline evaluations to provide agencies a better understanding of where they stand in addressing the directive prior to issuance, depending on the nature of the directive. In the last substep 3.3, agencies begin mandatory actions as noted in the directive. Step 4: Implement and Report. This step includes three substeps 4.1 action plan submission, 4.2 continuous coordination, and 4.3 implementation and reporting. The step begins with FNR s establishment of a Binding Operational Directives Implementation Team to manage the requirements of a specific directive. This team includes a technical lead who reviews and tracks agency plan submissions as part of substep 4.1; a validation team whose members validate agency compliance with the directive; and a data analyst, who is to compile all agency-submitted action plans and draft a monthly status report. According to the draft process document, the validation team conducts directive-related scans and compliance checks, and develops and distributes scorecards that indicate agency compliance with directive requirements. For some directives, such as BODs 16-02, 17-01, and 18- 02, DHS relied on agency self-reporting to confirm that an agency had addressed the requirements, and the validation team did not verify compliance. During substep 4.2 FNR staff and the affected agency maintain continuous coordination through email and phone conversations to address any challenges involved with implementing the directive. Substep 4.3 implementation and reporting consists of processes agencies may need to establish internally to address and report on directive requirements until completion, such as points of contact and methods of communication with FNR. The implementation team produces monthly status reports for FNR leadership, such as the Director and Deputy Director, showing which agencies have complied or not complied with directive requirements. Based upon this information, FNR officials decide whether to escalate instances of agency noncompliance. In addition, FNR officials stated that they have a monthly check-in with OMB, during which they provide status reports as well as conduct less formal weekly discussions. For Congress, CISA produces an annual binding operational directives implementation report, in addition to responding to more frequent congressional information requests. To date, DHS has submitted two congressional reports for fiscal year 2016 and 2017. According to FNR officials, as of September 2019, the fiscal year 2018 report is undergoing OMB review. Step 5: Close Out. This step includes two substeps 5.1 results validation and 5.2 setting a higher bar. The draft process document describes the following scenarios that may lead to results validation; if a directive: (1) has been completed by all agencies; (2) is no longer necessary because it has been revoked, suspended, or codified into law; or (3) needs to be amended. In the first scenario, once the validation team affirms that the requirements have been met, FNR officials are to notify affected federal agency officials that their agencies have fulfilled all requirements. FNR officials then draft a binding operational directive completion letter that the Secretary of DHS or the Secretary s designee signs. According to FNR officials, a directive does not fully close out after the Secretary signs a completion letter, because the directive is still in effect even after agencies have fulfilled all of the particular directive s requirements. If a directive is revoked or amended, FNR officials draft a letter noting the reasons for such actions which the Secretary of DHS then signs. Agencies are expected to adhere to the newly implemented requirement, which is how DHS describes substep 5.2, setting a higher bar. Figure 1 provides the life cycle of a binding operational directive. Appendix IV: Binding Operational Directives and Associated Requirements The Department of Homeland (DHS) had issued eight binding operational directives (BOD) as of October 2019. A full list of DHS s directives numbers and titles with a summary of their corresponding DHS and agency requirements follows. <7. BOD 15-01 Critical Vulnerability Mitigation Requirement for Federal Civilian Executive Branch Departments and Agencies Internet- Accessible Systems, May 21, 2015> <7.1. Agency Requirements> Agencies or departments are to: Review and mitigate the critical vulnerabilities on their internet facing systems identified by DHS s National Cybersecurity and Communications Integration Center within 30 days of issuance of agencies weekly cyber hygiene reports. Within 30 days will provide a detailed justification to DHS outlining any barriers, planned steps for resolution, and a time frame for mitigation, if unable to mitigate vulnerability. <7.2. DHS Requirements> DHS s Federal Network Resilience Division will work directly with the department or agency to attempt to assist or address any constraints limiting expedited resolution of the vulnerability. DHS s NCCIC will leverage weekly agency scans to track each department or agency s progress in mitigating its critical vulnerabilities. DHS will provide quarterly cyber hygiene report updates to the OMB to ensure department and agency results are synchronized with OMB cybersecurity oversight initiatives. <8. BOD 16-01 Securing High Value Assets, June 9, 2016> <8.1. Agency Requirements> Agencies or departments are to: Identify and submit the name of a lead point of contact to DHS s FNR branch within 7 days of this directive s issuance. The point of contact will be responsible for coordinating the agency s high value asset assessments with DHS. (Submission of the same information for at least one backup point of contact is encouraged.) Participate in assessments, mitigation, and remediation activities by: Signing a DHS-provided rules of engagement document authorizing DHS to conduct risk and vulnerability assessments on agency high value assets. Beginning to implement DHS-issued mitigation measures listed in this directive s appendix for agency high value assets Participating in the high value asset assessments authorized by the rules of engagement. Participating in a security architecture assessment for select high value assets, if requested to do so by DHS. Mitigating the high-priority vulnerabilities identified by DHS in the high value asset final assessment report within 30 days of DHS s receipt of the report or determine that mitigation is not feasible within that time frame. Providing additional status updates every 30 days until all high- priority vulnerabilities have been addressed. <8.2. DHS Requirements> DHS will identify agency high value assets for assessment and report their findings to agencies. DHS will validate whether any relevant protections have been appropriately implemented during each high value asset assessment and will provide the agency with a report on the extent of sufficient implementation. If an agency does not comply with the requirements of this binding operational directive, DHS will follow up with each deputy secretary or equivalent, as appropriate. <9. BOD 16-02 Threat to Network Infrastructure Devices, September 27, 2016> <9.1. Agency Requirements> Agencies or departments are to: Perform all actions in the Solution sections of the technical annexes to the NCCIC Analysis Report AR-16-20173 no later than 45 days after issuance of this directive. Report to DHS, through the OMB MAX Connect Portal, either full mitigation or provide a detailed plan of action and milestones explaining the constraints preventing mitigation and the associated compensating controls established no later than 45 days after issuance of this directive. Provide additional reports or plans of action and milestones every 30 days thereafter until full mitigation is achieved. <9.2. DHS Requirements> DHS s NCCIC will continue to analyze information for additional mitigation steps to protect federal networks and will develop technical annexes in the future under this directive as necessary. If an agency does not comply with the requirements of this directive, DHS will follow up with each deputy secretary or equivalent, as appropriate. Perform all actions in the Solution sections of the technical annexes to the NCCIC Analysis Report AR-16-20173 no later than 45 days after issuance of this directive. Report to DHS, through the OMB MAX Connect Portal, either full mitigation or provide a detailed plan of action and milestones explaining the constraints preventing mitigation and the associated compensating controls established no later than 45 days after issuance of this directive. Provide additional reports or plans of action and milestones every 30 days thereafter until full mitigation is achieved. <10. BOD 16-03 2016 Agency Cybersecurity Reporting Requirements, October 17, 2016> <10.1. Agency Requirements> Agencies or departments are to: Report security incidents to the DHS United States Computer Emergency Readiness Team in accordance with the guidelines found at https://www.us-cert.gov/incident-notification-guidelines, which are updated as necessary. Include metric information from the chief information officer, inspector general, and senior agency official for privacy, detailed in the annual FISMA metrics, in the Fiscal Year 2016 Annual Federal Information Security Management Act Reports, found at https://www.dhs.gov/publication/fy16-fisma-documents. Submit CIO, IG, and privacy metrics by November 10, 2016, to OMB and DHS via CyberScope. View the Fiscal Year 2017 Annual FISMA CIO metrics available at https://www.dhs.gov/publication/fy17-fisma-documents and plan accordingly so they can include these metrics in their Fiscal Year 2017 FISMA Reports. <10.2. DHS Requirements> DHS will track submission of Fiscal Year 2016 Annual Federal Information Security Management Act Reports and privacy metrics, and follow up with OMB or the relevant agency to address non-compliance as appropriate. <11. BOD 17-01 Removal of Kaspersky-branded Products, September 13, 2017> <11.1. Agency Requirements> Agencies or departments are to: Within 30 calendar days after issuance of this directive, identify the use or presence of Kaspersky-branded products on all federal information systems and provide a report to DHS that includes: A list of Kaspersky-branded products found on agency information systems. If agencies do not find the use or presence of Kaspersky-branded products on their federal information systems, they should inform DHS that no Kaspersky- branded products were found. The number of endpoints impacted by each product. The methodologies employed to identify the use or presence of the products. Within 60 calendar days after issuance of this directive, develop and provide to DHS a detailed plan of action to remove and discontinue present and future use of all Kaspersky-branded products beginning 90 calendar days after issuance of this directive. Agency plans must address the following elements: Agency name. Point of contact information, including name, telephone number, and email address. List of identified products. Number of endpoints impacted. Methodologies employed to identify the use or presence of the products. List of agencies (components) impacted within department. Mission function of impacted endpoints and/or systems. All contracts, service-level agreements, or other agreements the agency has entered into with Kaspersky. Timeline to remove identified products. If applicable, FISMA performance requirements or security controls that product removal would impact, including, but not limited to data loss/ leakage prevention, network access control, mobile device management, sandboxing/detonation chamber, web site reputation filtering/web content filtering, hardware and software whitelisting, vulnerability and patch management, anti- malware, anti-exploit, spam filtering, data encryption, or other capabilities. If applicable, chosen or proposed replacement products/capabilities. If applicable, timeline for implementing replacement products/ capabilities. Foreseeable challenges not otherwise addressed in this plan. Associated costs related to licenses, maintenance, and replacement (coordinate with agency chief financial officers). At 90 calendar days after issuance of this directive, and unless directed otherwise by DHS based on new information, departments or agencies will begin to implement the agency plan of action and provide a status report to DHS on the progress of that implementation every 30 calendar days thereafter until full removal and discontinuance of use is achieved. <11.2. DHS Requirements> DHS will rely on agency self-reporting and independent validation measures for tracking and verifying progress. DHS will provide additional guidance through the federal cybersecurity coordination, assessment, and response protocol following the issuance of this directive. <12. BOD 18-01 Enhance Email and Web Security, October 16, 2017> <12.1. Agency Requirements> Agencies or departments are to: Within 30 calendar days after issuance of this directive, develop and provide to DHS an agency plan of action for BOD 18-01 to: Enhance email security by configuring within 90 days after issuance of this directive: All internet-facing mail servers to offer STARTTLS, and All second-level agency domains to have valid sender policy framework (SPF)/domain-based message authentication, reporting and conformance (DMARC) records, with at minimum a DMARC policy of p=none and at least one address defined as a recipient of aggregate and/or failure reports. Within 120 days after issuance of this directive, ensuring: Secure sockets layer (SSL)v2 and SSLv3 are disabled on mail Triple data encryption standard (3DES) and Rivest cipher 4 (RC4) ciphers are disabled on mail servers (see temporary policy exception for 3DES). Within 15 days of the establishment of centralized NCCIC reporting location, adding the NCCIC as a recipient of DMARC aggregate reports. Within 1 year after issuance of this directive, setting a DMARC policy of reject for all second-level domains and mail-sending hosts. Enhance web security by: Within 120 days after issuance of this directive, ensuring: All publicly accessible federal websites and web services provide service through a secure connection (hypertext transfer protocol secure (HTTPS)-only, with HTTP strict transport security (HSTS)), SSLv2 and SSLv3 are disabled on web servers, and 3DES and RC4 ciphers are disabled on web servers. Identifying and providing a list to DHS of agency second-level domains that can be HSTS preloaded, for which HTTPS will be enforced for all subdomains. Upon delivery of its plans of action for BOD 18-01, within 30 days of this directive, departments or agencies will begin implementing their plans. At 60 calendar days after issuance of this directive, departments or agencies will provide a report to DHS on the status of that implementation. They will continue to report every 30 calendar days thereafter until implementation of the agency s BOD 18-01 plan is complete. <12.2. DHS Requirements> DHS will review each agency plan of action for BOD 18-01 after receipt and may contact agencies with concerns. DHS will coordinate the agency-provided lists of domains for HSTS preloading with DotGov. DHS will rely on scanning by its National Cybersecurity Assessments and Technical Services team for tracking and verifying progress with agency compliance with this directive. DHS will notify agencies when the NCCIC establishes a central location for the collection of agency DMARC aggregate reports DHS will provide additional guidance through a DHS coordination call and other engagements and products following the issuance of this directive. <13. BOD 18-02 Securing High Value Assets, May 7, 2018> <13.1. Agency Requirements> Agencies or departments are to: Identify and submit coordination points of contact (POC) for high value asset assessments. If selected to participate in DHS-led HVA assessment, departments or agencies will complete and submit to DHS a single rules of engagement (ROE), and for each HVA and related system(s) to be assessed, one ROE Appendix A titled Risk and Vulnerability Assessment (RVA) Services for High Value Assets and Related Systems, authorizing DHS to conduct HVA RVAs on that agency HVA and related systems. Participate in the HVA assessments authorized by the ROE and one or more Appendix A submissions for RVA Services for High Value Assets and Related Systems. Participate in a security architecture review (SAR) of each HVA to be assessed. Impose no restrictions on the timing and/or frequency of the assessments, the services to be provided by DHS, or the scope of systems that are part of or related to the HVA being assessed. Ensure timely remediation of identified vulnerabilities and report Within 30 days of receipt of the RVA and/or SAR reports identifying major or critical weakness to an assessed HVA, remediate all major or critical weaknesses and provide notification to DHS that each identified weakness was addressed. If it is determined by the designated senior accountable official for risk management that full remediation cannot be completed within the initial 30-day time frame, develop and submit to a designated DHS email address, a remediation plan for each HVA with remaining major or critical weaknesses within 30 days of the receipt of the RVA and/or SAR reports. This remediation plan shall include justification for the extended timeline, the proposed timeline and associated milestones to remediation (not to exceed 1 year), interim mitigation actions planned to address immediate vulnerabilities, and, if relevant, the identification of constraints related to policy, budget, workforce, and operations. This remediation plan must be signed by the designated senior accountable official for risk management prior to submission to DHS. Report the status of each remaining major or critical weakness to a designated DHS email address every 30 days until full remediation is achieved for all assessed HVAs. Status reports must address RVA and SAR results through combined reporting and must be submitted every 30 days starting 30 days after the submission of the remediation plan described above. Notify DHS at a designated email address and through the monthly status reports of any modifications to remediation plan timelines and when full remediation has been achieved. The notifications for modifications and full remediation must be certified under signature of the designated senior accountable official for risk management. <13.2. DHS Requirements> DHS will centrally manage agency progress and report submissions, and will engage each agency head in all cases where the agency has not met the deadlines outlined in the agency/department required actions list. DHS collects, maintains, and prioritizes agency-submitted HVAs, and will notify enterprise chief information officers, chief information security officers, and HVA points of contact of specific HVAs selected for DHS-led assessments based on OMB-led determinations. DHS maintains all agency HVA submissions on HSIN. DHS provisions HSIN accounts for designated agency HVA POCs and provides instruction on HSIN use, as needed. DHS provides standard templates for identifying and submitting agency HVAs and for remediation plans and progress reports. DHS plans and conducts RVAs and SARs for OMB-selected agency HVAs, and provides formal reports containing assessment findings and recommendations to the designated agency HVA POCs. <14. BOD 19-02 Vulnerability Remediation Requirements for Internet Accessible Systems, April 29, 2019> <14.1. Agency Requirements> Agencies or departments are to: Ensure access and verify scope. Ensure cyber hygiene scanning access by removing cyber hygiene source internet protocol (IP) addresses from block lists. Within 5 working days of the change, notify the Cybersecurity and Infrastructure Security Agency (CISA) at a designated email address of any modifications to the agency s internet-accessible IP addresses. This includes newly acquired internet-accessible IP addresses or re-assigned internet-accessible IP addresses that are no longer part of the agency s asset inventory. Upon request from CISA, departments or agencies will submit updated cyber hygiene agreements to a designated DHS email address. Review and remediate critical and high vulnerabilities. Review cyber hygiene reports issued by CISA and remediate the critical and high vulnerabilities detected on the agency s internet- accessible systems as follows: Critical vulnerabilities must be remediated within 15 calendar days of initial detection. High vulnerabilities must be remediated within 30 calendar days of initial detection. <14.2. DHS Requirements> CISA will monitor federal agency progress and will engage agency senior leadership, such as the chief information security officer, the chief information officer, and the senior accountable officer for risk management, as necessary and appropriate, when the agency has not met the required agency action deadlines specified. CISA also will track the remediation of critical and high vulnerabilities through persistent cyber hygiene scanning and will validate compliance with the directive requirements through these reports. CISA will provide regular reports to federal civilian agencies on cyber hygiene scanning results and current status, and a federal enterprise scorecard report to agency leadership. CISA will provide standard remediation plan templates for federal civilian agencies to populate if remediation efforts exceed required time frames. CISA will engage agency POCs to discuss agency status and provide technical expertise and guidance for the remediation of specific vulnerabilities, as requested and appropriate. CISA will engage agency chief information security officer, the chief information officer, and the senior accountable officer for risk management, throughout the escalation process, if necessary. CISA will provide monthly cyber hygiene reports to OMB to identify cross-agency trends, persistent challenges, and facilitate potential policy and/or budget-related actions and remedies. The report will also ensure alignment with other OMB-led cybersecurity oversight initiative. Appendix V: Technical Requirements Explanation for Enhance Email and Web Security, Binding Operational Directive 18-01 The scope of Binding Operational Directive (BOD) 18-01, Enhance Email and Web Security, includes complex technical concepts that require background knowledge on various topics for both email and web security. The following information provides more detail on the directive s technical requirements. <15. Email Security> When enabled by a receiving mail server, STARTTLS signals to a sending mail server that the capability to encrypt an email in transit is present. While it does not force the use of encryption, enabling STARTTLS makes passive man-in-the-middle attacks more difficult. <15.1. Email Authentication> SPF (Sender Policy Framework) and DKIM (Domain Keys Identified Mail) allow a sending domain to effectively watermark its emails, making unauthorized emails (e.g., spam, phishing email) easy to detect. When an email is received that does not pass an agency s posted SPF/DKIM rules, DMARC (Domain-based Message Authentication, Reporting & Conformance) tells a recipient what the domain owner would like done with the message. Setting a DMARC policy of reject provides the strongest protection against spoofed email, ensuring that unauthenticated messages are rejected at the mail server, even before delivery. Additionally, DMARC reports provide a mechanism for an agency to be made aware of the source of an apparent forgery, information that they would not normally receive otherwise. Multiple recipients can be defined for the receipt of DMARC reports. <15.2. Web Security> Hypertext Transfer Protocol (HTTP) connections can be easily monitored, modified, and impersonated; Hypertext Transfer Protocol Secure (HTTPS) remedies these vulnerabilities. HTTP Strict Transport Security (HSTS) ensures that browsers always use an https:// connection, and removes the ability for users to click through certificate- related warnings. In 2015, OMB M-15-13, Policy to Require Secure Connections Across Federal Websites and Web Services, required all existing federal websites and web services to be accessible through a secure connection (HTTPS-only, with HSTS). In 2017, the .gov registry began automatically preloading new federal .gov domains as HSTS-only in modern browsers. <15.3. Protocols> SSL (secure sockets layer) is a computing protocol that ensures the security of data sent via the internet by using encryption. SSLv2 was released in 1995. Most modern clients do not support SSLv2, but a cross- protocol security bug (DROWN) demonstrated that merely serving SSLv2 enables the inspection of traffic encrypted with the more modern and secure protocol, transport layer security. SSLv3 was released in 1996 and considered to be insecure after a man- in-the-middle exploit (POODLE) was published in 2014. <15.4. Ciphers> RC4 (Rivest Cipher 4) is a stream cipher algorithm that is used in popular protocols such as SSL (to protect internet traffic) and wired equivalent privacy (WEP) to secure wireless networks. In 2014, NIST marked RC4 as not approved for use in federal information systems. 3DES (3 key triple data encryption standard) is an implementation of the data encryption standard (DES) algorithm that uses three passes of the DES algorithm instead of one as used in ordinary DES applications. Triple DES provides much stronger encryption than ordinary DES, but it is less secure than advanced encryption standard. In 2017, NIST urged all users of 3DES to migrate as soon as possible. Appendix VI: Comments from the Department of Homeland Security Appendix VII: GAO Contact and Staff Acknowledgments <16. GAO Contact> <17. Staff Acknowledgments> In addition to the contact named above, Neelaxi Lakhmani (assistant director), Kathleen S. Epperson (analyst-in-charge), Season Burris, Christopher Businsky, Noah Levesque, David Matcham, T. Bruce Rackliff, Karl Seifert, and Priscilla Smith made key contributions to the report.

Why GAO Did This Study DHS plays a key role in federal cybersecurity. FISMA authorized DHS, in consultation with the Office of Management and Budget, to develop and oversee the implementation of compulsory directives—referred to as binding operational directives—covering executive branch civilian agencies. These directives require agencies to safeguard federal information and information systems from a known or reasonably suspected information security threat, vulnerability, or risk. Since 2015, DHS has issued eight directives that instructed agencies to, among other things, (1) mitigate critical vulnerabilities discovered by DHS through its scanning of agencies' internet-accessible systems; (2) address urgent vulnerabilities in network infrastructure devices identified by DHS; and (3) better secure the government's highest value and most critical information and system assets. GAO was requested to evaluate DHS's binding operational directives. This report addresses (1) DHS's process for developing and overseeing the implementation of binding operational directives and (2) the effectiveness of the directives, including agencies' implementation of the directive requirements. GAO selected for review the five directives that were in effect as of December 2018, and randomly selected for further in-depth review a sample of 12 agencies from the executive branch civilian agencies to which the directives apply. What GAO Found The Department of Homeland Security (DHS) has established a five-step process for developing and overseeing the implementation of binding operational directives, as authorized by the Federal Information Security Modernization Act of 2014 (FISMA). The process includes DHS coordinating with stakeholders early in the directives' development process and validating agencies' actions on the directives. However, in implementing the process, DHS did not coordinate with stakeholders early in the process and did not consistently validate agencies' self-reported actions. In addition to being a required step in the directives process, FISMA requires DHS to coordinate with the National Institute of Standards and Technology (NIST) to ensure that the directives do not conflict with existing NIST guidance for federal agencies. However, NIST officials told GAO that DHS often did not reach out to NIST on directives until 1 to 2 weeks before the directives were to be issued, and then did not always incorporate the NIST technical comments. More recently, DHS and NIST have started regular coordination meetings to discuss directive-related issues earlier in the process. Regarding validation of agency actions, DHS has done so for selected directives, but not for others. DHS is not well-positioned to validate all directives because it lacks a risk-based approach as well as a strategy to check selected agency-reported actions to validate their completion. Directives' implementation often has been effective in strengthening federal cybersecurity. For example, a 2015 directive on critical vulnerability mitigation required agencies to address critical vulnerabilities discovered by DHS cyber scans of agencies' internet-accessible systems within 30 days. This was a new requirement for federal agencies. While agencies did not always meet the 30-day requirement, their mitigations were validated by DHS and reached 87 percent compliance by 2017 (see fig. 1). DHS officials attributed the recent decline in percentage completion to a 35-day partial government shutdown in late 2018/early 2019. Nevertheless, for the 4-year period shown in the figure below, agencies mitigated within 30 days about 2,500 of the 3,600 vulnerabilities identified. Agencies also made reported improvements in securing or replacing vulnerable network infrastructure devices. Specifically, a 2016 directive on the Threat to Network Infrastructure Devices addressed, among other things, several urgent vulnerabilities in the targeting of firewalls across federal networks and provided technical mitigation solutions. As shown in figure 2, in response to the directive, agencies reported progress in mitigating risks to more than 11,000 devices as of October 2018. In addition, GAO reviewed DHS policies and processes related to the directives and assessed them against FISMA and Office of Management and Budget requirements; administered a data collection instrument to selected federal agencies; compared the agencies' responses and supporting documentation to the requirements outlined in the five directives; and collected and analyzed DHS's government-wide scanning data on government-wide implementation of the directives. GAO also interviewed DHS and selected agency officials. What GAO Recommends GAO is making four recommendations to DHS: (1) determine when in the directive development process—for example, during early development and at directive approval—coordination with relevant stakeholders, including NIST, should occur; (2) develop a strategy for when and how to independently validate selected agencies' self-reported actions on meeting directive requirements, where feasible, using a risk-based approach; (3) ensure that the directive performance metric for addressing vulnerabilities identified in high value asset assessments aligns with the process DHS has established; and (4) develop a schedule and plan for completing the high value asset program reassessment and addressing the outstanding issues on completing the required assessments, identifying needed resources, and finalizing guidance to agencies and third parties. DHS concurred with GAO's recommendations and outlined steps and associated timelines that it planned to take to address the recommendations. Another key DHS directive is Securing High Value Assets, an initiative to protect the government's most critical information and system assets. According to this directive, DHS is to lead in-depth assessments of federal agencies' most essential identified high value assets. However, an important performance metric for addressing vulnerabilities identified by these assessments does not account for agencies submitting remediation plans in cases where weaknesses cannot be fully addressed within 30 days. Further, DHS only completed about half of the required assessments for the most recent 2 years (61 of 142 for fiscal year 2018, and 73 of 142 required assessments for fiscal year 2019 (see fig. 3)). In addition, DHS does not plan to finalize guidance to agencies and third parties, such as contractors or agency independent assessors, for conducting reviews of additional high value assets that are considered significant, but are not included in DHS's current review, until the end of fiscal year 2020. Given these shortcomings, DHS is now reassessing key aspects of the program. However, it does not have a schedule or plan for completing this reassessment, or to address outstanding issues on completing required assessments, identifying needed resources, and finalizing guidance to agencies and third parties.

gao_GAO-19-235

gao_GAO-19-235_0

<1. Background> <1.1. The Federal Acquisition Process and Applicable Provisions> To support its mission, DOD uses contracts to procure many different types of supplies (such as ships, planes, and munitions) and services (such as management, maintenance, and technical services). The federal acquisition process generally includes three phases: the pre-award phase, which includes acquisition planning and activities such as conducting market research and defining contract terms and conditions prior to soliciting proposals; the award phase, which includes activities such as soliciting offers from prospective contractors, evaluating prospective contractors proposals and qualifications, and awarding the contract; and the contract performance phase, which includes monitoring contract performance. Within these phases, contracting officials complete certain activities as provided by applicable federal statutes and the Federal Acquisition Regulation (FAR). These activities differ somewhat based on the unique circumstances of each contract, including, for example, whether a contract is awarded competitively through full and open competition or non-competitively through other than full and open competition, and whether negotiated procedures are used. (See fig.1.) Before awarding a contract in excess of the simplified acquisition threshold (generally $150,000 at the time of our review), the FAR requires contracting officials to review information in the Federal Awardee Performance and Integrity Information System (FAPIIS), which can include descriptions of a prospective contractor s past safety and health violations. Furthermore, for competitively awarded acquisitions using negotiated procedures and expected to exceed the simplified acquisition threshold, agencies generally must evaluate prospective contractors past performance. Contracting officials enter and view performance assessments in the Contractor Performance Assessment Reporting System (CPARS). In evaluating past performance, agencies may review a contractor s past performance assessments, which can contain information about prior safety incidents and may be used to support award decisions. While the FAR prescribes policies and requirements that apply to executive agencies, there can be wide variation concerning the acquisition practices at individual agencies. For example, USACE often can take advantage of a robust competitive market and frequently uses competitively awarded fixed-price contracts. NAVSEA, by contrast, operates within an industrial base that has far fewer participants that often are uniquely qualified to produce specific classes of ships. As a consequence, many of NAVSEA s contracts are negotiated on a sole- source or limited competition basis. <1.2. OSHA s Oversight of Workplace Safety and Health> Under the Occupational Safety and Health Act of 1970 (OSH Act), OSHA sets and directly enforces occupational safety and health standards for the private sector in about half the states. The remaining states have chosen to set and enforce their own occupational safety and health standards for these employers under a state plan approved by OSHA. State standards and their enforcement must be at least as effective in providing safe and healthful employment as the federal standards. Most private sector employers, including federal contractors, are covered by the OSH Act and must comply with any applicable state or federal occupational safety and health standards. In addition to the OSH Act, several other federal laws require federal contractors, depending on the type and amount of the contract, to comply with occupational safety and health standards. OSHA and the states have approximately 2,100 compliance officers responsible for enforcing health and safety standards at more than 8 million worksites across the nation, which employ approximately 130 million workers. According to data provided by OSHA officials, in fiscal year 2017, OSHA and the states conducted about 76,000 inspections. A little less than half of these inspections were in the construction industry (about 34,000), and about one-fifth were in the manufacturing industry (about 14,000). OSHA and state occupational safety and health agencies conduct both programmed and unprogrammed inspections. Programmed inspections which represented about 44 percent of all federal OSHA inspections in fiscal year 2017 are planned based on workplace injury incidence rates, previous citation history, or random selection. Programmed inspections include those conducted under OSHA s emphasis programs, which focus on a particular safety or health hazard or a specific industry. OSHA s nine current national emphasis programs include one on shipbreaking, which covers some companies with DOD contracts. In addition, OSHA has regional and local emphasis programs. Unprogrammed inspections which represented the other 56 percent of all federal OSHA inspections in fiscal year 2017 are unplanned and are conducted in response to reports of imminent danger, fatalities, severe injuries, worker complaints, referrals from other government agencies, and catastrophic events that cause worker deaths and hospitalizations. Before beginning an inspection, OSHA or state compliance officers generally hold a brief opening conference to inform employer and employee representatives of the purpose of the inspection and their rights during the inspection, and provide a copy of the complaint, if applicable. After completing an inspection, if OSHA or state compliance officers determine that the employer has violated any safety or health standards, they may issue a citation, including a deadline for correcting the hazards, and related financial penalties (see fig. 2). If OSHA issues a citation, it is required to do so within 6 months of the occurrence of a violation. After receiving a citation, the employer may request an informal conference with OSHA officials to present evidence or views that they believe would support an adjustment to the citation or penalty, but an informal conference is not required. The employer may also contest the citation. Employers are required to certify that the hazards have been corrected by the deadline and provide supporting documentation. If they do not, OSHA may conduct a follow up inspection, and may issue additional citations and penalties if the hazards were not corrected. When an employer is inspected and OSHA finds violations, various factors might affect the number of violations identified. For example, an inspection with a narrow focus may identify fewer violations than a full inspection of the same worksite. OSHA officials said that construction inspections are often focused on a particular issue, such as protecting workers from falls or securing a trench, and thus may not be as comprehensive as a full inspection of a general industry facility. In addition, the number of violations identified during an inspection could be affected by factors such as company size, industry, and the presence of other safety oversight efforts. For example, OSHA officials said that in the construction industry they routinely cite both a general contractor and a subcontractor for the same violation, but do so to a lesser extent in other industries. Officials also noted that on USACE construction sites, both USACE and contractor representatives conduct safety inspections, which enhances employer compliance with both OSHA standards and the USACE Safety and Health Requirements Manual. <1.3. Debarment for Violations of Safety and Health Standards> DOL has authority under the Contract Work Hours and Safety Standards Act to debar federal contractors in the construction industry from receiving federal contracts if they have committed repeatedly willful or grossly negligent violations of OSHA safety and health standards. However, as of October 2018, officials said that DOL had not debarred a construction contractor for this reason in the last 10 years. According to officials, DOL does not have debarment authority for violations of safety and health standards in industries other than construction, although it has debarment authority for other types of labor law violations. <2. Some Defense Contractors Were Previously Cited for Serious Safety or Health Violations, but Total Incidence is Unknown Because Comprehensive Data Are Not Available> <2.1. Some Selected Companies with DOD Manufacturing or Construction Contracts in Fiscal Year 2017 Were Previously Cited for Serious Safety or Health Violations> Of the 192 companies we selected with DOD manufacturing or construction contracts in fiscal year 2017, we found that a little more than half (106) were inspected by OSHA or state occupational safety and health agencies from fiscal years 2013 to 2017. Of the companies that were inspected, 59 had construction contracts, and 47 had manufacturing contracts in fiscal year 2017. During this 5-year time period, OSHA or state agencies conducted 609 inspections of these 106 companies. Most of these inspections (about 81 percent) were conducted by OSHA. The percentages of programmed and unprogrammed inspections of our selected companies from fiscal years 2013 to 2017 were similar to these percentages for all federal OSHA inspections in fiscal year 2017. (See fig.3.) OSHA s enforcement policy is designed to focus OSHA s inspection resources on the most hazardous workplaces. Officials told us that employers, including DOD contractors, may not be inspected if they do not meet OSHA s criteria for programmed inspections and do not experience a safety or health incident that would lead to an unprogrammed inspection. In addition, officials said employers that participate in OSHA s Voluntary Protection Programs (VPP) must have high-quality safety and health programs, are exempt from regular programmed inspections, and are only inspected if OSHA is notified of a safety or health incident. According to OSHA officials, of the 86 selected companies that were not inspected by OSHA or state agencies from fiscal years 2013 to 2017, one currently participates in the VPP. Our analysis found that of the 106 selected companies that were inspected during this time period, 83 were cited for at least one safety or health violation of any type, and of those, 52 were cited for serious violations (when there was a substantial probability that death or serious physical harm could result, and the employer knew, or could have known with the exercise of reasonable diligence, of the hazard). Three companies were cited for at least one repeated violation. (See fig. 4.) However, we were unable to determine from the available data whether these safety and health violations occurred during work on a DOD contract because OSHA inspection data do not include that information. The 83 selected companies that were cited for workplace safety or health violations from fiscal years 2013 to 2017 had a total of 405 violations, including 195 serious violations, 7 repeated violations, and 203 violations of other types. These companies were assessed financial penalties totaling about $1.2 million over that time period, including about $742,000 in penalties for serious violations. In fiscal year 2017, the 83 companies previously cited for violations of any type had DOD contracts totaling about $113 billion, and the 52 companies previously cited for serious violations had DOD contracts of $46 billion (as measured by federal obligations). (See table 1.) Furthermore, for some of the selected companies cited for serious violations, the related OSHA inspection data described worker injuries or deaths. As previously noted, 52 of the selected companies were cited for a total of 195 serious violations from fiscal years 2013 to 2017. For some, but not all, of these serious violations, the related inspection data described accidents in which 7 workers died, 20 were hospitalized for severe injuries including fractures, chemical burns, other burns, and amputations and 4 had severe injuries that did not require hospitalization. According to the inspection data, the accidents in which 7 workers died included the following: a hydrogen blast in a melting chamber resulted in one worker being pinned under a 20,000 pound lid, another receiving second degree burns, and a third being killed; a barge capsized after a crane tilted over, and one worker drowned; a worker fell 98 feet from an elevator and was killed; a worker sustained a fatal electric shock when replacing jumper wires on a high voltage transmission corner tower, and another worker was injured; an autoclave exploded, striking and killing a worker with extreme a vessel became unmoored due to high winds and struck a pier which then collapsed, pulling two workers underwater, one of whom died. <2.2. The Incidence of Violations among All Inspected Companies with DOD Contracts Is Unknown Because OSHA s Data Do Not Consistently Include Corporate Identification Numbers> While we could identify some selected companies with DOD contracts in fiscal year 2017 that were previously cited for safety or health violations, the incidence of these violations among all inspected companies with DOD contracts is unknown because data limitations prevent comprehensive matching of federal contracting data with OSHA inspection data. Specifically, the corporate identification numbers used in the federal contracting databases the Employer Identification Number/Taxpayer Identification Number (EIN/TIN) and the Data Universal Numbering System (DUNS) number are not well-populated in OSHA s database because OSHA has not designated them as required fields. OSHA officials are required to enter certain types of data in OSHA s inspection database such as the employer s name and address, the type of inspection, and any violations that were identified during the inspection and have the option to enter the employer s EIN/TIN and DUNS number. However, at the time of our review, for manufacturing and construction inspections initiated from fiscal years 2013 to 2017, the EIN/TIN of the inspected company was entered in OSHA s inspection data for about one-third of all inspections, and the DUNS number was entered for about 8 percent of all inspections (see fig. 5). OSHA has acknowledged that it is difficult to match records across different databases without corporate identification numbers. In addition, OSHA s website with information about safety and health violations cannot currently be searched by a company s EIN/TIN or DUNS number. OSHA makes information about violations publicly available on its website, which can be searched by company name and industry code, among other fields. However, when searching OSHA s website by company name, interested parties may experience challenges obtaining relevant information because company names differ across databases. When we searched the OSHA website by company name as part of selecting USACE and NAVSEA contracts for review, we were unable to determine whether 18 of the 66 company names we searched had been inspected. For example, when we searched the OSHA website using the first word in one company s name, the search results included 34 inspections, but none of the company names in the search results exactly matched the company name in the federal contracting data. OSHA officials said the EIN/TIN and DUNS numbers are not required fields because employers or their on-site representatives do not always have these numbers. Officials told us that smaller companies, such as small construction companies, are less likely to have these numbers than larger companies. When companies do have corporate identification numbers, officials said that the employer s on-site representative who interacts with the OSHA compliance officer such as a foreman might not know these numbers, and OSHA officials may not have the opportunity to meet with other employer representatives who would be more likely to know these numbers. However, if an employer requests an informal conference with OSHA officials after being cited for a violation, the conference provides an opportunity for OSHA officials to obtain the employer s corporate identification number from knowledgeable representatives. In addition, OSHA officials said requiring a corporate identification number in OSHA s inspection database could prevent closing an inspection record and issuing any related citations if they were unable to obtain this number within the required six-month timeframe. Officials added that delays in issuing citations could also lead to delays in addressing workplace hazards, because employers are not required to begin addressing these hazards until they receive a citation. However, OSHA officials noted that if an employer s EIN/TIN or DUNS number is not available during an inspection, the number can be added to the inspection database at a later time. Collecting corporate identification numbers as part of inspections could benefit both OSHA and users of OSHA s website. OSHA officials said that the EIN is useful for collecting financial penalties from companies that have been cited for violations. In addition, OSHA officials told us that requiring the EIN/TIN or DUNS number in OSHA s inspection database would make it easier to search for companies in OSHA s online inspection data. According to federal internal control standards, management should externally communicate the necessary quality information to achieve the entity s objectives. Quality information is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Without exploring the feasibility of requiring a corporate identification number in OSHA s inspection database and enabling OSHA s website to be searched by that number, contracting officials and other interested parties are likely to experience challenges obtaining accurate information about companies safety and health violations. <3. DOD Officials Have Several Opportunities to Address Workplace Safety and Health During the Acquisition Process, but May Not Have Complete Information> Officials at DOD have multiple opportunities to address contractor safety throughout the acquisition process. For example, during the award phase, officials can consider safety information when they evaluate contractors past performance for contracts awarded competitively using negotiated procedures. However, not all contracting officials are aware that relevant contractor safety information is available on the OSHA website. During the contract performance phase, USACE and NAVSEA both take additional steps related to contractor safety and health, including accident prevention and accident reporting. Only USACE, however, has a practice of requiring contracting officials to assess contractor safety performance on construction contracts at the completion of the contract. As a consequence, safety performance information for other contracts across DOD may not be readily accessible to officials when awarding new contracts. <3.1. While Not Required, DOD Can Consider Workplace Safety and Health in Various Ways Before Awarding Contracts> The FAR does not specifically require contracting officials to consider information about prospective contractors records of safety performance before awarding a contract. Furthermore, DOD, Army, Navy, USACE, and NAVSEA policy and guidance do not specifically direct contracting officials to consider information about prospective contractors safety records before awarding contracts, according to officials. However, contracting officials have several opportunities to consider contractor safety and health records and other safety information during the pre- award and award phases of the contracting process. Developing requirements and drafting the solicitation. As part of acquisition planning, contracting and program officials develop requirements. In addition, when drafting a solicitation, the FAR or agency guidance may prescribe the use of certain clauses. For example, the FAR requires that fixed-price construction contracts above the simplified acquisition threshold include a provision related to workplace safety. Specifically, these contracts must include an Accident Prevention clause that requires the contractor to provide appropriate safety barricades, signs, and signals, and comply with OSHA safety and health standards, among other requirements. In addition, for DOD construction fixed-price contracts above the simplified acquisition threshold, this Accident Prevention clause requires contractors to comply with the USACE Safety and Health Requirements Manual. USACE contracting officials also told us that if contracts include work associated with asbestos abatement, lead abatement, or hazardous waste remediation, clauses specific to these areas are also included in the solicitation and resulting contract. NAVSEA also uses clauses as applicable to the specific work performed, for shipbuilding procurements or ship repair, in its contracts, and NAVSEA stated that many of these clauses are related to safety and environmental issues. Further, program officials can include specific requirements for unique or high-risk activities. For example, one of our selected NAVSEA contracts specified that the contractor must ensure that all required safety and emergency devices, such as emergency escape breathing devices, were onboard the ship before the contractor conducted sea trials. Soliciting and evaluating offers from prospective contractors. For contracts awarded competitively using negotiated procedures, contracting officials are required to identify the factors on which they will evaluate prospective contractors proposals and their relative weights. Contracting officials can designate safety in the solicitation as among the criteria that they will use to evaluate proposals and require prospective contractors to submit related information. For example, solicitations for two of our selected contracts included aspects of safety in the evaluation of certain factors. Safety also may be considered during the evaluation of contractor past performance. For acquisitions following negotiated procedures that are expected to exceed the simplified acquisition threshold, the FAR generally requires an evaluation of prospective contractors past performance, which can include compliance with safety requirements on past contracts. The evaluation must include past performance as an evaluation factor unless the contracting officials document the reason past performance is not an appropriate evaluation factor for the acquisition. In evaluating past performance, the contractor s performance assessments in CPARS may be reviewed and used by contracting officials to support future award decisions. For example, for one NAVSEA contract, the assessments identified instances when the contractor s safety program failed to comply with NAVSEA s safety standards. In noncompetitive acquisitions following negotiated procedures, there is no requirement that there be evaluation criteria that include past performance. In these situations, opportunities for considering safety issues may be limited to the responsibility determination. Determining that contractors meet responsibility standards. Prior to contract award, contracting officials must determine that prospective contractors are responsible, which is also known as the responsibility determination. The responsibility determination has several required elements, some of which may include consideration of workplace safety and health. For example, before awarding a contract, contracting officials must: determine that prospective contractors have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them, which may include assessing whether contractors have applicable safety programs; and determine that prospective contractors have a satisfactory performance record which for contracts that will be in excess of the simplified acquisition threshold includes reviewing and considering prospective contractors performance and integrity information in FAPIIS, which may include information about proceedings related to safety and health violations. For one of our selected contracts, the FAPIIS search result in the contract file described OSHA safety and health violations. While they were not required to do so, none of the responsibility determinations for our six selected contracts contained information about workplace safety. If contracting officials considered safety when making this determination, we did not locate it in the contract files. <3.2. Information on Safety in Performance Assessments Varies and Can Be Incomplete> The information available to contracting officials in the federal contracting databases about contractors past performance varies by DOD component. Specifically, USACE has a practice of requiring officials to assess and rate contractors performance on construction contracts with respect to safety, among other required factors, in CPARS at the completion of the contract. USACE contracting officials enter a safety performance rating exceptional, very good, satisfactory, marginal, or unsatisfactory and provide a supporting written narrative in a specific tab in CPARS. As a result, information on safety performance is summarized in a single location within CPARS, and thus, readily accessible to federal contracting officials, including those at DOD, when a previous USACE construction contractor is considered for future contract awards. For all other DOD contracts, according to officials we interviewed, information on contractors safety performance may be included in various places throughout CPARS, but is not required to be summarized as a separate rating in a single location. The contract file documentation we reviewed illustrated these differences. For two of our selected USACE contracts, we found that this safety performance rating was available to officials for their consideration when awarding the contract. Based on our review of the contract file for one of these contracts, source selection officials identified less than satisfactory comments related to the safety performance rating in CPARS. As a result, they considered the rating, as well as the actions explained by the contractor to mitigate the safety issues. These officials determined that the corrective actions were sufficient, according to the documentation we reviewed. In contrast, for one of our selected NAVSEA contracts, we found that the past performance assessments in CPARS contained no information about workplace safety or health either satisfactory or unsatisfactory. The past performance for the remaining NAVSEA contract file for which we obtained a CPARS report contained information on workplace safety and health for example, the assessments noted corrective action requests were submitted for safety incidents. According to federal internal control standards, management should use quality information information that is complete and accessible to achieve its objectives. Without a safety performance rating for contractors in industries with relatively high rates of occupational injuries, such as manufacturing or ship building and repairing, contracting officials may lack complete, readily accessible information on prospective contractors workplace safety performance. As a result, DOD may miss opportunities to address safety and health concerns when awarding contracts in these high-risk industries for example, by considering whether and how prospective contractors resolved or mitigated violations or safety issues on prior contracts. In addition, DOD contracting officials may not be aware that the OSHA website is a resource for additional information about contractors workplace safety and health records. Since CPARS only includes past performance assessments for federal government contracts, contracting officials may not know about OSHA violations committed by companies during work that took place outside of these contracts, or when the company was not a federal contractor. DOD officials told us that they expect contracting officials to use their discretion in evaluating safety performance; however, DOD has not advised its contracting officials that the OSHA website is a resource for additional information on workplace safety records. For one of our selected contracts, the contracting official told us he was not aware of a past OSHA violation when determining contractor responsibility. According to the contracting official, OSHA issued the citation for non-Navy work performed at the contractor s commercial shipyard. Several contracting officials told us that they would likely only consider violations they deemed relevant, for example, those that occurred at the facility where the contract will be performed. However, without knowing that a past violation occurred, the official we interviewed for our selected contract may not have had the opportunity to consider all of the available information when evaluating the contractor or addressing potential safety issues. Moreover, contracting officials for the six USACE and NAVSEA contracts we reviewed said they have not sought information about contractor safety and health violations from the OSHA website, and several were unaware that the website contained information on violations. Without being made aware that the OSHA website is a resource for additional information, contracting officials may not have the opportunity to utilize all of the available information about prospective contractors safety history. As a result, DOD contracting officials may miss opportunities to consider safety and health concerns when they are awarding new contracts. <3.3. Selected Components Take a Variety of Steps to Address Contractor Workplace Safety During Performance of the Contract> Officials from our two selected components USACE and NAVSEA also identified various actions they may take during the contract performance phase related to the workplace safety of their contractors. For example, according to officials, during the contract performance phase, USACE and NAVSEA oversee contractors compliance with contract requirements related to workplace safety and health. The steps they take may include ensuring that contractors submit accident prevention plans, when required, and conducting safety inspections, among other actions. Monitoring for OSHA violations. As mentioned above, the FAR requires a clause regarding compliance with safety and health standards to be included in certain federal construction contracts. USACE officials told us that this is monitored as a reportable item while work is being conducted, and that if violations occur during the performance of the contract, the contracting official is to enter information about the violations into CPARS. An Army official also told us that the Army recently implemented a system to track OSHA violations, but that it did not yet contain any data. Accident prevention. The FAR requires compliance with the USACE Safety and Health Requirements Manual for certain DOD construction contracts. According to the manual and USACE officials, USACE does not allow construction to begin until officials have reviewed and accepted the contractor s accident prevention plan, including changes if necessary. For example, the contract documentation we reviewed for a dredging contract included a memorandum outlining changes that were to be addressed in the accident prevention plan (for example, outlining credentials for the safety officer on the site). According to the manual, USACE requires contractors submitted accident prevention plans to be job-specific and include work to be performed by subcontractors. NAVSEA may require contractors to submit an occupational health and safety plan for ship repair work. For example, one of the files we reviewed for a maintenance, modernization, and repair contract for a certain class of ships included a safety plan a required deliverable under the contract covering topics such as fall protection, evacuation procedures, and accident notification. Inspections. The USACE manual requires daily safety inspections of contractors worksites by both contractor and USACE personnel, and officials told us that USACE procedures require these inspections to be entered in USACE s Resident Management System. The manual also requires the accident prevention plan or the USACE project safety and occupational health plan to provide for frequent safety inspections of the work sites, material, and equipment to ensure compliance with the plan and the USACE manual. For one of the USACE contracts we selected for review, CPARS documentation provided by USACE officials indicated that USACE staff noted repeated issues with safety requirements, including exposed live electrical wiring, lack of adequate lighting, and improper use of extension cords. This CPARS example indicates that the contractor worked to increase safety compliance. Finally, USACE s manual states that when an employee is deemed to be in imminent danger, contractor or USACE officials must immediately stop the unsafe work being performed. For NAVSEA, officials told us that safety requirements and oversight responsibilities will vary depending on the type of work involved. For new construction, the Navy Supervisor of Shipbuilding, Conversion, and Repair (SUPSHIP) oversees safety. For repair and maintenance, the Regional Maintenance Centers are charged with safety oversight, among other administrative responsibilities. At both organizations, if problems are found, personnel issue corrective action requests. For example, a regional maintenance center staff member issued a corrective action request because the contractor failed to monitor the use of personal protective equipment and a contractor employee fell through a deck opening. As previously noted, the CPARS assessments for one of our selected contracts specifically noted that safety corrective action requests had been issued to that contractor. NAVSEA officials told us that quality assurance staff also have regular meetings with the contractors and monitor workplace safety. Accident reporting. USACE policy is to investigate and report USACE accidents in order to prevent recurrences and to comply with OSHA, DOD, Army, and other requirements. USACE regulation requires contracting officials to inform contractors of their responsibilities for accident reporting and investigation, and ensure all accidents that occur within their area of responsibility are investigated and reported. USACE also collects information about accidents at contractors worksites, and disseminates summaries of incidents on a regular basis. For example, one summary described a fall by a contractor employee resulting in stitches and a broken nose. The summary reminds USACE personnel of the importance of protective equipment to prevent this type of incident. USACE officials also told us that they have on-site engineers who would typically address any safety concerns directly with the contractor and inform the contracting official responsible for entering information into CPARS. Navy policy requires significant problems, including severe personnel injuries, to be reported to the NAVSEA Commander through the use of trouble reports. In addition, the SUPSHIP supervisor implements hazard identification and reporting processes and ensures the collection, evaluation and reporting of data for the determination of contractor award fees and past performance data bases. SUPSHIP also assesses the overall effectiveness of contractor safety and health management systems and provides safety program assessments for quarterly reviews. Finally, the SUPSHIP Operations Manual provides that SUPSHIP personnel who are aware of any major or willful contractor violation of federal, state, or local laws and regulations (for example, recurring/major unsafe work practices) will report these violations. Personnel training. According to a USACE official, USACE requires the designated quality control manager for each worksite to take the USACE Construction Quality Management course before being approved to work on a project. The course aims to ensure that construction is performed according to plans and specifications, on time, within budget, and in a safe work environment. In addition, contractor safety managers are required by the USACE manual to be on all project sites for USACE construction contracts and must complete certain OSHA training or equivalent training. This program provides training on the recognition, avoidance, abatement, and prevention of workplace hazards. According to officials, NAVSEA recommends that its personnel working in acquisition of defense systems or maintenance of ships and aircraft undergo acquisition safety training. A NAVSEA contracting official told us that the first draft of this training has been developed and will be required training for NAVSEA contracting personnel. Officials said that the aim of this training is ensure that safety is considered when developing contract requirements. <4. Conclusions> DOD obligates hundreds of billions of dollars each year on contracts, including those for work in high-risk industries such as construction and ship building and repairing, and some companies have received DOD contracts after being cited for serious workplace safety or health violations. Even if these violations did not occur during work on a DOD contract, they could be relevant to decisions about new DOD contracts, for example, when a prospective contractor has not previously received federal contracts or when past performance information does not address workplace safety. However, the incidence of serious safety and health violations among all inspected DOD contractors remains unknown because OSHA does not require a corporate identification number in its inspection data. Furthermore, OSHA s website currently cannot be searched by a corporate identification number. Without these enhancements to OSHA s inspection data and website, DOD contracting officials and other interested parties are likely to experience challenges obtaining accurate information about contractors workplace safety and health records. In addition, DOD contracting officials may be unaware of OSHA s website because DOD has not advised them that this resource exists. Despite some data limitations, OSHA s website currently can be used to obtain information about contractors workplace safety and health records in some cases. While DOD contracting officials are not required to consider information about contractors workplace safety and health before awarding contracts, they have multiple opportunities to do so. Unless DOD provides information about OSHA s website to contracting officials, they may remain unaware that this resource exists, and may miss opportunities to consider safety and health concerns when awarding new contracts. Furthermore, some DOD contracting officials may lack readily accessible information on contractors past workplace safety performance because DOD does not require a safety performance rating for contracts department-wide. One of the DOD components we selected has a practice of requiring construction contractors performance to be rated with respect to workplace safety at the completion of each contract. However, DOD does not require a safety performance rating for other components construction contracts or contracts in other industries with similarly high rates of occupational injuries, such as manufacturing. Without exploring the feasibility of requiring a department-wide safety performance rating for all contracts in high-risk industries, DOD may miss opportunities to reduce risks by considering safety concerns when awarding new contracts in these industries. <5. Recommendations for Executive Action> We are making three recommendations, including one to OSHA and two to DOD. Specifically: The Assistant Secretary of Labor for Occupational Safety and Health should explore the feasibility of requiring a corporate identification number in its inspection database and enabling its website to be searched by that number. This should include exploring the following issues: which corporate identification number would be most appropriate to options for obtaining this number from employers; and options for entering this number in its database that would prevent or minimize delays in closing inspection records. (Recommendation 1) The Secretary of Defense should provide information to contracting officials to advise them that the OSHA website is a resource for information about contractors workplace safety and health records. (Recommendation 2) The Secretary of Defense should explore the feasibility of requiring a safety performance rating for contracts in industries that have relatively high rates of occupational injuries, such as manufacturing, construction, and ship building and repairing. (Recommendation 3) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOL and DOD for review and comment. DOL s Occupational Safety and Health Administration (OSHA) and DOD provided written comments, which are reprinted in appendixes II and III, respectively. With respect to our first recommendation that OSHA explore the feasibility of requiring a corporate identification number in its database and enabling its website to be searched by that number, OSHA did not state whether it agreed with our recommendation. OSHA acknowledged the potential utility of obtaining a unique identifier from each employer and said it will continue to promote the collection of Employer Identification Numbers (EIN) or Tax Identification Numbers (TIN) whenever possible by issuing a revised memorandum to field staff to reinforce the importance of collecting this information. OSHA stated that it does not view EINs as confidential or protected from disclosure. However, OSHA expressed concerns about protecting TINs and Social Security Numbers from disclosure, and noted that it would not be able to make a data field available for public search if it contained either of these numbers. OSHA also raised concerns about the financial cost associated with redesigning the agency s data system. We encourage OSHA to explore options for addressing these concerns as it further considers how to implement our recommendation. With respect to our second and third recommendations that DOD provide information to contracting officials about the OSHA website and explore the feasibility of requiring a safety performance rating for contracts in high-risk industries, DOD agreed with both recommendations and identified implementation timelines. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Department of Labor, the Secretary of the Department of Defense, 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 William T. Woods at (202) 512-4841 or [email protected], or Chelsa Gurkin 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 IV. Appendix I: Objectives, Scope, and Methodology This report examines (1) the incidence of prior serious safety or health violations among selected companies with Department of Defense (DOD) manufacturing and construction contracts, and (2) how DOD and selected DOD components address contractor workplace safety and health during the acquisition process. To describe the incidence of prior serious safety or health violations among selected companies with DOD manufacturing and construction contracts, we matched federal contracting data to the Department of Labor s (DOL) Occupational Safety and Health Administration (OSHA) inspection data for selected contractors, interviewed OSHA officials, and reviewed relevant OSHA policy. Our data matching process is described below. To describe how DOD and selected DOD components address contractor workplace safety and health during the acquisition process, we selected two military departments (Army and Navy) and two components within these departments (the U.S. Army Corps of Engineers (USACE) and the Naval Sea Systems Command (NAVSEA)). We interviewed officials from DOD and these departments and components, and reviewed relevant DOD and component-level policy and guidance. To provide illustrative examples, we selected a non-generalizable sample of three USACE and three NAVSEA contracts, reviewed relevant contract file documentation, and interviewed knowledgeable contracting officials. Our criteria for selecting contracts and our review of contract file documentation are described below. While this review primarily focused on the award phase of the contracting process, NAVSEA and USACE officials also provided some information on the pre-award and contract performance phases of the contracting process, which we include in this report where relevant. For example, we interviewed USACE and NAVSEA safety officials about safety oversight practices during the contract performance phase. We also obtained examples of safety- related requirements for each of our selected contracts by interviewing contracting officials and reviewing contract documentation. To address both objectives, we reviewed relevant federal laws and regulations. <7. Data Matching> To describe the incidence of prior serious safety or health violations among selected companies with Department of Defense (DOD) manufacturing and construction contracts, we matched federal contracting data to OSHA inspection data. OSHA categorizes a violation as serious when there is a substantial probability that death or serious physical harm could result, and the employer knew, or could have known with the exercise of reasonable diligence, of the hazard. Specifically, we matched contracting data from the Federal Procurement Data System- Next Generation (FPDS-NG) and the System for Award Management (SAM) to inspection data from the Occupational Safety and Health Information System (OIS) and Integrated Management Information System (IMIS). We assessed the reliability of the federal contracting data and OSHA inspection data by (1) performing electronic testing of relevant data elements, (2) reviewing existing information about the data and the systems that produced them, and (3) collecting information from federal officials knowledgeable about the data. Based on these reviews, we found the employer identification information in the federal contracting data, obligation amounts in the federal contracting data, and the OSHA inspection data to be sufficiently reliable for our purposes. First, we used FPDS-NG data to select the 100 companies with the largest DOD manufacturing contracts and the 100 companies with the largest DOD construction contracts (as measured by federal obligations) in fiscal year 2017. We focused on the manufacturing and construction industries because they have relatively high rates of occupational injuries, according to data from DOL s Bureau of Labor Statistics (BLS), and over half of DOD contract obligations in that year were for contracts in these industries, according to FPDS-NG data. Next, we identified duplicate or related companies, and entities that were not private companies with DOD contracts performed within the United States, and narrowed this list of 200 companies to 192 companies. In fiscal year 2017, DOD obligations for contracts with these 192 companies accounted for about 79 percent of DOD s obligations for contracts in the manufacturing and construction industries and about 46 percent of DOD s total contract obligations. Then, to determine whether the 192 companies had been inspected by OSHA or state occupational safety and health agencies from fiscal years 2013 to 2017, we used automated matching procedures that compared the Employer Identification Numbers (EINs) and company names entered in the federal contracting databases to those entered in OSHA s inspection databases. Specifically, we used FPDS-NG to identify the Data Universal Numbering System (DUNS) numbers for our selected companies, and then used SAM to identify the EINs that corresponded to each of those DUNS numbers. Next, we matched those EINs to the EINs in the OSHA inspection data. We considered a company to be a match if the EINs were identical and either (1) the company names were the same or similar, or (2) the company names were different, but we identified a relationship between the two company names, such as a parent company/subsidiary relationship, through an internet search. Using this process, we initially identified 90 selected companies that were inspected by OSHA from fiscal years 2013 to 2017. After completing this matching process, we sent a list of the remaining companies that we were unable to match to OSHA for review. Specifically, we asked OSHA officials to identify whether those companies were inspected from fiscal years 2013 to 2017, and provide inspection numbers for those companies that were inspected. OSHA officials reviewed this list and reported that OSHA had inspected some of the unmatched companies, and provided related inspection numbers. We then added those inspections to our analysis, which brought the total number of selected companies inspected by OSHA during this time period to 106 of 192. Our results are not generalizable to all companies that were awarded DOD manufacturing and construction contracts in fiscal year 2017. That year, about 29,000 companies had DOD manufacturing or construction contracts, and we reviewed a non-generalizable sample of 192 companies. In addition, limitations in the data do not allow a determination of whether the safety and health violations we identified occurred during work on a DOD contract because OSHA data do not include that information. Our counts of violations include only those in citations issued by OSHA or state agencies to our selected contractors as determined by our matching process, and only those that resulted from closed inspections where the violations and penalties are considered final. In addition, our counts of violations exclude any in citations issued only to subcontractors. According to OSHA officials, in certain circumstances, OSHA may cite both a prime contractor and a subcontractor for a violation, but in these cases the data would be recorded under two separate inspection numbers, which may or may not be linked in OSHA s database. As a result, we did not attempt to identify inspections and violations for subcontractors. Furthermore, our counts of violations might exclude those in citations issued to any of the selected contractors subsidiaries or locations not identified by our matching process. We counted inspections and violations at the parent company level. Many of the companies we selected had multiple locations, and some may have had subsidiaries. OSHA inspections take place at the local worksite level. As a result, the number of violations we report reflects the total number of violations we identified across the selected companies various locations or subsidiaries that were inspected from fiscal years 2013 to 2017. To the extent that our matching process did not capture every company location or subsidiary, our findings may underestimate the actual number of inspections and violations among our selected companies. <8. Contract Selection and Review of Contract File Documentation> To provide examples of how selected DOD components address contractor workplace safety and health during the acquisition process, we selected a non-generalizable sample of three USACE and three NAVSEA contracts. To select these contracts, we first identified the 50 companies with the largest DOD construction contracts and the 50 companies with the largest DOD manufacturing contracts (as measured by federal obligations) in fiscal year 2017. Because our review focused on USACE and NAVSEA, we narrowed this list to USACE construction contractors (45) and NAVSEA shipbuilding or ship repair contractors (18). Next, we searched OSHA s online inspection data to determine whether these contractors were cited for serious workplace safety or health violations within the last five years (fiscal years 2013 to 2017). Then, we selected the three USACE contractors and the three NAVSEA contractors that had the highest number of serious violations for closed OSHA inspections. We counted serious violations at the parent company level, which may include violations at different company locations. For example, OSHA violations we identified for one selected contractor occurred during both tank manufacturing and ship repair at different locations within the United States. After selecting these six companies, we identified the new USACE and NAVSEA contracts that were awarded to each selected company in fiscal years 2017 and 2016. We selected contracts that were awarded in fiscal year 2017 or 2016 because we expected that documentation for those contracts would be more readily available than for contracts awarded in previous years. Starting with the contracts that were awarded in fiscal year 2017, we selected one contract for each of these six contractors that had the highest total contract value (including base and all options) and provided diversity with respect to the contracting office that awarded the contract and the location where the work was performed. We excluded contracts that were for design or planning, rather than actual construction, shipbuilding, or ship repair. We also considered the proximity of the violation dates to the contract award date, and excluded contracts where all of the violations occurred after the contract was awarded, or immediately before the contract was awarded. In three cases, to satisfy these inclusion and exclusion criteria, it was necessary to select a contract that was awarded in 2016 and/or a contract that had the second highest total value. Each of our six selected contracts had a total contract value that was above the simplified acquisition threshold, which for the timeframe of our sample was generally above $150,000. (See table 2.) Of these six contractors, two had prior OSHA violations that occurred at the same location where the work on the selected contract was performed. However, we were unable to determine from the available data whether these violations occurred during work on a prior DOD contract, because OSHA data do not include that information. For each of the six selected contracts, we reviewed available relevant documentation in the contract file to determine how, if at all, officials considered information about contractors workplace safety and health in awarding the contract. These documents depending on the type of source selection included the contract solicitation, source selection plan, evaluation of contractor proposals, and the responsibility determination. In addition, we interviewed the contracting officials who awarded each of the six contracts to discuss how and why they considered available information about contractors workplace safety and health before awarding the contract, including whether this information was considered as part of the responsibility determination. We also determined whether prior OSHA violations were recorded in the Federal Awardee Performance and Integrity Information System (FAPIIS), to the extent these records were saved in the contract file. In addition, we obtained and reviewed Contractor Performance Assessment Reporting System (CPARS) reports for any information about occupational safety and health performance on past contracts, such as comments on safety practices or accidents, or the presence of safety ratings, as available in the files. The results of this review of contract file documentation cannot be generalized. We conducted this performance audit from February 2018 to February 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Labor Appendix III: Comments from the Department of Defense Appendix IV: GAO Contacts and Staff Acknowledgments <9. GAO Contacts> <10. Staff Acknowledgments> In addition to the contacts named above, Betty Ward-Zukerman (Assistant Director), Caitlin Croake (Analyst-In-Charge), Amy Sweet, Sonja Bensen, and Cathy Roark made key contributions to this report. Also contributing to this report were Marie Ahearn, Blake Ainsworth, Hiwotte Amare, Vincent Balloon, James Bennett, Linda Collins, Sarah Cornetto, Holly Dye, Andrea Evans, Laurier Fish, Suellen Foth, Kristen Jones, Sheila McCoy, Jean McSween, Diana Moldafsky, Stacy Ouellette, Anh Nguyen, Jason Rodriguez, Almeta Spencer, Kelly Turner, Kristin Van Wychen, Alyssa Weir, and Eve Weisberg.

Why GAO Did This Study DOD is the largest contracting agency in the federal government, obligating about $320 billion for contracts in fiscal year 2017. Some DOD contracts—including some in the manufacturing and construction industries—involve work that can be dangerous, and questions have been raised about working conditions for these workers. The National Defense Authorization Act for Fiscal Year 2018 includes a provision for GAO to review issues related to the safety and health records of DOD contractors. This report examines: (1) the incidence of prior serious safety or health violations among selected companies with DOD manufacturing and construction contracts, and (2) how DOD and selected DOD components address contractor workplace safety and health during the acquisition process. GAO matched federal contracting data for fiscal year 2017 to OSHA inspection data for fiscal years 2013-2017 (most recent available); interviewed officials from OSHA, DOD, selected military departments, and selected DOD components; reviewed documentation from six selected DOD contract files; and reviewed relevant federal laws and regulations, policy, and guidance. What GAO Found Some selected companies with Department of Defense (DOD) manufacturing or construction contracts in fiscal year 2017 were previously cited for serious safety or health violations, according to GAO's analysis of federal data. Of the 192 companies with DOD contracts GAO selected for review, 106 had been inspected by the Department of Labor's (DOL) Occupational Safety and Health Administration (OSHA) or state occupational safety and health agencies during fiscal years 2013 through 2017. These inspections resulted in 83 companies being cited for at least one violation, including 52 with at least one serious violation (see figure). However, available data do not allow a determination of whether these violations occurred during work on a DOD contract because OSHA inspection data do not include that information. The incidence of violations among all inspected companies with DOD contracts cannot be determined because OSHA does not require its staff to obtain and enter a corporate identification number in its inspection data, which is needed to match contracting data to inspection data. As a result, OSHA's data do not consistently include these numbers, and users of OSHA's website cannot use these numbers to search for companies' previous violations. According to federal internal control standards, management should share the quality information necessary to achieve the entity's objectives. Unless OSHA explores the feasibility of requiring a corporate identification number in its inspection data, website users will likely have difficulty obtaining accurate information on individual companies' previous violations. DOD contracting officials have opportunities during the acquisition process to address contractor workplace safety and health. For example, before awarding certain types of contracts, officials may consider workplace safety and health information when they evaluate prospective contractors' performance on past contracts. However, the past performance information that is available for officials to consider varies by DOD component. One component has a practice of requiring construction contractors to be rated on workplace safety at the completion of the contract, but DOD does not require a safety performance rating department-wide. As a result, contracting officials in other components may lack readily accessible information on contractors' past safety performance, and DOD may miss opportunities to consider safety concerns when awarding new contracts, particularly those in high-risk industries with relatively high rates of occupational injuries, such as manufacturing and construction. What GAO Recommends GAO is making one recommendation to OSHA and two recommendations to DOD to enhance available information on contractor workplace safety. OSHA neither agreed nor disagreed with GAO's recommendation, but planned to take action to address it. DOD agreed with the recommendations.

gao_GAO-19-446

gao_GAO-19-446_0

<1. Background> In 2017, nearly one in three Medicare Part D beneficiaries received an opioid prescription, and Medicare spending for prescription opioids was almost $3.4 billion. Medicare data for 2017 showed that the beneficiaries potentially at risk for opioid misuse and abuse were more likely to be under 65 years of age, female, and dually eligible for Medicare and Medicaid. <1.1. States Experience with Medicaid Lock-in Programs> For years, to limit Medicaid at-risk beneficiaries access to controlled substances, state Medicaid programs have used lock-in programs, which restrict certain beneficiaries access to a single prescriber (such as a physician or other health-care provider), a single pharmacy, or both. States have broad discretion in how and whether to implement lock-ins, including how to identify at-risk beneficiaries. Medicaid lock-in programs have been associated with advantages including declines in inappropriate prescribing, decreases in abuse of controlled substances, and increased treatment options for beneficiaries. Research has identified an unintended consequence of the Medicaid lock-in programs; some individuals increased the amount of out-of-pocket payments they made for controlled substances, thus avoiding lock-in programs as data on these purchases are not collected by Medicaid. <1.2. State Prescription Drug Monitoring Programs> State Prescription Drug Monitoring Programs (PDMP) are state-run electronic databases that track the prescribing, dispensing, and purchasing of controlled substances by individuals, whether purchased out-of-pocket, through private insurance, or under insurance programs such as Medicare and Medicaid. Data are available to individuals or organizations as authorized under state law. For example, health-care prescribers can check PDMPs for a specific individual prior to prescribing controlled substances. State PDMPs have documentation of controlled substances obtained by individuals. As of February 2018, all 50 states, the District of Columbia, Guam, and Puerto Rico had operational PDMPs within their borders. <2. Medicare DMPs Use Case Management to Identify Beneficiaries at Risk of Opioid Misuse and Attempt to Mitigate That Risk> Medicare DMPs perform case management to identify at-risk beneficiaries and attempt to mitigate risk by increasing communication and coordination across plan sponsors, health-care prescribers, pharmacists, and at-risk beneficiaries. CMS established a framework for plan sponsors that volunteer to establish Medicare DMPs. CMS s framework includes two steps for identifying at-risk beneficiaries: 1) CMS identifies potentially at-risk beneficiaries based on key clinical factors and 2) plan sponsors use case management to identify the subset of potentially at-risk beneficiaries who are actually at risk. Step One: Identifying potentially at-risk beneficiaries. CMS identifies potentially at-risk beneficiaries based on the minimum Overutilization Monitoring System s criteria and develops a quarterly list of these beneficiaries, which it sends to plan sponsors. The Overutilization Monitoring System was originally designed and implemented by CMS in July 2013 to oversee plan sponsors compliance with CMS s opioid overutilization policy and is based on beneficiary claims data. It was enhanced in 2019 to support the implementation of DMPs. The system encompasses a medication safety approach with the goal of reducing beneficiary overutilization of opioids while maintaining beneficiary access to needed medication. The Overutilization Monitoring System creates and sends a list of beneficiaries meeting minimum criteria quarterly to plan sponsors with DMPs. These patients are considered potentially at- risk beneficiaries. Additional supplemental criteria can also be used by plan sponsors to identify other potential at-risk beneficiaries, such as those who use seven or more pharmacies for opioid prescriptions. Use of higher numbers of prescribers and pharmacies may put the beneficiary at more risk. (See table 1.) Step Two: Using case management to identify actually at-risk beneficiaries and mitigate risk of misuse or abuse. After identification of potentially at-risk beneficiaries by CMS, the second step in the framework is for plan sponsors to coordinate the provision of care, referred to as case management. Plan sponsors use case management to determine which potentially at-risk beneficiaries are deemed to be actually at risk. Plan sponsors clinicians must begin case management for each potentially at-risk beneficiary with the beneficiary s prescribers of frequently abused drugs, with the purpose of determining if current treatment is appropriate, examining specifically if the beneficiary is being appropriately treated with frequently abused drugs. This step allows for health-care providers to bring the beneficiary s clinical information into the discussion. Two groups of beneficiaries identified as potentially at risk are excluded from Medicare DMPs during the case management process: First, CMS will automatically exempt from Medicare DMP consideration any beneficiary who (a) has elected to receive hospice, palliative, or end-of- life care; (b) is a resident of a long-term-care facility or of another facility for which frequently abused drugs are dispensed for residents through a contract with a single pharmacy; or (c) has active cancer-related pain. Second, through a discussion of beneficiary-level clinical information as part of case management, beneficiaries found to be receiving appropriate treatment, or who have had cases resolved with adjustments to their treatment will also be excluded from Medicare DMP consideration. CMS officials told us that the beneficiaries health-care providers often adjust their prescribing after talking with the health plans clinicians and learning information about other health-care providers also treating the beneficiary. After eliminating the excluded beneficiaries, the plan sponsor sends an initial notification letter to the remaining beneficiaries who continue to be identified as potentially at risk, and thus, may require limiting the coverage of a prescription drug in some manner (coverage limitation). The notification letter notifies each beneficiary that he or she has been identified as potentially at risk; details which coverage limitations the sponsor intends to implement and for how long; explains how the beneficiary can submit preferences for the selected frequently abused drugs prescriber(s) and the selected dispensing pharmacy or pharmacies for frequently abused drugs in case a lock-in tool is used; provides information about resources and plan benefits that address prescription abuse; explains how additional information can be provided to the plan sponsor; and informs the beneficiary of the right to appeal, among other things. Medicare plan sponsors have three coverage limitation tools that can be used either concurrently or sequentially: Frequently abused drugs prescriber lock-in. The at-risk beneficiary will receive prescriptions from only one or more selected prescriber. Prescribers in a group practice will count as a single prescriber. Frequently abused drugs-dispensing pharmacy lock-in. The at- risk beneficiary will receive all prescriptions from one or more selected dispensing pharmacy. The pharmacy must be in their plan sponsor s network. When a pharmacy has different locations that share real-time electronic data, such as chain pharmacies, all locations of the pharmacy will be treated as one pharmacy. Beneficiary specific point-of-sale claim edit. The at-risk beneficiary will be restricted to certain frequently abused drugs and amounts through the point-of-sale claim edit. This means that a plan sponsor must not cover a prescription for the frequently abused drug for an at- risk beneficiary that is in excess of the limit in the edit. Pharmacists will receive a message when a beneficiary attempts to fill a prescription if the prescription exceeds the limit in place for that beneficiary. After a 30-day period from the date of the initial notification letter, there are two possible outcomes: either the plan sponsor will determine that the beneficiary is at risk for misuse or abuse of frequently abused drugs and will proceed with the coverage limitation under its DMP, or the sponsor will determine that the beneficiary is not at risk. If the potentially at-risk beneficiary is found to be at risk, a second notification letter is sent to the beneficiary as soon as possible after the 30-day period but no later than 60 days from the date of the initial notification letter. The second letter includes the beneficiary s identification as at risk for misuse or abuse of frequently abused drugs, the right to appeal the decision, coverage limitations to be employed, and the expiration date of the coverage limitations, among other things. The second notification letter also explains how the beneficiary can submit preferences for the selected frequently abused drugs prescriber(s) and the selected dispensing pharmacy or pharmacies for frequently abused drugs in case a lock-in tool is used. The selected frequently abused drugs prescriber(s) must agree to serve as the beneficiary s only frequently abused drugs prescriber(s) and must be determined by the plan sponsor as not contributing to the beneficiary s opioid misuse. The at-risk beneficiary generally has 60 days from the date of the second notification letter to request an appeal of an at-risk determination. A new at-risk determination is made by the plan sponsor as a result of continued case management (that is, continued coordination of care and clinical discussions) within a standard time frame of 7 days for redetermination, or an expedited time frame of 72 hours for redetermination. Alternatively, if it is determined that the potentially at-risk beneficiary is being treated appropriately for their medical condition and is therefore not at risk, an alternate second notification letter is sent to the beneficiary stating that the beneficiary was deemed not to be at risk and that access to frequently abused drugs will not be limited under a DMP. This alternate second notification letter must be sent no later than 60 days after the date on the initial notification letter. If a beneficiary switches to a different plan sponsor after being identified as potentially at risk or actually at risk, the determination does not automatically transfer to the new plan sponsor. The new plan sponsor will be able to see the previous plan sponsor s determination, but the new plan sponsor may have to make its own determination through case management unless the prior plan s case management information is up to date. According to CMS s framework, the termination date of an at-risk determination is the earlier of two possible dates: 12 months from the effective date of the coverage limitation, unless the limitation is extended, or when the beneficiary demonstrates that he or she is no longer likely to be at risk before the end of the 12 months. At the end of the 12-month period, a clinical assessment of the at-risk beneficiary will determine if the DMP should continue for another year or be ended. The maximum coverage limitation period in a DMP is 24 months. After 24 months, the coverage limitation is halted, but according to the framework, CMS continues to monitor the beneficiary quarterly through the Overutilization Monitoring System and can re-identify the beneficiary as potentially at risk again if he or she meets the minimum Overutilization Monitoring System criteria. Reporting requirements for Medicare DMPs. Although the Medicare DMPs are currently voluntary, the framework places reporting requirements on plan sponsors that choose to establish DMPs. Medicare DMPs are integrated with the Opioid Drug Utilization Review Policy and Overutilization Monitoring System to improve medication safety. Plan sponsors must report to CMS, through the Overutilization Monitoring System, the results of case management for each potential at-risk beneficiary identified. For each beneficiary deemed to be at risk, the coverage limitation tools frequently abused drugs prescriber lock-in, frequently abused drugs-dispensing pharmacy lock-in, and beneficiary specific point-of-sale claims edit that will be used to limit the beneficiary s access to frequently abused drugs must also be reported. Other required information to be reported to CMS includes dates of the initial and second notification letters, and the date that the plan sponsor decides to terminate a potential at-risk or at-risk status. This data allows CMS to track beneficiary-level data for those beneficiaries placed in DMPs. Input about Medicare DMP framework from plan sponsors and experts. Although the at-risk determination is the responsibility of the plan sponsor, four of the five plan sponsors we interviewed stated they would rely on results from case management, including the beneficiary s primary health-care provider s input, to make the determination. One plan sponsor told us it has a panel of physicians and pharmacists that makes the at-risk determination for beneficiaries. The panel takes into consideration the input of the beneficiary s prescribers of frequently abused drugs, but the panel makes the final decision. None of the five plan sponsors we interviewed expressed concerns about beneficiaries not receiving clinically appropriate doses of opioids under the Medicare DMPs, given that the case management process includes clinician input, including the beneficiary s primary health-care provider and plan sponsors clinicians. According to one medical expert, case management is beneficial because it allows for input from the beneficiary s prescriber rather than relying solely on the Overutilization Monitoring System metric criteria to determine who is at risk. Three of the five plan sponsors we interviewed expressed prior positive experiences with lock-ins. All plan sponsors had experience with the lock- in tools from their experience participating in Medicaid programs or offering private insurance plans. Three of the five plan sponsors reported better coordinated oversight and management of patients and their conditions in those experiences. One sponsor stated that lock-in programs are perceived as an additional safety mechanism for at-risk beneficiaries by helping with the coordination of the beneficiaries care because the plan sponsor s clinicians, prescribers, and pharmacies are aware of the lock-in programs. <3. Plan Sponsors and Stakeholders Believe Coordination, Communication, and Flexibility to Incorporate Best Practices Are Keys to Success of Drug Management Programs> Officials with five plan sponsors and six stakeholder organizations representing physicians, pharmacy benefit managers, and patients we interviewed told us that several factors beyond the clinical input incorporated in the case management process could contribute to the success of DMPs. These factors include communication, collaboration, and flexibility for plan sponsors to manage and incorporate best practices. Communication among plan sponsors, opioid prescribers, and pharmacies dispensing opioids could reduce any potential resistance to DMPs by stakeholders, and contribute to DMP success, officials told us. Specifically, several officials with plan sponsors and stakeholders noted that sponsors should communicate with, and educate stakeholders to ensure that DMPs, especially their coverage limitation tools, are not viewed as punitive tools by beneficiaries, but rather as tools for keeping them safe. Some of these officials stated that through education and other means, plan sponsors should also encourage health-care providers and their enrollees to view opioid addiction by at-risk beneficiaries as a disease rather than a choice. Effective collaboration among prescribers and patients in making individualized treatment decisions for pain management is another key to successful DMPs, according to some stakeholders we interviewed. Specifically, some plan sponsors and a stakeholder noted that during and after case management plan sponsors should support collaboration between prescribers and patients to ensure access to the clinically appropriate level of opioids for each beneficiary. Flexibility to incorporate best practices from DMPs and flexibility in varying coverage limitation features to fit regional differences are other keys to success, some plan sponsors and a stakeholder told us, due to regional and other differences in population groups. Data from CDC show that there is some variation in death rates from opioids in the overall population by state, and a CDC study also shows that opioid prescribing patterns also vary by location the average per capita prescribed amounts varied widely by county, and demographic and other factors are sometimes associated with higher prescribing patterns. In addition, some officials with plan sponsors and stakeholders stated that the criteria for DMPs such as how at-risk beneficiaries are identified, and other parameters of the DMP (such as which drugs are designated as frequently abused drugs) should be periodically reassessed by CMS with feedback by plan sponsors and adjusted, where appropriate, to incorporate evidence from the outcomes of the DMP. Officials with plan sponsors and stakeholders we interviewed also discussed several factors that could limit the success of the DMPs: An official with a plan sponsor and a stakeholder told us that purchases of opioids made by beneficiaries using cash are not captured in the available prescription drug claims data maintained by plan sponsors. These officials suggested therefore that sponsors should encourage the selected prescribers to review this information by using state PDMPs, which track controlled substance prescriptions in a state and include cash sales of opioids. One plan sponsor commented that coverage limitations could have a negative effect on beneficiary health satisfaction survey scores and therefore could affect how a physician prescribes opioids. Beneficiaries who are placed in a DMP or subject to one of the DMP tools may report decreased satisfaction in the Consumer Assessment of Healthcare Providers and Systems surveys. Under Medicare Advantage, patient experience about the ease of receiving care is one measure of quality and is a factor in plan sponsor reimbursement. Finally, some officials with plan sponsors and stakeholders told us that in localities where prescribers feel a stigma associated with dispensing opioids, the coverage limitation feature could have the unintended consequence of creating a disincentive for prescribers to take care of patients who require opioid treatment. According to an official, to combat the opioid crisis, some states send letters to the top opioid prescribers in their state as a way to create awareness about trends in opioid prescribing. Officials with a plan sponsor and a stakeholder said that providers who want to avoid being on the list of top prescribers refer patients to pain specialists for management of pain. Officials told us that the demand for these pain specialists is increasing and there are long waiting lists to access care by these pain specialists. CMS is taking several steps to assess the DMPs and gather information to make periodic changes to the program. For example, CMS officials told us they plan to monitor and analyze beneficiary complaints, appeals, prescription drug event data, and other data submitted by plan sponsors related to DMPs. According to CMS officials, the agency also will obtain feedback from plan sponsors about how the DMPs are working, and this feedback will be the basis for making periodic changes to the DMPs. CMS is also updating its Medicare Part C and D audit protocol so it can audit DMP related beneficiary notices. Finally, CMS tracks the utilization of opioids by Medicare Part D enrollees using Part D data and the Overutilization Monitoring System. For example in the 2020 Medicare Advantage and Part D draft call letter, CMS reported that between 2012 and 2017, there was a 33 percent decrease in the number of Part D enrollees meeting or exceeding 90 MME for at least one day, with the largest decrease (14 percent) in 2017. <4. Agency Comments> 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 appropriate congressional committees, the Secretary of Health and Human Services, the Administrator of CMS, 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 staff have any questions about this report, please contact me at (202) 512-7114 or at [email protected]. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Acknowledgments> In addition to the contact named above, Martin T. Gahart (Assistant Director), N. Rotimi Adebonojo (Analyst in Charge), Jennie Apter, Deborah J. Miller, Emily Wilson, Rick Lipinski, Todd Anderson, and Vikki Porter made key contributions to this report.

Why GAO Did This Study Misuse and abuse of prescription opioids can lead to overdose and death. According to the Centers for Disease Control and Prevention (CDC), 47,600 overdose deaths in the United States in 2017 involved an opioid. GAO and other federal entities have raised concerns about opioid misuse and abuse in Medicare. The Comprehensive Addiction and Recovery Act of 2016 (CARA) authorized CMS and Medicare plan sponsors to establish voluntary DMPs that may limit access to frequently abused prescription drugs, such as opioids, for Medicare beneficiaries who are identified as being at risk for prescription drug abuse. DMPs will become mandatory in Medicare starting in January 2022. CARA included a provision for GAO to review DMPs under Medicare. This report: 1) describes how Medicare identifies beneficiaries at risk of opioid misuse and abuse and how it attempts to mitigate that risk; and 2) identifies the factors likely to affect the success of Medicare DMPs. GAO reviewed CDC's Guideline for Prescribing Opioids for Chronic Pain , CMS regulations, and other relevant CMS guidance. GAO also interviewed officials from CMS, the five largest Medicare Part D prescription drug plan sponsors, and officials from six other stakeholder organizations representing Medicare plan sponsors, physicians (including pain specialists), pharmacy benefit managers, state Medicaid programs, and patients. What GAO Found Medicare's drug management programs (DMP) identify beneficiaries at risk of opioid misuse or abuse, and attempt to mitigate that risk through the use of case management and coverage limitations. DMPs are overseen by the Centers for Medicare & Medicaid Services (CMS) and voluntarily implemented by Medicare Part D prescription drug plan sponsors (private health plans). CMS established a two-step framework for identifying at-risk beneficiaries under DMPs. First, CMS identifies potentially at-risk beneficiaries based on key factors, such as beneficiaries' daily dosage of opioids and the number of prescribers and pharmacies from which they receive opioids, with higher numbers possibly putting the beneficiary at more risk. Second, Medicare Part D prescription drug plan sponsors' clinicians coordinate the provision of care among prescribers and pharmacists (referred to as case management) to determine if those potentially at-risk beneficiaries are actually at risk. If a patient is deemed to be at risk, coverage limitation tools—such as limiting a beneficiary to a selected prescriber or pharmacy, and implementing point-of-sale restrictions on certain drugs or amounts—can be used to limit the at-risk beneficiary's access to opioids. Beneficiaries have an opportunity to appeal an at-risk designation. None of the five plan sponsors GAO interviewed expressed concerns about beneficiaries not receiving clinically appropriate doses of opioids under the Medicare DMPs. Medicare Part D prescription drug plan sponsors and other stakeholders GAO interviewed reported several factors beyond the case management process that could contribute to the success of DMPs. These factors included communication among sponsors, opioid prescribers, and pharmacies dispensing opioids to reduce potential resistance to participating in DMPs by opioid prescribers or beneficiaries. According to plan sponsors and stakeholders, plan sponsors could communicate with stakeholders to ensure that DMPs are not viewed as a punitive tool by beneficiaries, but rather as tools for keeping them safe. Plan sponsors and stakeholders noted that it is important for plan sponsors to have flexibility in varying coverage limitation features to fit regional and other differences in population groups. They noted that CMS should periodically reassess and adjust the elements of the DMP program where appropriate, to incorporate evidence from the outcomes of the DMP—such as how at-risk beneficiaries are identified, or which drugs are selected as frequently abused drugs. Finally, CMS officials told GAO that they are taking steps to assess the DMPs and gather the information required to make periodic changes to the DMP program. For example, CMS officials plan to analyze data for at-risk beneficiaries that DMPs are required to report to CMS, update their Medicare Part D audit protocol, and obtain feedback from plan sponsors about how the DMPs are working. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

gao_GAO-20-52

gao_GAO-20-52_0

<1. Background> Wildfires play an important ecological role on the nation s landscapes but various management practices over the past century including fire suppression, timber harvesting, and grazing have altered the normal frequency of fires in many forest and grassland ecosystems and have reduced these ecosystems resilience to wildland fire. This history of fire exclusion and changes in forest management have resulted in a buildup of surface fuels burnable material found on or near the ground and the overstocking of some forests with trees and other fuels. In addition, the reduced frequency of wildfire in some ecosystems has resulted in increased amounts of vegetative debris (e.g., dead trees, branches, leaves, and grasses) accumulating on the ground, which serves to increase fuel quantities and can create more continuous fuels. When this occurs, surface fires fires that occur on the ground may ignite more quickly and burn with greater intensity, causing fires to spread more rapidly and extensively than they may have in the past. The arrangement of living vegetation also affects the way wildfires burn. For example, an increase in the density of small trees creates a layered forest structure with fuels going from the forest floor into the forest s canopy. These layers are sometimes referred to as ladder fuels. This arrangement may allow fire that previously would have remained on the ground to climb the ladder fuels and spread into the trees crowns, becoming a high-intensity crown fire. In addition, reducing the frequency of fire in fire-adapted forests and other ecosystems can result in changes to the plant species that make up the forest or ecosystem, which may cause the vegetative composition to shift toward species that are not well adapted to fire, including non-native invasive species. For example, many areas with sagebrush ecosystems that historically had fires only once every few decades have been invaded by cheatgrass that when dried creates large swaths of fuels that increase rates of fire spread, intensity, and frequency. Approximately 70,000 communities nationwide are considered to be at risk from wildfire, according to the National Association of State Foresters, Communities at Risk, Fiscal Year 2018 Report. Communities face different levels of risk from wildfires depending on such factors as the flammability of vegetation in and around the community, the flammability of materials used in constructing structures, and the location of the structures in relation to vegetation. Structures not located immediately adjacent to wildland vegetation can also be vulnerable to wildfire because winds can transport flaming embers that can ignite homes more than a mile away from a wildfire. In addition to residential housing, other valuable assets and infrastructure that support communities may be located in the WUI, including power lines; highways; and natural resources that provide economic benefits, such as timber, oil and gas wells, and recreational areas. According to the Cohesive Strategy, reducing fuels can help reduce a wildland fire s intensity, which in turn can help lower the risk fires pose to communities, structures, and other valuable assets and infrastructure. <1.1. Federal Agencies Involved in Fuel Reduction Projects> The Forest Service, BLM, FWS, and NPS manage more than 670 million acres of federal land across the country. In addition, BIA is responsible for administering approximately 55 million acres of lands held in trust by the United States for Indian tribes, individuals, and Alaska Natives. Figure 1 shows the lands that these five agencies managed or administered in the contiguous United States. The agencies have estimated that over 100 million of these acres are at high risk from wildfire. Each agency has a unique mission that shapes how it manages or administers its associated lands. Specifically: The Forest Service manages land for multiple uses, such as grazing, timber, recreation, and watershed protection, and to sustain the health, diversity, and productivity of the nation s forests and grasslands. The agency operates through nine regional offices that manage 154 national forests and 20 national grasslands. BIA provides services, directly or through contracts or compacts, to federally recognized tribes comprising approximately 1.9 million American Indian and Alaska Natives, many of whom live on BIA- administered lands. Tribal forests provide a source of revenue and jobs for many tribal governments and their members, and play an important role in sustaining tribal cultures and traditions, according to BIA documents. The agency operates through 12 regional offices that manage 83 BIA field units. BLM manages land for multiple uses, such as recreation, mining, grazing, timber, and natural scenic values. The agency operates through 12 state offices that manage subsidiary district and field offices. FWS manages the National Wildlife Refuge System, a network of lands and waters that provides for the conservation; management; and, where appropriate, restoration of fish, wildlife, and plants and their habitats, as well as opportunities for wildlife-dependent recreation, including hunting, fishing, and wildlife observation. The refuge system includes approximately 585 refuges. The agency operates through eight regional offices that manage the refuges. NPS manages the National Park System to conserve the scenery, natural and historic objects, and wildlife therein and to leave them unimpaired for the enjoyment of future generations. Individual park units have varied designations corresponding to the natural or cultural features they are to conserve, including national parks, monuments, lakeshores, seashores, recreation areas, preserves, and historic sites. The agency operates through seven regional offices that manage 419 individual park units. <1.2. Federal Agencies Appropriations and Allocations of Funds for Fuel Reduction> Generally, after receiving its annual appropriation, the Forest Service allocates its fuel reduction funds to its nine regional offices, which in turn allocate the funds they receive to individual field units (e.g., national forests and grasslands). Interior, upon receiving its annual appropriation, allocates its fuel reduction funds through its Office of Wildland Fire to BIA, BLM, FWS, and NPS. These agencies then allocate the funds to their regional offices, which, in turn, allocate the funds to individual field units, such as national parks or wildlife refuges. Once the field units receive their allocations, they select fuel reduction projects to implement during the fiscal year. For fiscal years 2009 through 2018, the Forest Service and Interior implemented fuel reduction projects that treated, respectively, approximately 1.4 million and 1.1 million acres per fiscal year on average. Figure 2 illustrates the annual appropriation and allocation processes for fuel reduction funds. From fiscal years 2009 through 2018, Congress appropriated approximately $5 billion in fuel reduction funds to the Forest Service and Interior, with the Forest Service and Interior annually receiving on average about $339 million and $177 million, respectively (see fig. 3). <1.3. The Role of Nonfederal Entities> Most development in the WUI occurs on nonfederal lands. Accordingly, state and local government agencies, as well as property owners, play a major role in protecting communities and other development from wildfire. The Forest Service and the National Institute of Standards and Technology have developed publicly available resources that describe ways communities can adapt to wildfire. Specifically, two critical actions for protecting structures from wildfires are (1) reducing vegetation and flammable objects within an area of 30 to 100 feet around a structure, referred to as creating defensible space, and (2) using fire-resistant roofing materials and covering attic vents with mesh screens to block embers from entering the structure. Individuals and communities can also take steps to mitigate fire risk by avoiding development in higher-risk areas. To help protect structures, state and local agencies may conduct, or help fund, fuel reduction projects to protect communities and other nonfederal lands from wildfire. For example, a rural fire department in Montana funds a crew to reduce fuels around private residences to create defensible space for those homes. In addition, individual property owners may reduce fuels around their homes. In previous reports, we found that state and local agencies have adopted laws or ordinances that require homeowners to maintain a specified level of defensible space or have adopted building codes that require the use of fire-resistant building materials in fire-prone areas. For example, in our May 2017 report, we found that under an Oregon law, property owners in certain at-risk areas must reduce excess vegetation around structures and along driveways. <2. Agencies Use Various Fuel Reduction Methods to Help Lower Risk to Communities and Ecosystems> According to Forest Service and Interior documents and officials, the Forest Service and the four Interior agencies use various methods to reduce fuels, which have advantages and disadvantages under different conditions. For example: Mechanical treatments. This method entails using equipment such as chainsaws, masticators, bulldozers, or mowers to cut and remove vegetation. Mechanical treatments reduce tree density where there are abnormally dense groups of trees or ladder fuels to help reduce the risk of a wildfire becoming severe. Interior officials said that mechanical treatments are also widely used for removing shrubs and other vegetation in rangeland ecosystems. However, mechanical treatments may also increase the amount of smaller fuels on the ground, including treetops and limbs (referred to as slash) and other debris from thinning, which can in some cases increase a fire s intensity or rate of spread. Prescribed burns. This method entails using deliberate, planned fires set by land managers to restore or maintain desired ecosystem conditions and reduce fuels. Prescribed burning under specified fuel and weather conditions is designed to enable a fire to burn at a relatively low intensity level within a confined area. Prescribed burns typically work best when combined with previous prescribed burns or mechanical treatments because they are effective in removing smaller vegetation that can fuel a fire such as grasses, leaves, pine needles, and twigs which can reduce a fire s intensity and rate of spread, but are not as effective in removing larger fuel, such as trees. Smoke produced from prescribed burns and the risk of a prescribed burn spreading into other areas can limit the use of prescribed burns around communities, according to the Forest Service s Fuels Technical Guide. Herbicides and targeted grazing. Herbicides can be used to reduce fuels or when needed to kill fast growing vegetation to maintain an existing fuel reduction project. However, herbicide kills vegetation but does not remove it, potentially increasing an area s susceptibility to fire if further action is not taken to remove the dead fuel. Targeted grazing the intentional use of cows, sheep, or goats to eat vegetation in a specified area can also be used to reduce grasses and other smaller fuels that can fuel fires. One advantage of such methods is that they often can be applied with a greater level of control over the location, timing, and desired outcome of the treatment. These methods can be particularly helpful in removing smaller fuels in areas where prescribed burning is undesirable, such as in proximity to structures. With grazing, however, it may take multiple years before there is a noticeable difference in the fuels, and according to agency officials, moving livestock to different areas for grazing is labor-intensive and can potentially increase the spread of invasive plants if livestock movement is not controlled. While some fuel reduction projects may be completed with a single treatment method, other projects may require multiple treatment methods and may span several years. For example, a project may first use mechanical treatment to thin accumulated vegetation, followed by a prescribed burn to remove remaining slash and litter on the ground. Moreover, once a project is completed, it needs to be maintained over time to retain its effectiveness as vegetation grows back. Depending on the ecosystem, fuels treatment effectiveness can vary in length from only a few years to over a decade. For example, fuel reduction projects are generally effective for 3 to 5 years in southeastern U.S. pine forests given the high rate at which vegetation grows in that region. In contrast, projects are generally effective for 8 to 12 years in dry conifer forests in the western United States. The most appropriate fuel reduction method or methods as well as how they are applied (i.e., how much vegetation is removed) depends on the outcomes desired (e.g., protecting communities, restoring ecosystems); the type of forest or other vegetation present; and site-specific factors, such as topography and proximity to communities, according to the Forest Service s Fuels Technical Guide and agency officials. The Forest Service and Interior have long-standing research programs that are designed to support agency managers understanding of how to implement effective fuel reduction projects. As of November 2019, Forest Service research priorities included refining the scientific understanding of how wildfire burns across landscapes and the effects of fuel reduction projects conducted at different scales. In addition, the agencies conduct assessments, known as fuel treatment effectiveness monitoring reports, in cases where a wildfire either starts within or burns into a fuel reduction project area to evaluate the project s effect on fire behavior and fire suppression actions. Officials believe that such research helps their agencies continue to improve how they design and implement fuel reduction projects to account for site-specific factors. Regardless of the method used, the purpose of fuel reduction projects is to reduce the intensity of future wildfires to help protect communities, restore ecosystems, or both, according to agency documents. The following examples illustrate various fuel reduction methods that the agencies have used to help protect communities and ecosystems: Officials from BIA and the San Carlos Apache Tribe said that they perform prescribed burns and mechanical treatments annually on approximately 1,000 to 1,600 acres of the San Carlos Apache Indian Reservation in Arizona to remove rapidly growing grasses, which could quickly carry a wildfire into the community. The officials said that they primarily use prescribed burns as this allows them to inexpensively treat the most acres. The officials said that they perform these treatments close to the community, to help keep fires from reaching structures and to provide space for firefighters to work more safely in the event of a fire (see fig. 4). An FWS official at the Mississippi Sandhill Crane National Wildlife Refuge said that the refuge uses prescribed burns and mechanical treatments to reduce the wildfire risk to several nearby communities. For example, for a 1,000-acre area near Ocean Springs, Mississippi, the refuge has been doing fuel reduction projects for decades in an effort to protect nearby residential and commercial areas, as well as a highway, railroad, and other infrastructure (see fig. 5). The official said that because the dominant tree species on the refuge is slash pine, which grows very quickly, they have to treat the area every 3 to 5 years to maintain the effectiveness of the project. The official also said that the refuge uses more mechanical treatments than prescribed burns in this area because of concerns about smoke drifting into nearby communities but that they also use prescribed burns when weather conditions are favorable. Santa Fe National Forest officials said that since the early 2000s, they have partnered with the New Mexico State Forestry Division and the New Mexico Department of Game and Fish to conduct a series of fuel reduction projects, including mechanical treatments and prescribed burns, covering 8,000 acres in the Jemez Mountains of New Mexico. These projects were designed to reduce both the likelihood of a fire reaching nearby communities and potential ecosystem damage. The officials said that given the proximity to development and the large accumulation of fuels in that area, they used mechanical treatments first because a prescribed burn would be hazardous until fuel levels were reduced. After the mechanical treatments were completed, they used prescribed burns to remove as much of the remaining fuels as possible. Officials told us that the utility of these projects was demonstrated in July 2018 when the Venado Fire burned from an untreated into a treated area and changed from a high-intensity fire burning the crowns of the trees to primarily a low-intensity fire burning on the ground (see fig. 6). The officials said that while they do not know what the Venado Fire would have done without the fuel reduction projects, they believe that the projects slowed the fire sufficiently to provide firefighters with time to contain the fire before it spread to populated areas and also helped reduce ecosystem damage. NPS officials at the Whiskeytown National Recreation Area near Redding, California, said that many of the fuel reduction projects they undertake are designed to reduce risk to local communities and restore ecosystem health. For example, the officials said that in 2013 they began a 1,000-acre project, consisting primarily of prescribed burns but also some mechanical treatments, located adjacent to privately owned houses and timber land. The officials said that they primarily use prescribed burns because the lower cost of the burns allows them to treat more acres. The project was intended to reduce fire risk to adjacent private property and to help improve the ecological health of old-growth Douglas-fir stands within the recreation area. The officials said that they believed the project helped to reduce the intensity in some areas burned by the 2018 Carr Fire but also noted that the fire was too intense for the treatments to be effective in other areas, as shown in figure 7. Officials at the BLM West Desert District office in Utah said that they have been working on a 4,680-acre fuel reduction project since 2017. The primary purpose of this project is to improve breeding and winter habitat for the greater sage-grouse by removing juniper and other vegetation that pose a wildfire risk to the sagebrush habitat the bird relies on. The project area is home to the largest population of greater sage-grouse in the state. The officials said that they mostly use mechanical treatments, including mastication, because mastication, unlike other fuel reduction methods, allows for the selective removal of juniper trees while still preserving sagebrush. Figure 8 shows the project area before and after treatment, with juniper trees removed and sagebrush remaining. <3. Agencies Considered Similar Information on Potential Wildfire Damage to Communities and Ecosystems and Used Different Approaches to Allocate Fuel Reduction Funds> <3.1. Agencies Considered Similar Types of Information in Allocating Funds in Fiscal Year 2018> Agency officials told us that in deciding how to allocate their fuel reduction funds in fiscal year 2018, they primarily considered information related to the wildfire hazard potential on lands they manage or administer, the proximity of communities and infrastructure to those potential fires, and ecosystem health. Wildfire hazard potential. To allocate their fuel reduction funds, officials from the five agencies said they considered information regarding the likelihood and severity of wildfires that may occur across the areas they manage and administer. For example, officials said they generally used information incorporated into a national geospatial database that the Forest Service developed to estimate the relative probability a given area faces of experiencing a wildfire that would be difficult for suppression resources to contain and therefore may cause damage to communities or ecosystems. To produce this database, the Forest Service used, among other things, satellite imagery to identify fuel conditions across the landscape. The Forest Service then ran computer models that used this fuel condition information to estimate the potential intensity of future wildfires. The Forest Service s identification of the likelihood and potential intensity of a wildfire in a given area helps the agencies compare the relative hazard potential different geographic areas face from such fire. The agencies also used information from another national geospatial database that the Forest Service developed on historical fire occurrence data to identify where fires have most frequently occurred, whether because of natural causes (e.g., lightning) or human causes (e.g., accidental ignitions or arson). Figure 9 shows the wildfire hazard potential, as assessed by the Forest Service in July 2018, on lands the five agencies managed and administered in the contiguous United States. Location of communities and infrastructure. Officials from the five agencies told us that they considered the location of communities and important infrastructure, such as municipal watersheds and electrical transmission lines, which could be damaged by wildfires. The officials said they used several information sources to help them identify the locations of these communities and infrastructure. For example, the agencies used a national geospatial database that the Forest Service developed that maps the WUI as defined by the Forest Service and Interior in 2001. Field unit officials said that they also considered local knowledge about areas that are important to protect in or near to a given community when selecting fuel reduction projects to prioritize and implement. For example, officials said that many communities had developed Community Wildfire Protection Plans plans identifying areas the communities believe are important to protect and that they would consider these local plans when selecting fuel reduction projects to implement. Ecosystem health and location of natural resources. Officials from four of the five agencies said that they considered information on the locations of particularly valued natural resources, such as rare or otherwise important plants, including those that provide habitat for threatened or endangered species. Using an interagency tool, they also considered information on the overall ecological condition of forests, grasslands, and other vegetation and how current conditions related to historical conditions in given locations. The officials said that this information helped them identify areas where wildfires may be more damaging than they were in the past because of changes in the density, age, and species composition of the vegetation. For example, officials said that in part because of decades of fire suppression, many ponderosa pine forests currently contain more trees than they would have historically, and as a result, today s wildfires may burn hotter and cause more damage to those forests than fires did in the past. Reducing fuels can help the agencies to restore an area closer to its historical conditions, which in some ecosystems may reduce the risk of wildfire damaging an ecosystem and the resources it contains, according to the Cohesive Strategy. <3.2. Agencies Used Different Approaches for Allocating Funds in Fiscal Year 2018> As they considered similar information on potential damage to communities and ecosystems, each agency used a different approach for allocating fuel reduction funds in fiscal year 2018, according to agency documents and agency officials. Officials from each of the agencies said that professional judgment plays an important role in making these decisions. The general approaches each agency used for allocating fuel reduction funds in fiscal year 2018 were: Forest Service. Forest Service headquarters officials said they allocated fuel reduction funds to their regions based primarily on the allocation levels from the previous fiscal year. However, they also said they considered information based on the best available science on the wildfire risk facing the regions and each region s contributions to meeting the agency s acreage targets for fuel reduction projects in the previous fiscal year. According to a 2017 Forest Service manual, the agency was to develop national and regional risk assessments to help inform their approach to allocation decisions, but the national assessment had not been finalized for use in fiscal year 2018. Forest Service officials initially allocated approximately 70 percent of the agency s total fuel reduction funds to the regions, withholding about 30 percent to make available to regions and national forests on a competitive basis later in the fiscal year. The regions and forests then competed for additional fuels funds for projects aligned with specific national priorities as determined by Forest Service headquarters. Interior. Interior s Office of Wildland Fire officials said they allocated fuel reduction funds to the Interior agencies based primarily on allocation levels from fiscal year 2017. However, late in the third quarter of fiscal year 2018, Interior officials began testing an approach for reviewing each of the four Interior agencies planned fuel reduction projects for consistency with the Secretary of the Interior s priorities for the fiscal year. The agencies plans for such projects were to be updated each quarter to keep Interior officials informed on the implementation status for projects underway and of changes to planned projects, according to Interior documents. BIA. BIA headquarters officials told us they allocated fuel reduction funds to their regional offices based on an allocation model that the agency adopted around fiscal year 2012. The model analyzes wildfire hazard potential and agency staffing levels across BIA regions, among other factors. According to a BIA document, the model includes information that captures risk-related information for wildfires on BIA-administered tribal lands. It also captures information on performance and fiscal management for each BIA regional office s fuel reduction program during the previous fiscal year and each BIA regional office s contributions to the total number of acres treated overall by the BIA fuel reduction program. BIA officials said the comparative scores for each regional office derived from the model served as a starting point for discussions with BIA senior leadership when determining the fuel reduction allocations to the regions. BLM. BLM headquarters officials said they allocated fuel reduction funds to their state offices based on the results of the 5-year allocation model the agency adopted in 2015. The model analyzes the location of communities, critical infrastructure, and sagebrush habitat, among other factors, as well as wildfire fire hazard potential for the area covered by each BLM state office. According to BLM officials, the model provides a relative ranking for each BLM state office based on acreage at risk, which helps determine the state offices respective fuel reduction allocations. For example, BLM state offices that manage more sage-grouse habitat that is at high risk for wildfire received larger allocations than offices in states without such habitat or where the sage-grouse habitat was at lower risk for wildfire. FWS. FWS headquarters officials said they allocated fuel reduction funds to their regional offices based on the results of an allocation system the Fuels Management Allocation and Accountability System that they have used since fiscal year 2016. This system generates a risk profile for each FWS region based on, for example, the location of infrastructure, population density, and how fuel conditions may affect wildfires that occur on FWS-managed land. According to FWS officials, this system provides a relative ranking for each FWS region based on acreage at risk, which helps determine the regions respective fuel reduction allocations. In general, the FWS regions with the most acreage at risk receive the largest percentage of FWS s fuel reduction funds. NPS. NPS headquarters officials told us that they allocated fuel reduction funds to their regions based primarily on historical allocation levels from fiscal year 2017. Headquarters officials said they are considering ways to improve their allocation process, such as potentially adopting a model developed in one of their regions. Specifically, officials from the NPS region in our review said that they had developed a model to help analyze the relative risk facing the field units in their region when making allocation decisions. This model is designed to identify highly valued assets in the national parks and other NPS-managed lands in the region and provide relative rankings for those assets requiring protection through fuel reduction projects, according to the officials. <4. Agency Officials Cited a Variety of Factors Affecting Their Efforts to Implement Fuel Reduction Projects> Officials we interviewed from the five federal agencies cited a variety of factors affecting their efforts to implement fuel reduction projects. The officials also identified steps they were taking to help mitigate some of the factors. Scale of problem. Officials from all five agencies we interviewed said that the number of acres needing fuel reductions is significantly larger than the number of acres the agencies are able to treat in any given year. As previously noted, the Forest Service estimated in 2018 that there were approximately 63 million acres of national forest lands at high to very high risk from uncharacteristic wildfire, and Interior officials estimated in 2019 that 54 million acres of the lands that they manage or administer were at high or very high risk from wildfire. In fiscal year 2018, the Forest Service and Interior implemented fuel reduction projects that treated approximately 1.7 million and 1.3 million acres, respectively, of lands they manage or administer. Agency officials told us that they recognize that their efforts will not allow them to reduce fuels on all high-risk lands needing treatment but said that in addition to the projects they undertake to reduce fuels, wildfires also serve to reduce fuels in areas burned by such fires. In some circumstances, officials said, wildfires may provide similar fuel reduction benefits as prescribed burns and other fuel reduction methods. To the extent that wildfires reduce fuels in areas that the agencies would otherwise plan to implement fuel reduction projects, such wildfires would serve to reduce fuels on more acreage than they would otherwise be able to treat. Agency officials also said, as previously discussed, that they are working to improve their ability to identify areas to prioritize for treatment. For example, scientists at the Forest Service s Rocky Mountain Research Station are helping the agency refine its methods for identifying areas most at risk from wildfire and the communities closest to those areas by expanding and updating agency risk assessments to more accurately depict where fuels reduction projects on national forest lands could provide the most protection to communities. This may also allow Forest Service officials to reduce the total number of acres needing treatment through better targeting of the highest-risk acres. According to Forest Service officials, the agency intends to consider this research to help inform its budget requests and funding allocations for fuel reduction efforts in future fiscal years. The Forest Service and Interior are also working to improve their existing fuel reduction project computer simulation software called the Interagency Fuels Treatment Decision Support System so that it can be used to model and quantify the risk reduction effects of potential projects across larger geographic areas. Officials said these improvements would help them prioritize areas to treat by allowing agency officials to explore how different combinations of locations and types of treatments affect predicted future wildfire behavior. Operating under continuing resolutions. Officials we interviewed from all five agencies said that operating under continuing resolutions negatively affected their ability to implement fuel reduction projects. Specifically, agency officials said that they tend to budget conservatively until they receive their regular appropriation and therefore implementation of planned projects may be delayed. For example, Forest Service officials said that the weather for doing prescribed burns is often better in the fall and winter and that receiving their annual appropriation later in the fiscal year can reduce their ability to perform these burns in a given year. In addition, the officials said they had delayed hiring and training staff in previous years when the agencies were operating under continuing resolutions, reducing the number of staff available to implement projects. The Forest Service has taken some steps to mitigate the effects of operating under continuing resolutions. For example, officials in one region said they recently adopted an approach that allows them to more readily shift funding from one planned fuels project to another, either within the same national forest or to other national forests in the region, to complete projects as weather conditions and budgets allow. Officials from one national forest in this region said that this approach has facilitated sharing fuels reduction staff among neighboring national forests to plan additional projects, thereby leading to a broader array of projects being ready for implementation when the agency receives its regular annual appropriations. Balancing fuels projects in new areas with maintaining past treatments. Officials from all five agencies said that it can be difficult to balance conducting fuel reduction projects in new areas with maintaining areas that have already had initial fuel reduction projects completed. Some agency officials said that while it is important to conduct projects to reduce wildfire risk in new areas, they also need to conduct projects in previously treated areas to maintain the effectiveness of past treatments. Agency officials said that in balancing their investments between new and previously treated areas, they consider the relative costs of projects. Conducting fuel reduction projects in new areas can be more expensive than conducting maintenance projects because of the type of treatments that need to be done, according to officials. For example, officials from one national forest said that initial mechanical treatments may cost from $300 to $1,500 per acre, depending on the area where the treatment is located, while conducting prescribed burns to maintain a previously treated area may cost from $25 to $100 per acre. Availability of staff. Agency officials from all five agencies said that fuel program staff may be involved in wildfire suppression efforts and therefore may not be available to plan or perform fuel reduction projects, leading to delays in completing such projects. Officials noted that this was largely an unavoidable result of the agencies approach to suppression operations, whereby staff from many of the agencies program areas, including fuels, are mobilized through temporary emergency assignments to respond to large wildfires across the country as they occur. Agency officials said that they are used to working within staff availability constraints. However, some officials expressed concern about the potential for staff burnout. Specifically, fuel program staff may work many overtime hours when suppressing fires and additional overtime hours when they return to their field units to catch up with planned fuel reduction projects that were delayed because of the emergency suppression assignments. Higher cost of treating WUI areas. Officials we interviewed from four of the five agencies said that costs are a factor when determining which projects to pursue and that it can be more expensive to conduct fuel reduction projects close to homes and infrastructure in the WUI. For example, officials at one national forest said that conducting prescribed burns close to communities in the WUI typically costs almost $250 per acre, whereas it may cost $60 per acre to reduce fuels further away from communities. Agency officials told us that they try to balance their work between WUI and non-WUI areas to ensure treatment of high-risk areas. In balancing between WUI and non-WUI areas, some Forest Service field unit officials noted that Forest Service headquarters annually sets fuel reduction acreage targets for each region; each region then sets targets for each of its national forests and grasslands. Some officials said that as their annual targets for acres of fuel reduction increase, they may feel pressure to choose projects in locations where they can treat more acres to meet their targets, even if those acres may not be located in the areas at highest risk from wildfire damage. Forest Service headquarters officials said that they do not pressure field units to meet the targets but that they are aware that increasing the annual fuels targets, while budgets remain relatively flat, may incentivize field units to select lower cost areas, which may be at lower risk from wildfire. The officials added that the field units, consistent with Forest Service guidance, should be selecting their project locations based on their risk assessments, not cost. Community acceptance of fuel reduction projects. Officials we interviewed from four of the five agencies said that community concerns about the effects of proposed fuel reduction projects have affected their ability to conduct some projects but that they are often able to work with communities to gain their acceptance. For example, the officials said that community members are frequently concerned that smoke from prescribed burns will have negative impacts on their health and quality of life, or that mechanical thinning of vegetation near their communities will be visually unattractive or have negative impacts on wildlife. Agency officials said that they work to minimize these impacts. For example, Forest Service officials schedule prescribed burns at times when weather conditions are not expected to cause a significant volume of smoke to drift into communities. The officials also said that they work with community members to educate them about the benefits of reducing fuels, steps the agencies are taking to reduce negative impacts on the community and wildlife, and steps community members can take to help avoid some impacts. In other instances, agencies partner with various stakeholders to help mitigate negative effects of fuel reduction projects on communities. For example, the Forest Service in New Mexico is part of the Greater Santa Fe Fireshed Coalition, a group that loans air filters to community members who are sensitive to smoke to help them avoid negative health impacts from prescribed burns. Limited economic value of biomass. Officials from three of the five agencies we interviewed said that, in contrast to commercial timber harvests in which contractors pay the agency for the material they remove, fuel reduction projects often produce small trees and other biomass with limited economic value. As a result, fuel reduction projects are unlikely to generate revenues that the agencies could use to help offset the costs of completing such projects. To help mitigate this issue, Forest Service officials said they are working to expand their use of a practice known as stewardship contracting. Through stewardship contracting, the agencies can trade goods such as timber for fuel reduction or forest restoration services that the agencies would otherwise pay for with appropriated dollars. Officials we interviewed at two national forests said that the use of stewardship contracts had facilitated their ability to conduct fuel reduction projects, although officials at one of the forests also said they were concerned that the relatively long length of the contracts could slow the rate at which contractors completed the projects. The Forest Service is also researching ways to increase demand for small trees and other biomass for example, by expanding their use in energy production and building materials which, if successful, could help to increase the economic value of the material. <5. Agency Comments> We provided a draft of this report to the Department of Agriculture and the Department of the Interior for review and comment. In comments reproduced in appendix II, the Forest Service, responding on behalf of the Department of Agriculture, generally agreed with our findings. In addition, the Forest Service and Interior provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, the Secretary of the Interior, 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) 512-3841 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 III. Appendix I: Federal Agencies, Agency Units, and Nonfederal Entities Interviewed Appendix I: Federal Agencies, Agency Units, and Nonfederal Entities Interviewed Regional office (geographic area covered by region) Field unit (state in which unit is located) Southwestern Region (Arizona, New Mexico, Oklahoma, Texas) Cibola National Forest (New Mexico) Santa Fe National Forest (New Mexico) Pacific Southwest Region (California, Hawaii) Cleveland National Forest (California) Shasta-Trinity National Forest (California) Pacific Northwest Region (Oregon, Washington) Deschutes National Forest (Oregon) Southern Region (Alabama, Arkansas, Florida, Georgia, Kentucky Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and the territory of Puerto Rico) Francis Marion and Sumter National Forests (South Carolina) Western Region (most of Arizona, Nevada, Utah) San Carlos Agency (Arizona) Utah State Office (Utah) West Desert District (Utah) Southeast Region (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, and the territories of Puerto Rico and the U.S. Virgin Islands) Mississippi Sandhill Crane National Wildlife Refuge (Mississippi) Pacific West Region (portions of Arizona; California; Hawaii; Idaho; portions of Montana; Nevada; Oregon; Washington; and the territories of American Samoa, Guam, and the Northern Mariana Islands) Whiskeytown National Recreation Area (California) <6. Agency> Appendix II: Comments for the Department of Agriculture, Forest Service Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Jonathan Dent (Assistant Director), David Lysy (Analyst-in-Charge), Aditi Archer, Kathryn Godfrey, Richard Johnson, Gwen Kirby, Anne Rhodes-Kline, Dan Royer, and Kyle Stetler made key contributions to this report.

Why GAO Did This Study Wildfires have been increasing in size and severity, exacerbated by abnormally dense vegetation, drought, and other climate stressors. Development in and around wildlands also continues to increase, placing more people at risk from wildfires. To reduce vegetation that can fuel such fires, federal land management agencies implement fuel reduction projects on public lands. GAO was asked to examine the federal government's preparedness, response, and recovery efforts following the wildfires and other natural disasters of 2017. This report describes (1) methods federal agencies use to reduce fuels to help protect communities and ecosystems, (2) information the agencies considered in allocating fuel reduction funds in fiscal year 2018, and (3) factors affecting agency efforts to implement fuel reduction projects. GAO examined laws, regulations, and agency policies and budget documents; interviewed federal agency officials at headquarters, as well as in eight regional offices and 10 field units selected based on their locations' high wildland fire hazard potential; and interviewed officials from nonfederal entities, including representatives from the state forestry agencies for the seven states where selected field units were located (three field units were in California and two were in New Mexico). What GAO Found Five federal land management agencies—the Department of Agriculture's Forest Service and the Department of the Interior's Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and National Park Service—use several methods to reduce fuels (vegetation) to help lower the intensity of wildland fires on lands they manage or administer. These methods primarily include mechanical treatments, which use equipment to cut and remove vegetation, and prescribed burns, which are deliberate, planned fires set by land managers. The agencies have long-standing research programs designed to further develop their understanding of how to implement effective fuel reduction projects, including conducting assessments to evaluate project effectiveness. Officials said the research helps the agencies to improve how they design and implement fuel reduction projects to address site-specific conditions. In fiscal year 2018, when allocating fuel reduction funds, the agencies considered information on wildfire hazard potential, the location of communities, and ecosystem health and the location of natural resources. Total fuel reduction appropriations exceeded $5 billion in fiscal years 2009 through 2018 (see figure). Officials from the five agencies cited several factors affecting implementation of fuel reduction projects. A key factor officials cited is that the number of acres needing treatment is significantly larger than the agencies can treat annually. The agencies have estimated that over 100 million acres they manage or administer are at high risk from wildfire, but, for example, in fiscal year 2018 they treated approximately 3 million acres. The agencies are developing risk assessments to help identify areas to prioritize for fuel reductions.

gao_GAO-19-290

gao_GAO-19-290_0

<1. Background> In 2017, transit agencies provided over 10 billion rides to people traveling to and from businesses, homes, and other locations throughout the United States, according to FTA. Transit infrastructure for those rides includes railways, roads, bridges, tunnels, and stations. According to the 2017 American Public Transportation Association s (APTA) Fact Book, more than 6,700 organizations provided public transportation in a variety of modes in 2015. Transit modes include: fixed-route bus services the most prevalent transit mode in the country vehicles operate according to regular schedules along prescribed routes with designated stops; rail services vehicles operating along railways; ferryboat services vessels carrying passengers and/or vehicles over a body of water; paratransit services generally, accessible, origin-to-destination transportation services that operate in response to calls or requests from riders; and other demand-response services sometimes called dial-a-ride. Public transportation, or transit, is statutorily defined as regular, continuing shared-ride surface transportation services that are open to the general public or open to a segment of the general public defined by age, disability, or low income. This definition has multiple statutory exclusions including intercity bus service, school bus service, and charter bus service. The transit infrastructure requires appropriately trained personnel to operate, maintain, and oversee services and assets (e.g., vehicles). APTA estimated that, in 2015, U.S. public transit agencies employed more than 430,000 fulltime and part-time personnel, including contractors. The transit workforce consists of a variety of occupations, such as bus operators, train conductors, dispatchers, mechanics, supervisors, and other occupations (see fig. 1 for examples.) FTA supports transit agencies workforce development by providing financial and technical assistance, among other things. FTA s financial assistance efforts include implementing the Innovative Public Transportation Frontline Workforce Development Program, which provides competitive grants to transit agencies (transit workforce grants) to assist with the development of innovative human resources activities. FTA awarded transit workforce grants in fiscal years 2011, 2012, and 2015. Grant-eligible projects included employment training, outreach to increase minority and female employment in transit, research on transit personnel and training needs, and training and assistance for minority business opportunities. Grant recipients included transit agencies, non- profit community groups, schools, and others. Additionally, recipients can use up to one-half of one percent of certain grant funds, such as Urbanized Area Formula Grants, for eligible human resources and training activities with the approval of DOT. FTA also administers the National Transit Database (NTD), which is intended to provide information to assist in transit planning efforts. All recipients and direct beneficiaries of grants from the Urbanized Area Formula Program and Rural Area Formula Program, such as local transit agencies, are required to report certain data to the NTD. FTA also encourages agencies not receiving grants from these programs to report voluntarily so the NTD can be more complete. In 2016, over 2000 transit agencies submitted full or partial reports to the NTD. The NTD stores information from local transit agencies, such as financial and operating data, to inform transit service planning for government agencies and other organizations. Some workforce data, such as the number of full-time and part-time transit agency employees, is reported to the NTD. NTD data provide information on the transit workforce at the time the data are reported, but are not used to project future transit workforce needs. FTA partners with the National Transit Institute (NTI), hosted and staffed by Rutgers University, to provide workforce development educational resources and training. NTI delivers over 300 courses per year nationwide to public transit employees and government transportation agency employees at all levels. These courses focus on compliance with federal regulations and developing skills to operate a transit agency. At the department level, in August 2015, DOT, DOL, and the Department of Education worked with industry stakeholders to project the employment and skill needs of the transportation industry from 2012 to 2022. Primary sources for the report included the DOL s Bureau of Labor Statistics (BLS) employment projections, current population survey (demographics), and analysis from Economic Modeling Specialists International. The effort developed a variety of transportation workforce statistics and resulted in the Strengthening Skills Training and Career Pathways Across the Transportation Industry: Data Report on Future Transportation Workforce Needs (Transportation Industry Report). Among other things, the report: projected that an additional 4.6 million transportation workers will need to be hired to fill vacancies created by separations (occupational transfers, retirement, and other exits from the workplace), and net job growth from 2012 to 2022; provided data on current worker distribution (at that time) by age and sex for six transportation sectors and by race and ethnicity for selected transportation occupations; and included top job occupations by sector and projected industry and occupational job openings based on separations and job growth. <2. Limited Information Exists on Future Transit Workforce Needs> The extent of future transit workforce needs is unclear due to the absence of transit-specific workforce projections, unclear communication on the data that are available, and because the data that are available do not extend past 2022. The best information available on future transportation workforce needs, according to FTA officials is the August 2015 Transportation Industry Report. The Transportation Industry Report does have projections on transportation workforce needs, but the transit industry data are combined with other ground passenger transportation industries such as intercity buses, charter buses, taxis, school buses, and limousines. Thus, the report does not exclusively reflect the transit workforce. According to researchers who wrote the report, the transit and ground passenger transportation data were reported as one industrial sector because it would be a significant undertaking to focus solely on transit workforce data without funding a study for this specific area. The Transportation Industry Report was developed with data, in part, from BLS, which does not exclusively report on occupational projections for public transportation. BLS develops workforce projections of the U.S. labor market by industry, subsector, and occupational codes, including the number of employees and types of employers. BLS officials we interviewed said that industry and occupational data sets do not allow the level of specificity that would be needed to identify only transit agencies. The Transportation Industry Report predicted 1 million job openings in the transit and ground passenger transportation sector from 2012 to 2022 and listed the top 10 projected job openings. However, these projected job openings include a number of occupations within services that are statutorily excluded from the definition of transit. For example, the three largest categories of job openings comprising about 72 percent of the projected openings have the following key transit exclusions: School bus and special client bus drivers made up approximately 33 percent of the projected openings (330,699 job openings). However, school bus services are specifically excluded from the statutory definition of transit, as are sightseeing services, charter bus services, courtesy shuttle services for patrons of one or more specific establishments, and intra-terminal or intra-facility shuttle services. Transit and intercity bus drivers made up almost 20 percent of the projected openings (199,727 job openings). However, intercity bus service (for example, Greyhound bus service) is specifically excluded from the statutory definition of transit. Taxi drivers and chauffeurs made up almost 19 percent of the projected openings (188,895 job openings). However, these services may not meet the statutory definition of transit. However, when communicating about the report, FTA has not always made clear that the data in the Transportation Industry Report combine both transit and ground passenger transportation workforce projections, though this was not intentional, according to FTA officials. FTA has presented the combined data as representing the transit or public transit workforce in recent annual reports to Congress and a few public presentations. For example, one of the findings in the Transportation Industry Report is that the combined sector of transit and ground passenger transportation has the highest percentage of older workers who are at or nearing retirement age. However, in recent reports to Congress, FTA states that, public transit has the highest percentage of older workers at or nearing retirement age. However, this statement did not reflect that the percentages included transit and ground passenger transportation data. We also found similar information involving retirement percentages and job openings in a number of FTA presentations that are available to the public online. In addition, we found two examples of incorrect numbers in recent reports to Congress that FTA officials said were typos that have now been corrected in the most recent fiscal year 2017 report. FTA s characterization of this data could confuse transit stakeholders, including Congress, on needs, retirements, and growth in the transit industry. When FTA identifies combined information as transit projections, the audience may not understand the extent to which the data reflect services that do not meet the statutory definition of transit. We found evidence that this may have already occurred to some extent. During our review, we found examples of stakeholders in the industry repeating the same statistics that FTA has presented as transit in publications and in our interviews with them, raising questions about whether the industry may have misconceptions about the future transit workforce. FTA officials told us that the combination of transit and ground passenger transportation is appropriate because of similarities in the industries and the common practice of transit agencies hiring contractors from ground passenger transportation to supplement workforce personnel. However, the context of this information has not always been clear in reports to external parties. Further, the Transportation Industry Report s projections on the future transportation workforce are only estimated through 2022. DOT officials said that they do not have plans to update the report beyond 2022 or to develop a report that focuses solely on transit workforce projections. FTA officials told us that they plan to hire a data scientist to assist them with transit workforce issues. FTA officials also told us in November 2018, that the report was intended to provide trend information and that they do not plan to use the transit numbers from the Transportation Industry Report in future reports and presentations, and considering that the report will soon reach the end of its projections in 2022, we are not making a recommendation about how to communicate the context of the information in the Transportation Industry Report. Opinions on the need for additional transit workforce data and projections varied among transit stakeholders we interviewed. Several stakeholders cited the difficulties of collecting transit-specific projections or other types of data, while others pointed to the need for more data such as data identifying shortages in specific occupations and retirement age of transit employees. However, officials from the Community Transportation Association of America, which represents small and rural transit agencies, said that requiring additional data from transit agencies could be a time- consuming burden for local transit officials. The association officials suggested that transit stakeholders should work together to use existing workforce data from FTA or BLS to develop workforce projection data. Transportation Research Board officials also said that additional transit workforce data would be costly and difficult for transit agencies to provide. However, the Director of Eno s Center for Transportation Leadership, a research organization, stated that it is extremely difficult to develop national policies, programs, and grants to address systemic workforce problems because of the gaps in transit workforce data. Federal Internal Control Standards highlight the importance of using quality information to make informed decisions and identifying the information requirements needed to do so while considering the expectations of internal and external users. While the views of stakeholders we interviewed varied on the extent to which additional transit workforce data and projections are needed, new transit workforce projections could inform decision-making on transit workforce planning to address potential future shortages or other needs. We have previously reported that agencies should weigh data collection decisions carefully, noting that there is a cost to data collection, and that only needed data should be collected. Working with stakeholders to understand what, if any, additional transit-specific workforce data transit stakeholders need and the related collection costs could enable FTA to weigh the complete costs and benefits of developing future data for the transit industry and to make informed decisions on allocating the appropriate resources toward those efforts. <3. Selected Transit Stakeholders Are Taking Steps to Address Transit Workforce Needs and Cited Ongoing Recruiting and Retention Challenges> <3.1. Selected Stakeholders Actions> Transit stakeholders we interviewed highlighted actions they are taking to address transit workforce needs but also noted continuing difficulties with recruiting and retaining staff. Examples of actions they have taken to address workforce needs, either with a transit workforce grant or with other funding include: Career enhancement: Los Angeles County Metropolitan Transportation Authority officials told us that they have developed a program that offers growth opportunities by providing upskilling resources at all levels of the agency including employee development, management/leadership, and transportation senior leadership, among other things. Courseware development: The Transportation Learning Center organized three industry consortiums to develop national standards- based courseware Rail Car, Signals, and Elevator/Escalator Technicians, according to the Transportation Learning Center. For example, under the Signals Training Consortium, 25 new courses have been developed covering the inspection, maintenance, and troubleshooting of transit and commuter rail signaling equipment. The curriculum is planned to include both classroom and on-the-job training. Internships: The Conference of Minority Transportation Officials developed a program to prepare college, university, and vocational school students to enter transit and transportation-related fields, according to conference officials. In 2018, this program placed 29 interns nationwide in architectural and engineering firms as well as state and local government agencies. Managerial training: The Eno Center for Transportation provided classes for mid- and senior-level transit executives and has started one for first-line supervisors, according to an Eno official. This training includes lectures, classes, job shadowing, informal mentoring, field trips, and meetings with counterparts. Research: The Community Transportation Association of America reported on a survey it conducted of its members in June 2018 on the salary and benefits for professional transit positions in the industry. The survey s 236 respondents provided information on hourly and/or salary information, operating budget, available benefits, services provided, and number of employees, among other things. According to the Association, the members asked for this survey because it helps them make staffing and employment decisions within their agencies. Technology education: Jacksonville Transportation Authority officials told us that they have established a Workforce of the Future working group whose charge is to prepare the workforce to incorporate emerging technologies as it transitions its aged elevated, automated people-mover system the Skyway to autonomous vehicle technology. The working group supports a public automated-vehicle test track as well as employee town halls to develop the tools to discuss these issues in their communities. <3.2. Other Transit Workforce Grant-Supported Actions> FTA s transit workforce grants also supported stakeholder actions to address transit workforce issues including: In fiscal year 2011, FTA awarded 12 workforce grants totaling $3 million. For example, the Chicago Transit Authority received a grant to develop and validate a transit-manager competency model to help supervisors recognize and support skills and leadership potential in their staff. In addition, the Florida Department of Transportation received a grant for its Certified Transit Technician Program, which resulted in 13 hires, each receiving the opportunity for additional certification and a college degree. In fiscal year 2012, FTA awarded 17 grants totaling $7.05 million. For example, the Southwest Ohio Regional Transit Authority (Cincinnati) received a grant to develop a program that provided technical training in hybrid engine technology to improve its maintenance program and hybrid bus fleet. The Corporation to Develop Communities of Tampa, Inc. received a grant to recruit, train, and employ up to 30 people in the transit industry, including transit operations and maintenance workers. In fiscal year 2015, FTA awarded 16 grants for $8.1 million. For example, the Bay Area Rapid Transit District was awarded a grant to create a pathway to employment in the transit industry for traditionally under-represented individuals. The Workforce Development Council of Snohomish County, Washington, received a grant to bring together local partners to create a pipeline of skilled workers ready to enter the transit and construction industries. The partners have targeted women, minorities, and native tribes to access apprenticeships, social services, and job placement programs. <3.3. Recruitment and Retention Challenges> Notwithstanding these efforts, the transit stakeholders we spoke with identified ongoing recruiting and retention challenges as shown in table 1. <4. FTA Helps Address Transit Workforce Needs, but Improved Strategic Planning Could Better Focus Assistance> <4.1. FTA Provides Transit Workforce Assistance> FTA has taken a number of actions to assist transit agencies with future workforce needs including: FTA provides technical assistance, standards development, training, and workforce development projects for the transit workforce. In fiscal year 2017, the active projects totaled over $29 million. Almost 13.3 million (approximately 46 percent) of this funding went to technical assistance projects. For example, FTA spent almost $4 million to assist the National Aging and Disability Transportation Center with efforts that include developing online courses and training materials to assist certain FTA grant recipients with providing transportation services to older adults and people with disabilities. The funds were also used to present a podcast, as part of an online course on the Americans with Disabilities Act of 1990 (ADA). The podcast addressed common ADA questions related to customer service, wheelchairs on vehicles, and service animals. Over $8.3 million (approximately 28 percent) funded 17 active transit workforce development projects from the fiscal year 2015 transit workforce grants discussed previously for developing new training curriculums, or seeking to recruit and train specific groups, especially those who are underrepresented in the transit workforce. $5 million (approximately 17 percent) funded NTI development and delivery of training programs for federal, state, and local transportation employees. For example, NTI delivered 270 training courses throughout the U.S. to 7,298 participants in fiscal year 2017. NTI also supported a workshop to help address industry issues as they arise, such as workforce shortages and issues in recruitment and retention. $2.5 million (approximately 9 percent) funded a Transit Standards Development Program at the Center for Urban Transportation Research (University of South Florida) to provide research and analysis on needs and gaps, and recommendations for new standards, or to modify existing standards. For example, one of the reports discussed fatigue management, among other things. According to FTA, the ultimate effects of this program are increased safety and reduced injuries and fatalities. FTA is collaborating with NTI to conduct an industry workforce needs assessment aimed at identifying training, skills, and educational gaps that exist in the industry as well as within current NTI programs. They are conducting this assessment because of transit s changing workforce, technologies, and operating environment. This assessment is intended to result in a report that provides a road map for the transit workforce s development and training and may identify some of the gaps in transit workforce needs. As of November 2018, NTI has held focus groups at key transit conferences, which have provided a preliminary picture of the transit industry s critical need, according to FTA. NTI has also completed a draft of a survey of transit agency needs and FTA is reviewing it, according to an NTI official. The next steps include conducting the survey, mapping NTI s curriculum and courses to desired key skills, and developing a national transit competency framework. The researchers are planning to use a statistically significant sample that represents the needs of the industry, both for urban and rural agencies, with estimated completion of the survey and analysis in early 2019. FTA is evaluating the effectiveness of the transit workforce grant program. FTA funded an evaluation of the 12 fiscal year 2011 transit workforce grants. The report discussed whether the projects met goals, the effect of the programs, and whether the programs were worth further investment. The report noted a number of outcomes including introducing 2,608 youth to transit, and training 1,527 people. FTA also plans to evaluate transit workforce grants awarded in fiscal years 2012 and 2015 and to create outreach materials from the grant projects for transit stakeholders. The evaluation is also intended to provide important best practices and lessons learned for other transit operators. FTA is researching the potential effects of automation on the transit workforce. In January 2018, FTA released the Strategic Transit Automation Research Plan, which established a research and demonstration framework. One of the research projects in the plan is an assessment of the effect of automation on the transit workforce. Specifically, the assessment is planned to provide a qualitative analysis of labor-related considerations with transit bus automation including potential workforce changes, perspectives of organized labor, statutory and regulatory provisions, and other societal factors. A follow-on project is planned to evaluate changes in staffing levels, job responsibilities, labor hours, and training needs to provide a quantitative approach to estimating automation s effects on transit employment levels, workforce needs, and wages. <4.2. FTA s Transit Workforce Development Efforts Are Not Guided by a Strategy, Performance Goals, and Measures> <4.2.1. Strategy> Although FTA has assisted transit stakeholders with workforce needs, it lacks key strategic planning practices that could ensure its efforts are as effective as possible. FTA reported in its fiscal years 2016 and 2017 annual reports to Congress that it planned to develop a transit workforce strategic plan. Federal Internal Control Standards indicate that plans, such as strategic plans, should set up the effective and efficient operations necessary to fulfill desired objectives. Effective operations produce the intended results from operational processes, while efficient operations do so in a manner that minimizes the waste of resources. However, FTA does not have a comprehensive strategy showing the operations and processes to be developed to guide FTA s efforts to assist transit agencies with addressing future transit workforce needs. FTA has had a number of starts and stops in producing a transit workforce strategy since it first reported this intention to Congress in 2016, but no clear action has been taken to develop a strategy so far. In July 2018, FTA officials told us that the reason they had not yet drafted a comprehensive strategy is because they considered developing their strategy as part of an overall DOT strategy, rather than a transit workforce strategy as a stand-alone product. However, DOT does not currently plan to develop a comprehensive department-wide transportation workforce strategy. Nevertheless, DOT has consistently identified addressing the transportation workforce as a priority over time in key DOT documents, including its last three strategic plans and the last two performance plans. DOT officials told us that the strategic plan is not intended to provide such detail; rather, it is designed to be a top-level strategic plan that provides a broad framework for DOT. In November 2018, FTA officials told us that they intend to create a workforce consortium and a new technical assistance project that would result in a strategy. However, FTA officials did not provide a time frame for when these actions would be taken. Considering the importance of the transit workforce to efficient operation of the transit infrastructure, a transit workforce strategy would be consistent with internal controls, such as setting up effective operations, whether this strategy is developed as part of a department-wide strategy, as a stand-alone project, or through a workforce consortium. Without a comprehensive strategy to guide FTA s ongoing activities to assist with transit workforce needs, FTA lacks a roadmap to ensure it is effectively leveraging its resources to help address future transit workforce needs. In addition, it may be difficult for Congress to understand the merits of investing in future transit workforce programs because it may not be clear absent a vision of how individual programs fit within the overall transit workforce strategy. <4.2.2. Performance Goals and Measures> In addition to not having a comprehensive strategy, FTA lacks key tools to demonstrate the extent to which individual workforce development efforts are addressing future transit workforce needs. In particular, FTA has not established clearly defined performance goals and measures for its transit workforce assistance efforts. Establishing clear goals and measuring progress toward them are consistent with the management principles set forth in GPRA, as enhanced by the GPRA Modernization Act of 2010, and our previous work. Setting long-term strategic goals is essential for results-oriented management, because such goals explain with greater specificity the results an agency is intending to achieve, as we have previously reported. FTA discussed the pending development of transit workforce goals at an October 2016 summit with transit stakeholders, but these goals were not finalized. Further, there are no performance goals for transit workforce development efforts in DOT s current annual performance plan, and none is referenced in the current strategic plan. FTA has developed some performance measures for evaluating the outcomes of transit workforce grants but not for its transit workforce development efforts at large. In addition, these measures are not tied to performance goals that FTA expects the grants to achieve. We have previously reported that results-oriented organizations first set performance goals to clearly define desired outcomes and then they develop performance measures that are clearly linked to the program goals and demonstrate the degree to which the desired results are achieved. For example, two of the performance measures for transit workforce grants are total projected cost per direct participant, and number of people expected to be trained overall, but FTA has not set a goal for what the projected cost per participant should be or the number of people who should be trained by grant awards. By establishing performance measures before establishing specific performance goals that FTA seeks to achieve, FTA may not ensure that the data gained from these performance measures are an effective use of resources. DOT officials said that performance goals and measures for FTA s transit workforce grant program were not finalized because no funding has been identified for a subsequent round of these grants. However, FTA s efforts to assist with transit workforce issues are larger than one grant program. Performance goals and measures are consistent with effective management practices with or without funding for a specific grant program. Without documented, clearly defined goals and performance measures linked to those goals, FTA is limited in its ability to make informed decisions about transit workforce development efforts. As a result, FTA risks expending resources on efforts that it may not be able to demonstrate are meeting intended goals. Focusing on the intended results of FTA s transit workforce efforts can promote strategic and disciplined management decisions that are more likely to be effective because managers are better able to target areas most in need of improvement and to select appropriate interventions. Further, agency accountability can be enhanced when both agency management and external stakeholders such as Congress can assess an agency s progress toward meeting its goals. Without performance goals and related performance measures, it will be more difficult for FTA to determine the success of its strategies, adjust its approach when necessary, and remain focused on results. <5. Conclusions> Much is unknown about the workforce needed in the future to operate the nation s transit systems and to transport people to and from work, school, and other destinations. Disaggregating transit workforce data from other transportation data has proved to be challenging, and the best projections of the future transportation workforce needs will expire in 2022. Additionally, how vehicle automation and other technology advances will affect the future transit workforce is unclear, and FTA s presentations on the transit workforce projections that do exist may have contributed to the lack of clarity on the future needs of the industry. Whether additional, refined data on transit workforce needs for example, an updated version of the Transportation Industry Report would provide greater benefits to the industry than the cost of collecting these data is something FTA can determine when it better understands the information the industry needs to make effective workforce decisions. At that point, FTA can decide what additional data need to be collected strategically, if any, and at what cost, as part of strategic planning efforts. FTA has identified the need to create a transit workforce strategy, and has expressed its intention to create one in a number of different ways, but has taken no clear action yet to ensure that FTA s intention will be realized. By taking the initiative to develop a strategy to help address future transit workforce needs, FTA will be in a position to better manage its ongoing transit workforce activities. FTA is undertaking a number of efforts that could provide the foundation for sound strategic planning, including sponsoring an assessment of transit workforce needs, hiring a data scientist, starting a workforce consortium, and initiating research on future automation that could provide more clarity regarding a key aspect of future transit that is, as of now, an unknown factor. Further, FTA has already drafted some performance measures for its transit workforce grants that it may be able to use as a foundation for creating goals and measures for transit workforce development at large. However, more specific strategic planning efforts that include developing a strategy and performance goals and measures can better enable FTA to effectively help transit agencies identify, prepare, and provide a sufficient workforce for the future. <6. Recommendations for Executive Action> We are making three recommendations to the FTA Administrator: The FTA Administrator should determine, in collaboration with transit stakeholders, whether additional transit workforce data are needed to identify potential future occupational shortages in the transit industry and whether the benefits of this collection would outweigh the cost of gathering it. (Recommendation 1) The FTA Administrator should develop and document a strategy that outlines how FTA will help address future transit workforce needs. (Recommendation 2) The FTA Administrator should develop and document clearly defined performance goals and measures for its transit workforce development efforts. (Recommendation 3) <7. Agency Comments> We sent a copy of this draft report to DOT for review and comment. DOT responded with a letter in which it concurred with our recommendations and discussed the successes of its Innovative Workforce Development Program. The letter is reprinted in appendix II. DOT also provided technical comments, which we incorporated in the report as appropriate. We are sending copies of this report to appropriate congressional committees and to the Secretary of Transportation. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who contributed to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology This report addresses: (1) the extent to which information exists about future transit workforce needs, (2) the actions selected transit stakeholders are taking to address current and future transit workforce needs, and (3) the extent to which the Federal Transit Administration (FTA) assists with identifying and addressing current and future transit workforce needs. For all objectives, we analyzed key Department of Transportation (DOT) and FTA documents such as DOT strategic plans, annual reports to Congress in fiscal years 2017 and 2016, and public presentations, which discussed workforce needs, grant programs, and data involving the transit industry. We also interviewed government officials from DOT, including from FTA, the Office of the Secretary, and the Federal Highway Administration; from the Department of Labor (DOL) and its Bureau of Labor Statistics (BLS); and from the Department of Education. Further, we interviewed three transit stakeholders the Eno Center for Transportation, the National Transit Institute (NTI), and the American Public Transportation Association (APTA) to understand available data sources, relevant studies, and grant programs focused on the transit workforce. Based on our research and recommendations from those interviews with those three stakeholders and FTA, we selected a non- generalizable sample of an additional eight transit stakeholders for interviews. These selected stakeholders included: two research organizations (Transportation Learning Center and the Transportation Research Board, which includes the Transit Cooperative Research Program and the Transit Research Analysis Committee); two unions (Amalgamated Transit Union and Transport Workers Union of America); two trade groups (Community Transportation Association of America and Conference of Minority Transportation Officials); and one membership association of workforce boards (National Association of Workforce Boards); one transportation subject-matter expert (Mort Downey Consulting, LLC). In addition, we selected and interviewed officials from six transit agencies to understand their perspectives regarding workforce issues such as recruiting and retention challenges, and efforts to address those challenges. We selected and interviewed three urban transit agencies: Los Angeles County Metropolitan Transportation Authority (CA); Regional Transportation District Denver (CO); and the Jacksonville Transportation Authority (FL). We selected these agencies because (1) each was recommended by more than one transit stakeholder we interviewed for taking specific actions to address workforce issues; (2) as a group, they represented geographic diversity (western, central, and eastern United States); and (3) each was awarded at least one FTA transit workforce grant. In order to find smaller, more rural agencies for balance we selected three transit agencies: Advance Transit (Wilder, Vermont); Cache Valley Transit District (Logan, Utah); and the Ki Bois Area Transit System (Stigler, Oklahoma) based primarily on recommendations from the Community Transportation Association of America, which represents thousands of the rural and tribal transit agencies, and then considered geographic diversity (western, central, and eastern United States) and a mix of services offered. Although the views of these selected officials and stakeholders are not generalizable to those of all transit agencies and stakeholders, they represent a range of perspectives and expertise regarding the transit workforce. To determine the extent to which information exists about the future transit workforce, we evaluated the Transportation Industry Report, which projected the employment and skill needs of the transportation industry from 2012 to 2022. We evaluated the scope, methodology, and limitations of the Transportation Industry Report s workforce projections, as that report provided the best available information according to FTA officials. We analyzed the report s projected job openings data in the transit and ground passenger transportation sector to understand the extent to which the data represented transit-specific data. In addition, we reviewed FTA s annual reports to Congress for fiscal years 2016 and 2017, and public presentations to document communication to the public involving transit workforce data. We also reviewed FTA s National Transit Database (NTD) 2017 and 2016 calendar year data on transit agency employees. Further, we interviewed BLS officials and reviewed the most recent BLS employment projections from 2016 2026 to understand the extent to which the data could be separated to represent only transit- specific data. We reviewed the Standards for Internal Control in the Federal Government on communicating and preparing quality information and compared FTA actions to this information. To determine what actions selected transit stakeholders are taking to address current and future transit needs, we reviewed efforts to address transit workforce needs taken by stakeholders whom we interviewed. We also reviewed challenges involving recruiting and retaining transit workers discussed during our interviews with those stakeholders. We judgmentally included examples in our report to demonstrate the breadth of actions that are being taken. We analyzed various FTA reports on transit workforce grants awarded in fiscal years 2011, 2012, and 2015 and included examples to demonstrate the variety of projects that the transit workforce grants covered. We also included examples in our report of challenges that transit stakeholders we spoke with generally discussed, grouped under common themes. Themes that we included in the report were cited multiple times by stakeholders we interviewed. To determine the extent to which FTA is assisting transit agencies with identifying and addressing current and future workforce needs, we interviewed officials from FTA and DOT s Office of the Secretary to document their efforts to identify and address current and future transit workforce needs. We compared FTA s actions to address transit workforce needs to Federal Internal Control Standards, the Government Performance and Results Act of 1993 (GPRA), the GPRA Modernization Act of 2010, and our previous work. We conducted this performance audit from January 2018 to March 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Transportation Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Heather MacLeod (Assistant Director); Amy Higgins (Analyst-in-Charge); Nelsie Alcoser; Melissa Bodeau; Lacey Coppage; Terence Lam; Josh Ormond; Pamela Vines; and Elizabeth Wood made key contributions to this report.

Why GAO Did This Study FTA provides more than $12 billion annually to support and expand transit services. The operation of transit systems depends on a skilled, qualified workforce, but impending transit worker retirements and advances in transit technology may create challenges for the transit workforce such as finding eligible applicants for transit jobs and obtaining the technology expertise needed. GAO was asked to review various issues related to the sufficiency of the transit workforce. This report discusses the extent to which: (1) information exists about future transit workforce needs and (2) FTA assists with addressing current and future transit workforce needs, among other things. GAO reviewed DOT and FTA documents, including strategic and performance plans, and interviewed DOT and FTA officials and other transit stakeholders, including representatives of transit agencies, research organizations, and unions. Stakeholders were selected based on recommendations from other transit stakeholders and for geographic diversity, among other factors. What GAO Found The nation's transit infrastructure requires a trained workforce, consisting of a variety of occupations (see figure), to operate, maintain, and oversee it. Information on future transit workforce needs is limited in part by the absence of transit-specific workforce projections. According to Federal Transit Administration (FTA) officials, the best information available is an August 2015 report developed by the Department of Transportation (DOT) and other federal stakeholders to produce transportation job projections. However, the report's transit data are combined with ground passenger transportation data (e.g., school buses, taxis), and many of these services are specifically excluded from the statutory definition of transit. Transit-specific data were not available and would be costly to obtain, according to the researchers who wrote the report. Thus, the report does not exclusively reflect the transit workforce. The views of stakeholders GAO interviewed varied regarding whether additional workforce data were needed. Working with stakeholders to understand what, if any, additional information is needed could enable FTA to weigh the complete costs and benefits of developing future transit workforce data. This approach could also enable FTA to make informed decisions on allocating the appropriate resources toward transit workforce efforts. While FTA assists transit stakeholders with addressing workforce needs—for example, providing about $29 million in workforce development assistance in fiscal year 2017—it lacks key strategic planning practices that could ensure its efforts are effective. FTA first reported to Congress in 2016 that it planned to develop a transit workforce strategic plan; however, no clear action has been taken to develop one so far. Further, FTA does not have clearly defined performance goals and measures—as outlined in the Government Performance and Results Act of 1993 (GPRA) and the GPRA Modernization Act of 2010—for FTA's transit workforce development efforts. Without these key strategic planning practices, FTA is limited in its ability to make informed decisions about effectively leveraging its resources to address future transit workforce needs and in measuring the effectiveness of its efforts. What GAO Recommends GAO is making three recommendations to FTA: (1) in collaboration with stakeholders, determine whether additional transit workforce data are needed; (2) develop a comprehensive transit workforce strategy; and (3) develop performance goals and measures for FTA's transit workforce development efforts. DOT concurred with our recommendations.

gao_GAO-20-104

gao_GAO-20-104_0

<1. Background Utilities Privatization Authorities> The military departments have been privatizing utility systems at military installations since 1988. In 1997, Congress provided the military departments permanent statutory authority, codified at 10 U.S.C. 2688, as amended, to convey, or privatize, utility systems under military jurisdiction, such as those on military installations. The authority defines a utility system as a system for the generation and supply of electric power; the treatment or supply of water; the collection or treatment of wastewater; and the supply of natural gas, among others. When privatizing a utility, the Secretary of a military department makes a decision to convey a system to a private or public entity, and then a utility services contract is awarded. Figure 1 shows examples of common utility systems found on military installations. A utility system includes the associated equipment, fixtures, and structures, as well as easements and rights-of-way. 10 U.S.C. 2688 states that the Secretary of a military department may convey a utility system, or part of a system, to a municipal, private, regional, district, or cooperative utility company or other entity. DOD s policy states that the military departments may maintain ownership of utility systems and decide not to privatize them for security reasons, or when privatization is determined to be uneconomical. According to officials, once DOD conveys a utility system and awards a contract for utility services, the contractor is responsible for replacing, repairing, and maintaining the associated equipment and structures as needed. Figure 2 provides photos of the before and after condition of a privatized utility system component at Fort Riley, Kansas where the electrical system was modernized to replace analog monitoring equipment with digital equipment. <2. Utilities Privatization Program Management> The Office of the ASD(Sustainment), within the Office of the Secretary of Defense, develops policies for and oversees DOD s utilities privatization program. There are two main sources of DOD policy for utilities privatization a DOD instruction on energy management at the installation level and a supplemental guidance specific to utilities privatization. During the period covered by our review, the instruction directed the military departments to attempt to privatize all utility systems, unless the Secretary of the military department determines that the system is exempt from privatization for security or economic reasons. In February 2019, DOD released supplemental guidance, which, among other things, superseded the relevant portions of the instruction (and cancelled prior supplemental guidance), and did not include a preference for privatization or the direction to complete privatization decisions on all covered utility systems. Instead, utilities privatization may now be performed at the discretion of the military departments. The military departments have the responsibility for program implementation, as the statutory authority to privatize utility systems is granted to the Secretaries of the military departments. As such, the military departments determine which systems will be privatized and which systems may be exempted from privatization. Once a military department begins to consider an installation for privatization, the installation command assists and facilitates in carrying out the privatization effort. According to officials, DLA Energy is the contracting agent for the majority of privatized utility services contracts awarded on behalf of the Army since 2004 and for the Air Force since 2008. Navy officials noted that NAVFAC is the contracting agent and administrator for the Navy and Marine Corps privatized utility services contracts. As of December 2019, the military departments have privatized roughly a quarter of the utility systems on military installations (614 of the 2,590 systems); roughly a third of the systems were already owned by entities other than the federal government (733 of 2,590) (see table 2). As reflected in the table, the military departments have identified 580 utility systems that are available for future utilities privatization. As of September 2018, DLA Energy reported that it had 18 ongoing utilities privatization efforts 12 for Army and six for Air Force. Also, the Navy noted that it has three ongoing utilities privatization efforts. According to Air Force and Navy officials, their departments took a strategic pause on new utilities privatization efforts in 2015 to determine if privatization is the best option for recapitalizing their deteriorating utility systems. The Navy and Air Force resumed new utilities privatization efforts in fiscal year 2017 and fiscal year 2019, respectively. DLA Energy will act as contracting agent for the Navy on a pilot basis, as well as continuing to do so for the Army and Air Force for future contract awards. <3. DOD s Contracting Process> The process for privatizing a utility system culminates in two actions: the award of a utility services contract and conveyance of the physical assets of the utility from the military department to the awardee. Once the military department has decided to consider privatizing a utility system at an installation, the department initiates efforts to award one or more utility services contracts. This contracting process is governed by federal statutes, the Federal Acquisition Regulation (FAR), the DOD and military department supplements to the FAR, and military department and agency guidance. For example, DOD is generally required to award utility services contracts using competitive procedures, but can award contracts through other than competitive procedures when authorized by an exception, which we refer to as non-competitive. Figure 3 depicts the five phases of the pre-award contracting process identified by GAO. Acquisition Planning: Acquisition planning includes developing requirements, preparing cost estimates, and conducting market research to determine market interest, among other activities. For utilities privatization efforts, requirements also include the inventory of equipment such as pipes, valves, and wires and structures associated with the utility system. For privatized utility services contracts this phase begins with the decision to consider the privatization of utilities at a given installation and generally ends with the approval of an acquisition strategy. Solicitation: Military departments may solicit offers from prospective contractors by issuing a request for proposals. The request for proposals informs the prospective contractors of the government s requirements, the anticipated terms and conditions that will apply to the contract, the information required in a proposal, and the factors used to evaluate proposals and their relative importance. Those who wish to respond must submit their proposal to the contracting office in the time and manner stated in the request for proposals. We consider the solicitation phase to begin with solicitation issuance and end at the deadline to submit the initial proposals, although the solicitation can be amended later and proposals revised. Initial Evaluation: Proposal evaluation is an assessment of the proposals based on stated evaluation factors and the offerors ability to perform the prospective work successfully. For example, proposals undergo technical evaluation to determine offerors ability to meet the technical requirements and cost or price evaluation to determine whether the price is fair and reasonable. We consider the initial evaluation phase to begin when potential offerors submit initial proposals and end once government contracting personnel receive approval to enter into negotiations or discussions. Discussion/Negotiation: Negotiations are exchanges, in either a competitive or non-competitive environment, between the government and offerors that are undertaken with the intent of allowing the offerors to revise proposals and obtaining the best value for the government. Negotiations allow, among other things, the offerors to address any government concerns with the proposals. We consider this phase to begin when the contracting officer receives approval to enter into negotiation and end when contracting personnel receive approval to award the contract. Contract Award: We consider the contract award phase to begin when the approval to award the contract is given and to end when the contracting officer signs the contract. In utilities privatization, as a part of the contract award phase, the Secretary of the military department makes a decision to convey the utility systems after the awardee has been selected. While the utilities privatization process must comply with relevant statutes and regulations, it has certain unique attributes. According to DLA Energy and military department officials, installations must conduct a thorough inventory of the physical assets associated with the utility system (e.g., linear feet of water pipes and location, number and location of gas valves, and the number and location of lift station pumps) as well as the system s workload data to inform the requirements document. This is due to the fact that ownership of these physical assets will convey i.e., be legally transferred to the contractor after contract award. Conveyance from the military installation to a regulated public sector utility, such as a municipal water and wastewater authority, requires additional approval from the state s utility regulatory commission. Finally, privatized utility services contracts are generally long-term, up to 50 years in some cases. According to DLA Energy and military department officials, these factors affect the consideration of requirements and structure of the utilities privatization process in a way not normally found in standard contracts and can affect the time required for discussions and negotiations. <4. Leading Practices for Lessons Learned> The use of lessons learned is a principal component of an organizational culture committed to continuous improvement. Through lessons learned, DOD can continuously look for ways to make improvements to the utilities privatization program to shorten the time to award and enhance effectiveness and efficiency. Collecting and sharing lessons learned serve to communicate knowledge more effectively and to ensure that beneficial information is factored into planning, work processes, and activities. This process also provide a powerful method of sharing ideas for improving work processes, facility or equipment design and operation, quality, and cost-effectiveness. Leading practices of a lessons learned process identified by GAO and others include collecting, analyzing, validating, saving or archiving, and disseminating and sharing information and knowledge gained on positive and negative experiences. Figure 4 shows this process. <5. Prior GAO Work> Since 2005, we have issued four reports that assessed various aspects of DOD s utilities privatization efforts: In May 2005, we identified several management weaknesses in DOD s implementation of the utilities privatization program. For example, we identified a number of concerns, such as the reliability of the economic analyses associated with privatization decisions and the adequacy of contract oversight. We made eight recommendations to help ensure the reliability of economic analyses and improve the utilities privatization guidance and procedures, among other things. DOD non-concurred with seven recommendations and partially concurred with one recommendation in its response to the report; however, DOD has since implemented all but one recommendation. In September 2006, we reported that DOD s progress in implementing the utilities privatization program had been slower than expected and management concerns remained. For example, the targeted time frame for program implementation was delayed by 6 years and concerns remained about the reliability of economic analyses used to support privatization decisions. We made seven recommendations to improve DOD s management of utilities privatization. DOD generally concurred with and implemented six of these recommendations. In July 2015, we identified that DOD faces challenges in implementing utility resilience efforts, such as collecting and reporting comprehensive utility disruption data, and developing cybersecurity policies for its industrial control systems. We made four recommendations to clarify utility disruption reporting guidance, improve data validation steps, and address challenges to cybersecurity industrial control systems. DOD concurred or partially concurred with all but one recommendation and implemented three recommendations. In September 2018, we reported that DOD lacked guidance to develop performance metrics and implement cybersecurity requirements for privatized utility services contracts. We made two recommendations to provide guidance for development of metrics to track utilities privatization contract performance, and what constitutes covered defense information as it related to utility services contracts. DOD concurred with and implemented both recommendations. Concerns about the length of time to award contracts are not limited to utilities privatization. For example, in July 2018, we reported that although DOD proposed reducing the time it takes to award weapon systems contracts, the department has limited understanding of how long it currently took and therefore lacked a baseline to measure success. We also found that, according to contracting officials, factors such as the quality of proposals, prospective offeror responsiveness to agency request for additional information, and complexity of the technical requirements can add or reduce the time required for evaluation of proposals. We recommended that, to assess time frames for awarding contracts, DOD should develop a strategy to determine what information it should collect and how to use that information. DOD concurred and implemented the recommendation. Time to Award Privatized Utility Services Contracts Is Lengthy and Affected by a Number of Factors The time to complete the utilities privatization pre-award process generally took an average of 4 years from issuing the solicitation to awarding a contract for utility services for the contracts we assessed. Utilities privatization officials acknowledged that the process is lengthy, but DOD does not maintain complete data on key steps in the process, including when the process to consider privatization of a utility system began and the time needed to conduct acquisition planning. Consequently, it is not possible to determine the entire time to complete privatization of a utility system. In addition, the time to complete a specific utilities privatization effort may be affected by a number of factors. These factors can include changes to internal or external requirements, the technical complexity of the individual effort, the continuity of personnel involved in the effort, and command support for privatization. <6. Time to Complete Utilities Privatization Is Lengthy and Data for Each Phase of the Process Is Not Available> The 21 new contracts for privatized utility services awarded from fiscal years 2016 through 2018 generally took an average of 4 years from the time the DOD component issued a solicitation to when the contract was awarded. Utilities privatization officials acknowledged that the process is lengthy. They stated that it is due, in part, to the long-term nature of the contracts that can be up to 50 years and the complexity of the contracts. The entire pre-award contracting process could be longer, as we found that, with the exception of the one Navy-awarded contract we reviewed, DOD does not maintain complete data for every phase of the process. The data DOD does not maintain includes key events in the acquisition planning phase, specifically, when the military departments began considering privatizing a specific utility and when the requirements packages a complete inventory of the associated infrastructure, such as pipes, wires, and valves were available to use in the solicitation. Table 3 presents the available information on the average time to complete the five phases of the pre-award contracting process identified by GAO for the contracts we assessed. As indicated in table 3, even after excluding the time needed to conduct acquisition planning, there is wide variation in the average time taken from when contracting officials issued the solicitation to when they awarded the privatized utility services contracts. For example, NAVFAC took more than 92 months or more than 7 years to award its contract to privatize the Naval Air Station Key West wastewater system. The total time required to award the contract included a 30-month period during which the privatization effort was paused to evaluate alternative paths to meet new Florida wastewater regulations. Navy officials stated that our timeline should not include the 30-month period because the pause did allow any additional work to be accomplished to prepare for contract award. After determining that privatizing the utility system remained the most effective approach, however, the Navy resumed evaluating revised proposals that had been received in response to the amended original solicitation. DLA Energy took, on average, about 45 months or nearly 4 years to privatize utility systems and make awards for the 19 contracts it was responsible for. In contrast, the Air National Guard awarded a non- competitive contract to privatize the wastewater system at Truax Field in Wisconsin to a local utility provider in about 6 months. However, according to Air National Guard officials, the local utility provider already maintained the infrastructure for the installation and had previously conducted an assessment of the installation wastewater system used to finalize the privatization requirements. While Air National Guard officials could not provide a date as to when they began to consider utilities privatization, they stated that they spent more than 70 months in acquisition planning before issuing the solicitation due, in part, to unfamiliarity with the utilities privatization process. While no provision of the regulations or policies governing utilities privatization that we reviewed require DOD contracting activities to collect data on the time to complete each phase of the pre-award process, since 2014, DLA Energy officials have attempted to maintain such data for all the contracts for which they were the contracting agent. However, DLA Energy did not maintain data for the completion of milestones within the acquisition planning phase carried out by the military departments. In 2014, DLA Energy officials, with input from Army and Air Force utilities privatization officials, established milestones to plan and monitor key pre- award contracting activities, including a target time to complete each milestone. DLA Energy and military department officials noted that these data help provide insight into, and accountability for, the progress made or challenges encountered during the pre-award process. However, the usefulness of these data are limited because the military departments must provide time frames for the front end of the process and have not done so. We found that a number of factors can affect the time to complete pre-award contracting activities, but for the purpose of establishing milestones to monitor these activities, DLA Energy varied the number of milestones and time frames to complete specific activities depending on whether the contract was competitively awarded and the number of proposals received. While table 3 shows the average time it took to complete pre-award phases by contracting agent for the contracts in our audit scope, figure 5 shows the milestones used by DLA Energy for competitive and non-competitive awards and the target time frames DLA Energy established for each milestone. DLA Energy officials noted that the time frames for the first three steps in the process determining that one or more utility systems on an installation should be considered for privatization through when the military department provides DLA Energy a complete requirements package are determined by the military departments. The military departments have not established target time frames for these activities, but have taken steps to understand factors that affect the time frames, which we discuss later in this report. DLA Energy and military department officials noted that despite the limitations in the data, this information has helped them provide better management oversight of the process. A DLA Energy official stressed that the target time frames are meant to improve contract award time frames, incentivize performance, and provide accountability, and that they do not expect every contract to meet targets due to the complex nature of utilities privatization. Nevertheless, DLA Energy and military department officials stated that implementation of the milestones helped reduce the amount of time needed to award privatized utility services contracts. Our analysis of the 18 competitive utility services contracts awarded by DLA Energy from fiscal years 2016 through 2018 indicates that the average time from receipt of requirements to contract award has decreased. For example, our analysis indicated that DLA Energy took an average of nearly 61 months from receipt of requirements to competitively award eight contracts related to solicitations issued prior to 2014. Once the milestone tracking process was initiated in 2014, our analysis indicates that DLA Energy took an average of about 35 months from receipt of requirements to competitively award 10 privatized utility services contracts (see fig. 6). Of the 10 privatized utility services contracts DLA Energy awarded since the process was initiated in 2014, two met or exceeded DLA Energy s target time frame; six were awarded within 6 months of the target time frame; and two were awarded over a year longer than the target time frame. <7. Multiple Factors Affected Length of Time to Award Privatized Utility Services Contracts> DLA Energy and military department officials identified several factors that, individually or collectively, could affect the time to award a privatized utility services contract. These factors include the extent to which internal or external requirements remain stable, the technical complexity of the privatization efforts, the continuity of personnel involved in the effort, and command support for privatization. Changes to Internal or External Requirements. According to a utilities privatization official we interviewed, unexpected changes to requirements may affect the time to award a utility services contract. For example, Navy officials stated that Naval Air Station Key West initiated efforts to privatize its wastewater treatment facilities in August 2007 to meet new Florida wastewater regulations by the compliance deadline of July 2010. A Navy installation official stated that they determined that they would be challenged to meet the new regulations with existing facilities and could not upgrade those facilities to meet the new standards due to inadequate personnel and funding. After the Navy issued the original wastewater solicitation in March 2008, the state extended the required compliance date to December 2015. As a result, installation and Navy officials reconsidered utilities privatization and assessed whether the extended deadline would allow them to reach compliance without privatization. After evaluating alternative paths of action to ensure compliance with the new Florida wastewater regulations, installation and Navy officials determined it remained in the best interest of the installation to proceed with the solicitation and contract award. Wright-Patterson Air Force Base officials stated that after they issued their solicitation for privatization of water systems, installation officials discovered that two of the wells were contaminated by firefighting foam. This foam, used to extinguish aircraft fires, contained chemicals which washed off runways and seeped into the groundwater. According to installation officials, concentrations of these chemicals exceeded non-regulatory lifetime health advisory levels, prompting the installation to remove the chemicals before distributing the water for use on base. To address the problem immediately, installation officials reported that they engaged with the Air Force Civil Engineer Center to fund a project to modify the existing water treatment plant to remove the chemicals before distributing the water for use; they could not wait for the award of the utility services contract. Installation officials stated the modification to the water treatment plant included the construction of a building to house a large filtration system to remove the contaminant. These officials also stated the modified water treatment plant was then included in the requirements package for the utilities privatization effort. DLA Energy officials stated that a change to the requirements included in utilities privatization efforts was a frequent occurrence. As this information is central to determining the technical requirements and the cost estimate, changes to an inventory can affect the length of time spent in acquisition planning and in discussions and negotiations. Army officials stated that completion of the list of inventory to be privatized is a time-consuming process as records of the amount of pipes, valves, wires, facilities, or other items is often incomplete. Army and Air Force officials indicated that often multiple surveys of inventory are conducted by both the military departments and the contractor selected to maintain the utility system to finalize requirements. Officials reported that this is because, in part, a final and complete inventory is required so that after award the government can finalize the bill of sale and convey those systems to the utility services contract(s) provider(s). Technical Complexity. According to utilities privatization officials, the technical complexity of the utilities privatization effort can also affect how long it takes to award a utility services contract. At Fort Riley, DLA Energy officials, installation officials, and contractor representatives shared with us that the complexity of the regulated environment of some utilities had an effect on the time to award. For example, a contractor representative stated his regulated utility company was one of the potential contractors vying for a utility services contract at Fort Riley, and this required additional approval from the state s utility regulatory commission. DLA Energy officials stated and the contractor representative stated that this additional complexity led to a prolonged negotiation and discussion effort as his company sought additional information about the asset inventory to create what it perceived to be a quality proposal for both the utility services contract and its utility regulatory commission. Our analysis of DLA Energy data found that for the majority of the contracts, the discussion/negotiation phase required the longest amount of time during the pre-award contracting process. The time to award for this utility system took one year longer than other utility systems privatized on the same installation. Continuity of Personnel. Utilities privatization officials we interviewed stated that the continuity of personnel involved in the process is critical to awarding a contract in a timely manner. For example, at Naval Air Station Key West, officials told us that staff turnover was prevalent at all levels multiple times during the utilities privatization process. These officials noted this turnover was due, in part, to the isolated location of the installation, which made it difficult to recruit and retain both civilian and military staff. They also noted that in turn, this turnover of staff led to loss of knowledge and dispersion of data. During our visit, we observed that installation staff had difficulty locating documentation and had limited knowledge of what occurred during the pre-award contracting process at the installation. Officials explained that this was due, in part, to the loss of some documentation due to flooding and the management of the process by other commands. In contrast, installation and contracting officials at Fort Riley stated that there was no turnover in the installation staff during the pre-award contracting process and no turnover in the DLA Energy contracting staff once they took responsibility for administering the utility services contracts. Officials at Fort Riley stated that with continuity of staff, knowledge and working relationships were built and maintained. DLA Energy awarded utility services contracts for three utility systems in a comparatively quick time frame compared to the other contracts in our analysis. Command Support for Privatization. Utilities privatization officials stated that the support of the installation s command leadership can facilitate award of a utility services contract. For example, officials at Fort Riley said the installation commander and director of public works department fully supported utilities privatization as the solution to the installation s failing utility systems. These officials noted that due to this desire to privatize utility systems, the senior installation leadership openly communicated its goals and support of privatization throughout the pre-award contracting process. For example, Fort Riley officials stated that public works department staff assigned to work on the utilities privatization effort were sequestered or removed from all other assigned responsibilities. Installation officials stated this allowed the employees to focus on the utilities privatization tasks. According to Fort Riley officials, this leadership support was a factor in reducing the time to contract award. According to our analysis, the utility services contracts for Fort Riley were awarded more quickly than the majority of the utility services contracts we assessed at other installations. In contrast, officials at Wright-Patterson Air Force Base said their leadership was reluctant to fully support utilities privatization. While senior military department leadership directed the installation to privatize its utility systems, installation leadership was reluctant to do so due to concerns of job loss for public works department employees and perceived loss of flexibility in installation operations and maintenance funding. Installation officials stated that this reluctance was one factor in the amount of time it took to make the contract awards. According to our analysis, the contracting award process for the three utility systems at that location took longer than the majority of the utility services contracts we assessed at other installations. DOD Generally Demonstrated Leading Practices for Lessons Learned to Improve the Utilities Privatization Pre- award Process, but Lacks Key Data and Archive for Lessons DOD is generally applying leading practices in its efforts to improve the timeliness of the utilities privatization pre-award contracting process, but is missing opportunities to analyze the effects of its changes and to better share the information with stakeholders. ASD(Sustainment), the military departments, and DLA Energy have taken, or plan to take, actions that demonstrate or partially demonstrate four of the five leading practices identified by GAO and others. However, despite the breadth of activities performed and planned by DOD, the department lacks key data it needs for further analysis and validation of the pre-award contracting process as well as a repository for archiving lessons learned for future stakeholders to access. ASD(Sustainment), the military departments, and DLA Energy have taken actions to implement lessons learned, in part, to reduce the time it takes to award contracts. We assessed whether these actions demonstrated, partially demonstrated, or do not demonstrate each of the five leading practices for implementation of lessons learned identified by GAO and others. Demonstration of these leading practices is critical to ensuring that lessons learned endure and that processes are improved. In reviewing ASD(Sustainment), military department, and DLA Energy pre- award documentation and interviewing knowledgeable officials, we found that all the DOD entities fully demonstrated the third leading practice which is to validate the applicability of lessons and demonstrated three other leading practices to varying degrees. None of these entities, however, demonstrated the store and archive leading practice (see table 4). Collect information. The collect information leading practice involves capturing information about events in the area of interest, which can be achieved through various methods. ASD(Sustainment), the military departments, and DLA Energy officials told us that they collect information for utilities privatization lessons learned through activities such as data calls, working groups, workshops, studies, conferences, and meetings. Specific examples of DOD demonstrating this leading practice are as follows: According to an ASD(Sustainment) official, since about 1997, their office has sponsored a monthly Utilities Privatization Working Group attended by representatives of the military departments and DLA Energy officials. The purpose of the working group is to provide a collaborative forum to adjudicate issues and share lessons learned from utilities privatization activities. For example, topics of discussion on the April 2019 agenda included issues or challenges associated with developing an execution framework, methodologies to implement utilities privatization guidance, and updates on current utilities privatization activities from the military departments and DLA Energy. In 2019, ASD(Sustainment) added a requirement to its guidance for an annual utilities privatization program review with each military department to address portfolio lessons learned. According to ASD(Sustainment) officials, their office, the military departments, and DLA Energy officials plan to work together to develop a strategy for complying with the guidance. According to an Army official, the Army established a tri-military department annual Utilities Privatization Post-award Workshop in 2014 that discusses post-award issues among the military departments, DLA Energy, and contractors. Each military department has hosted a workshop. For example, the Navy hosted the November 2018 post-award workshop, which included updates by the military departments and DLA Energy on their utilities privatization activities, including some lessons learned. The Navy commissioned a study in 2016 to help reestablish its utilities privatization program and reduce life-cycle expenditures on infrastructure, including utility systems. The study examined the costs, benefits, and existing policies for private versus government facilities ownership and recommended changes to the Navy s processes for utilities privatization. The study led to, among other things, the creation of Navy-specific utilities privatization guidance. According to a Navy official, they will establish a community of practice in partnership with DLA Energy to provide a quarterly forum for NAVFAC officials to share lessons learned and discuss utilities privatization problems and solutions. DLA Energy hosts the biannual DLA Energy Worldwide Energy Conference to provide personnel of the military departments, DLA Energy, and contractors the opportunity to learn from each other and top industry experts on the latest trends and initiatives in energy, including utilities privatization. DLA Energy also participates in the annual Department of Energy Annual Energy Exchange Conference. For example, in 2019 it participated in a discussion panel on utilities privatization. These efforts to collect information and lessons learned are positive; however, as discussed earlier in this report, DOD lacks complete and consistent information on the time to award utility services contracts. Reducing the amount of time to award these contracts is a stated goal of DOD. ASD(Sustainment) issues annual data calls to the military departments to collect information such as the number of utility systems privatized by military department, the authority under which a privatization took place, and award dates for the utility services contracts. DLA Energy and military department officials indicated that collecting this information has contributed to efforts to reduce the amount of time needed to award utility services contracts. They acknowledge, however, that the military departments do not collect information on the formal decision to consider privatization of utility systems and the length of time to conduct key acquisition planning activities, such as developing a complete inventory of physical assets to document its requirements. The requirements package is a key component in the pre-award contracting process and includes an inventory of the utility system. This inventory includes items such as the pipes, valves, and wires that make up the utility system. Consequently, neither DLA Energy nor the military departments, with the exception of the Navy, had reliable information on the entire time it took to complete the pre-award contracting process. Without data on the key tasks that need to be completed during the pre-award contracting phase, DOD is missing an opportunity to assess the extent to which updated guidance, training, and other ongoing efforts are having an effect on the time to award utility services contracts. In recognition of this, an Air Force official stated that the Air Force Civil Engineer Center recently implemented a schedule-tracking mechanism to capture these dates, which will be used with all new utilities privatization efforts. Collecting this information consistently across all military departments would allow for a more thorough analysis of contracting process information and could support future process improvement efforts. Analyze information. The next leading practice is to analyze the information collected to determine root causes and identify appropriate actions. Examples of DOD demonstrating the information analysis leading practice include: According to DLA Energy officials, in 2014, they reviewed and analyzed historical data from utility services contracts to revise the utilities privatization procurement time frame. As mentioned previously, this analysis led to the development of milestones and associated time-based targets to achieve each milestone, based on the number of proposals received, to reduce the pre-award contracting process. According to a DLA Energy official, the agency coordinated with its contractor support, and Army and Air Force program management offices to establish the time-based targets. In May 2014, the Air Force conducted a utilities privatization process improvement review with DLA Energy, among others, to streamline the utilities privatization process. The review allowed the Air Force to reduce the planned timelines for the utilities privatization pre-award contracting process, which DLA Energy administers on behalf of the Air Force, between the issuance of competitive solicitations to award by 14 months to 33 months. Similarly, in October 2014, the Army conducted a utilities privatization process improvement review with DLA Energy with a goal to reduce the time needed from issuance of a competitive solicitation to award of utility services contracts to less than 36 months. Army and DLA Energy officials identified opportunities for process or program improvement during the review. Overall, adopted changes reduced the planned timelines for the utilities privatization pre-award contracting process by approximately 5 months to 31 months. An Air Force official stated that lessons learned are collaboratively shared annually and have revealed lessons learned to improve the contracting process. This has led to updates of Air Force request for proposals template. The 2016 Navy study not only collected data on utilities privatization but also provided analysis to understand the opportunities, costs, and benefits associated with privatization. The Navy used the study to enable decisions about whether privatization is the appropriate strategy to reduce life-cycle expenditures on utility infrastructure. The analysis performed for the study resulted in multiple products and findings. For example, the Navy created an Excel-based tool to consolidate utility data, organize data, and prioritize installations for evaluation of the potential to privatize. ASD(Sustainment) revises its utilities privatization guidance and procedures based on lessons learned and changes in laws and regulations. For example, we found that DOD responded to industry feedback by standardizing and clarifying request for proposal templates used in utilities privatization. Based on our analysis, the military departments and DLA Energy fully demonstrated the leading practice for analyzing information, and ASD(Sustainment) partially demonstrated the leading practice. According to DOD, ASD(Sustainment) is responsible for overseeing progress tracking and goal setting for utilities privatization across the department. Therefore, analysis for performance across the department on the time it takes to award utility services contracts is its responsibility. As mentioned previously, while ASD(Sustainment) collects data on the number of utility systems privatized by military departments and award dates for the utility services contracts, it is missing information about key pre-award contracting activities. In the absence of this information, ASD(Sustainment) cannot fully analyze the department s utilities privatization activities for further lessons learned to help reduce time frames for awarding contracts. Validate applicability of lessons. Once collection and analysis have identified the lessons learned, the next leading practice is to validate that the right lessons have been identified and determine the scope of their applicability. Subject matter experts or other stakeholders may be involved in this step of the process. Examples of DOD s demonstration of the validation leading practice include: ASD(Sustainment) officials noted that they assess the applicability of lessons by periodically revisiting and revising utilities privatization guidance. These officials said they revised such guidance, for example, in 2002, 2005, 2010, and 2019 to incorporate lessons learned from stakeholders across the process. According to an Army official, the Army periodically assesses the applicability of lessons learned by revising its utilities privatization acquisition process based on the Army s strategic direction, military department meetings, and utilities privatization policy changes. This included the utilities privatization acquisition process improvement review with DLA Energy to reduce the time needed to award utility services contracts. According to the 2016 Navy study, contractors conducted interviews to validate data, obtain supplementary data, and ascertain qualitative information. In addition, contractors interviewed Air Force and Army utilities privatization representatives to garner lessons learned and understand other DOD components approaches to utilities privatization. One result of the study was development of a repeatable methodology and framework, based on specific lessons learned, that can be used to evaluate candidate sites for utilities privatization. In addition, according to an official, the Navy is using the lessons learned from its study to develop its new utilities privatization handbook, a draft of which emphasizes the need throughout the process for the collection, documentation, and sharing of lessons learned to help future installations and refine the utilities privatization program. According to the Navy, it plans to update the handbook on an ongoing basis to reflect lessons learned from its pilot program with DLA Energy, and with the Army and Air Force utilities privatization programs. An Air Force official stated that over an 18-month period they assessed their utilities privatization process and developed a new, comprehensive utilities privatization process for pre-award contracting activities. The Air Force determined the scope of the applicability of lessons learned when it revised its draft utilities privatization playbook to incorporate this new process. DLA Energy revised how it monitors the utilities privatization process based on its analysis of historical utilities privatization data. DLA Energy officials said they validated these changes by testing the milestones and associated targets on a 2014 Army utility services contract and found them to be reasonable. Army and Air Force officials agreed with the assessment. DLA Energy officials stated that they also determined the scope of the applicability of lessons learned by determining to whom and what the lessons learned applied, and by taking actions to continually revisit and revise its templates and procedures. For example, we found that the fiscal years 2012 and 2016 versions of the request for proposals template reflected changes for both the Army and Air Force but we could not determine if they were the result of lessons learned. We also identified revisions DLA Energy made to incorporate lessons learned into operating manuals it uses for the utilities privatization process. For example, a DLA Energy official noted that the agency revised its risk evaluation manual to improve the quality of the risk evaluations the source selection evaluation board performs. Store and archive lessons. The archiving of lessons learned involves the use of a repository, used to disseminate and share information. As appropriate, these repositories should have the capability to store and share data and to secure classified, sensitive, or proprietary data. Archiving lessons learned should remain an ongoing process; otherwise, it risks becoming cumbersome and irrelevant. Our observations on DOD s efforts to store and archive information on utilities privatization include: According to Air Force officials, the Air Force does not currently store or archive lessons learned for pre-award contracting activities. The Air Force Portfolio and Asset Control and Evaluation System stores and archives lessons learned for post-award contracting activities. The system is available to Air Force, DLA Energy, and other stakeholder agencies like the General Services Administration, but not to other military departments. To populate the database, the Air Force Civil Engineer Center portfolio management division uploads utilities privatization documents into the system, including weekly status reports, briefings, and meeting notes for post-award contracting activities. The system also records lessons learned and provides a social media discussion platform, known as the Contracting Officer s Representative Toolbox. Our review of the system determined that it is not widely populated. Specifically, as of December 2019, the system contained seven lessons learned, three discussion postings, and five documents in the Toolbox. According to Air Force officials, however, this system was not intended to be a repository for storing and archiving lessons learned for pre-award contracting activities and acknowledged that the Air Force does not currently have another means to do so. According to DLA Energy officials, they do not maintain a specific repository for storing and archiving lessons learned for utilities privatization pre-award contracting activities but make their revised templates and procedures that they believe generally reflect key lessons learned available to stakeholders for utilities privatization on a website. According to a DLA Energy official, the website is open to anyone that can access DLA.mil, but most of the content is intended to assist contracting officer s representatives in conducting their post- award contracting responsibilities. The Army has one key official who has managed its utilities privatization program activities for many years and has a substantial amount of experience and institutional knowledge. This official maintains utilities privatization files in hard copy such as guidance, memorandums, and relevant studies therefore this information is not readily available to all relevant stakeholders, such as the other military departments. According to the Army official, the Army does not maintain a repository for storing and archiving lessons learned for utilities privatization pre-award contracting activities. According to Navy officials, NAVFAC has a business management system that provides for the management of business processes, common practices, and process and quality improvement for NAVFAC products and services. The system s documentation is available for use by all NAVFAC commands and links to applicable policies, guidance, forms, and information so that work will be conducted in a consistent manner. According to officials, this system is updated annually or at significant process changes. However, the Navy is currently developing a module for the business management system for utilities privatization with an estimated completion date of March 2020. Navy officials stated that the module is expected to include pre- award contracting lessons learned when it becomes operational. According to ASD(Sustainment) officials, they do not maintain a repository for storing and archiving lessons learned for utilities privatization pre-award contracting activities. While ASD(Sustainment), the military departments, and DLA Energy officials stated they incorporate lessons learned in various ways, including when they revise policies and/or operating manuals, these officials acknowledge that they do not maintain a repository for storing and archiving lessons learned on specific utilities privatization pre-award contracting efforts. DLA Energy officials, who support both the Army and Air Force utilities privatization efforts, stated that revisions to templates and guidance were sufficient to implement lessons learned. The leading practices for lessons learned indicate that the use of a repository to store lessons learned allows agencies to disseminate and share the lessons learned. Without such a capability, ASD(Sustainment), the military departments, and DLA Energy may be missing opportunities to capture and share lessons learned that could benefit future utilities privatization efforts, including helping DOD achieve its goal of reducing the length of time to contract award. Disseminate and share lessons. A critical step in any lessons learned process is the sharing and disseminating of the knowledge gained. Agencies can disseminate lessons in many ways, such as briefings, bulletins, reports, emails, websites, database entries, the revision of work processes or procedures, and training. Lessons can be pushed, or automatically delivered to a user, or pulled, where a user searches for them in an archive of lessons learned information. Examples of DOD demonstrating the disseminating and sharing leading practice include: As previously noted when discussing the collection criteria, the DOD officials we spoke with told us that they distribute lessons learned during annual reviews, industry conferences, regular meetings, workshops, training sessions, and working groups. The lack of documentation and archiving of the lessons learned, however, limits the ability of future users to search for and retrieve them. DLA Energy officials stated that they share templates created for the utilities privatization program with the military departments and industry. According to an ASD(Sustainment) official, these users find the information helpful and efficient as the templates can be customized where necessary depending on the type of potential contractor and solicitation and updated for lessons learned. Additionally, DLA Energy revises its standard operating procedures for the pre-award contracting process to incorporate lessons learned and disseminate changes. DLA Energy also provides training for the utilities privatization process, for example on the procedures contracting officials should use to conduct negotiations and past performance evaluations for utility services contracts. As previously discussed, the Air Force Portfolio and Asset Control and Evaluation System is a system used to store and disseminate lessons learned for the post-award utilities privatization process. While used in a limited fashion, the Contracting Officer s Representative Toolbox consists of a newsfeed and a documents file. The documents section allows users to save and share helpful utilities privatization documents with others. The system also contains a resource center to maintain updated training tools and resources for project oversight including frequently asked questions, best practices, and resolutions to project issues. While the system has the ability to both push information to users and allows for users to pull data by acting as an archive for documentation, it is not available to Army and Navy utilities privatization staff and does not currently contain lessons learned on the pre-award contracting process. We assessed DLA Energy as fully demonstrating, and ASD(Sustainment) and the military departments as partially demonstrating, this lessons learned criteria. While ASD(Sustainment) and military department officials do disseminate and share lessons learned, the inability of future users to search for and retrieve lessons learned limits their utility. For example, Air National Guard officials stated that they were unfamiliar with the utilities privatization process and encountered delays prior to releasing the solicitation, in part, due to the need to obtain information about how to execute the process. Having the capability for others to retrieve archived lessons learned could potentially assist future stakeholders in the process and help further shorten contracting award time frames. Conclusions DOD is taking steps to improve the effectiveness and efficiency of the utilities privatization pre-award contracting process and these efforts have contributed to decreasing the time needed to award utility services contracts. In particular, Army and Air Force officials consistently noted that DLA Energy s establishment of a milestone-based system to track the time to complete key steps in the pre-award contracting process in 2014 has helped provide better management oversight and improve accountability. DOD, however, does not collect consistent information on the time to complete key phases needed to award utility services contracts. Specifically, DOD does not have information on when the military departments identify that one or more utility systems on an installation should be considered for privatization and when the installation delivers a completed requirements package as part of the acquisition planning phase. The lack of consistent data on these two key events may hinder DOD s efforts to identify additional opportunities to reduce the length of time needed to award utility services contracts. Similarly, DOD recognizes the importance of collecting and disseminating lessons learned for the utilities privatization program, but currently lacks a mechanism to archive lessons learned during the pre-award contracting phase. As DOD has identified 580 utility systems that still may be privatized, having such a capability for others to retrieve archived lessons learned could potentially assist future stakeholders in the process and help further shorten contracting time frames. Recommendations for Executive Action We are making two recommendations to the Secretary of Defense: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Sustainment collaborates with the military departments and the Defense Logistics Agency to collect consistent information on the time to complete key steps in the pre-award contracting process for privatizing utility services. (Recommendation 1) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Sustainment collaborates with the military departments and the Defense Logistics Agency to develop a mechanism to store and archive lessons learned regarding the pre-award contracting process for privatizing utility services. (Recommendation 2) Agency Comments We provided a draft of this report to DOD for review and comment. DOD s written comments are reproduced in appendix II. DOD partially concurred with both recommendations and provided technical comments, which we incorporated as appropriate. DOD partially concurred with our first recommendation to collect consistent information on the time to complete key steps in the pre-award contracting process for privatizing utility services. DOD suggested that we modify our recommendation to include other DOD contracting activities that may support privatization efforts. Our recommendation, based on the scope of our audit work, was intended to cover recent privatized utility services contracting activities within the military departments, such as Naval Facilities Engineering Command. But we agree that DOD should include any activity that provides support for utilities privatization in its efforts to collect better data. Similarly, DOD partially concurred with our second recommendation to develop a mechanism to store and archive lessons learned regarding the pre-award contracting process for privatization of utility services. DOD suggested that we modify our recommendation to include other DOD contracting activities besides DLA and to recommend that DOD add the lessons learned from the post-award contract process, as post-award contract actions play a critical role in informing pre-award contracting processes. As noted above, we agree that DOD should include any contracting activities that support pre-award utilities privatization efforts. Similarly, while our work did not specifically assess how post-award activities could be incorporated into the lessons learned efforts, we agree that doing so may provide additional insights that would benefit future utilities privatization efforts. In its technical comments, DOD disagreed with our presentation of the time required by the Navy to privatize utilities at Naval Air Station Key West. Specifically, DOD officials believed that we should exclude from our calculations a 30-month period that occurred during the solicitation phase in which it evaluated alternative paths to comply with new Florida wastewater regulations. DOD noted that this pause did not allow any additional work to be accomplished towards contract award. We had identified this pause and the rationale underlying the Navy s decision to do so in the draft report. We continue to believe it is appropriate to reflect this period in our calculations as the Navy did not cancel the original solicitation and, after deciding to continue to pursue the privatization efforts, evaluated the offerors proposals that had been previously received prior to the pause and subsequently awarded the utility services contract based on that solicitation. In that regard, we consider the change in the date by which the Navy had to comply with Florida s wastewater regulations to be a relevant example of one of the many external factors that can affect the time needed to privatize utilities at a military installation. We did, however, reflect DOD s disagreement with our characterization where appropriate in the report. We are sending copies of this report to the Secretary of Defense; the Under Secretary of Defense for Acquisition and Sustainment; the Assistant Secretary of Defense for Sustainment; the Secretaries of the Army, Navy, and Air Force; the Director, Defense Logistics Agency; appropriate 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 concerning this report, please contact me at (202) 512-4841 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. Appendix I: Objectives, Scope, and Methodology A House Armed Services Committee report accompanying the National Defense Authorization Act for Fiscal Year 2019 included a provision that we review the Department of Defense s (DOD) utilities privatization pre- award contracting process (which includes awarding a contract), including lessons learned to improve the process. This report examines (1) the length of time to award contracts for utility services and factors that affect it, and (2) the extent to which DOD is demonstrating leading practices to collect and disseminate lessons learned for utilities privatization. To determine the length of time to complete the pre-award contracting process to award a privatized utility services contract, we focused on utility services contracts awarded from fiscal years 2016 through 2018, the latest full year of available data when we began our audit. The time frame captured at least one privatized utility services contract for each military department Army, Air Force, and Navy. To identify these contracts, we used information maintained by the Office of the Deputy Assistant Secretary of Defense for Energy, which is part of the Office of the Assistant Secretary of Defense for Sustainment (ASD(Sustainment)) on its utilities privatization master list, which includes such information as installation name and location, and when the contract was awarded. For fiscal years 2016 through 2018, a comparison of the ASD(Sustainment) information and solicitation details provided by the awarding contracting agents identified 28 utility systems at 15 military installations that were privatized during our time frame through 21 contracts. Nineteen of the 21 contracts were awarded using competitive procedures and the remaining two were awarded without providing for full and open competition, which we refer to as non-competitive. Of the 19 competitive awards, 18 were awarded by the Defense Logistics Agency Energy (DLA Energy), which served as the contracting agent for the majority of the Army and Air Force utility services contracts during our review period; and one was awarded by the Naval Facilities Engineering Command, the contracting agent for the Navy and Marine Corps. The two non-competitive contracts were awarded by DLA Energy and the Air National Guard, respectively. For the purposes of our review, we define the pre-award contracting process as the date from when a military department begins to consider privatizing an installation s utility system(s) to the contract award date. For all 21 privatized utility services contracts awarded between fiscal years 2016 through 2018, we obtained copies of the award documents. In addition, for the 19 competitively awarded utility services contracts, we conducted contract file reviews to record completion dates of pre-award contracting phases and number of proposals received by utility. For the 18 DLA Energy competitive awards, we conducted two on-site reviews of the contract files at a DLA Energy facility to verify the dates and proposals. At the final DLA Energy contract file review, one analyst located and recorded each relevant document and date confirming completion of the pre-award contracting phase, as well as the offer information. A second analyst verified the accuracy of the information. After correcting certain errors, such as incorrectly recorded dates, we determined that this information was sufficiently reliable for purposes of reporting on the length of time to conduct pre-award contracting activities. The Navy provided electronic documents for us to review for its one competitive award. A similar verification process was conducted for the Navy information. For the Air National Guard contract, we obtained the contract and additional information from contracting officials on the time to complete the pre-award contracting process. To supplement this data, we interviewed Air National Guard contracting officials involved in the contract. To compare information on the factors that affected the length of time to award utility services contracts, we: Analyzed dates of comparable events throughout the pre-award contracting process found in the utilities privatization award contract files; and Conducted site visits to speak with DLA Energy, installation, and military department officials, and contractor representatives about their experiences with the utilities privatization pre-award contracting process. We combined a record of all utilities privatization pre-award contracting information into one file. We used this file to compare time to award for all pre-award contracting activities. This data was further compared by competitive and non-competitive status, contracting agent, military department, type of utilities in the proposals, number of utilities in the proposals, and the size of the installation by acreage. The size of each installation was found in the DOD Base Structure Report Fiscal Year 2017 Baseline, A Summary of the Real Property Inventory. However, due to the small number of contracts we assessed, we were unable to determine if there were any patterns to corroborate whether the factors such as the type of utilities in the proposals, number of utilities in the proposals, and the size of the installation did or did not affect time to contract award. To determine if there was a change in time to award after the implementation of DLA Energy s 2014 time frames for pre-award contracting activities, we compared the time elapsed between receipt of requirements and award for competitively awarded privatized utility services contracts. The analysis does not reflect seven solicitations issued between fiscal years 2013 and 2018 as they were awarded, or were expected to be awarded after September 30, 2018, and are outside our audit scope. Using data obtained from DLA Energy, however, we determined that the awards or projected awards of these seven contracts generally follow the trend shown in our analysis. To gather information on the factors that affected the time from the decision to enter the utilities privatization process to contract award, we selected a non-generalizable sample of three installations to visit. The installations were selected from a list supplied by the Office of the Deputy Assistant Secretary of Defense for Energy of installations privatized from fiscal years 2016 through 2018. To obtain a variety of utilities privatization characteristics, we selected the installation visits based on the following criteria: (1) representation of each military department; (2) types of utility system privatized (electric, natural gas, water, and wastewater); (3) geographic location of installation; and (4) fiscal year of award. The contract awards for all installations visited were awarded using competitive procedures. Prior to our visit to the three installations, we analyzed contract file documentation and spoke with utilities privatization individuals at military department and DLA Energy headquarters. At the three installations, we conducted interviews with officials at the installation command, public works department, and contracting officials, and contractor representatives to obtain perspectives on their utilities privatization in general and specifically on the factors that affected the time to contract award. We conducted our non-generalizable site visits from May 2019 to July 2019 at (1) Naval Air Station Key West, Florida, (2) Wright-Patterson Air Force Base, Ohio, and (3) Fort Riley, Kansas. No Marine Corps installations were privatized from fiscal years 2016 through 2018. In addition, we spoke with contracting officials from the Air National Guard at Truax Field in Wisconsin. The results of this selection are not generalizable to all utility services contracts or military installations, but provide insights and illustrative examples regarding factors that affect timing in the contract award process used to privatize utility systems. To determine the extent to which DOD demonstrated leading practices identified by GAO and others for collecting and disseminating lessons learned, we compared DOD s activities related to lessons learned against the five leading practices identified in our prior work to determine whether DOD demonstrated actions consistent with these practices. We then had a second analyst check the same documents and activities to verify our initial results. These leading practices for lessons learned are discussed in a September 2012 GAO report, Federal Real Property Security: Interagency Security Committee Should Implement a Lessons-Learned Process; and a December 2018 GAO report, Project Management: DOE and NNSA Should Improve Their Lessons-Learned Process for Capital Asset Projects. We compared DOD s lessons learned documentation, including the Air Force s lessons learned database, DLA Energy s utilities privatization website and operating manuals, the military departments and DLA Energy contracting process policies and procedures, and Air Force and Navy utilities privatization handbooks against these practices. Based on our analysis, we assessed whether DOD fully (met all of the criteria), partially (met part of the criteria), or did not (met none of the criteria) demonstrate the leading practices. To determine the actions that DOD has taken to learn lessons from the utilities privatization pre-award contracting process and demonstrate leading practices, we interviewed officials from ASD(Sustainment), the military departments, and DLA Energy; obtained and analyzed documents; and attended the 2019 DLA Energy Worldwide Energy Conference to gain a greater understanding of utilities privatization. We conducted this performance audit from March 2019 to April 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. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact Staff Acknowledgments> Timothy J. DiNapoli, (202) 512-4841 or [email protected] In addition to the contact named above, J. Kristopher Keener (Assistant Director), Joe E. Hunter (Analyst-in-Charge), Stephanie Gustafson, Gina Hoover, Tamera Lockley, Roxanna T. Sun, Anne Louise Taylor, Kari Terrio, and Kristy Williams made key contributions to this report.

Why GAO Did This Study Since 1988, military departments have privatized utility systems—such as electricity, water, natural gas, and wastewater—on military installations. DOD awards privatized utility services contracts to companies who upgrade, maintain, and operate the systems. Members of Congress and stakeholders have expressed concerns over the length of time it takes to award these contracts. DOD has a goal of reducing the time frames. A House committee asked GAO to review DOD's utilities privatization. This report examines (1) the length of time to award contracts for privatized utility services, and (2) the extent to which DOD is demonstrating leading practices to collect and disseminate lessons learned. GAO reviewed data on all 21 new utility services contracts awarded from fiscal years 2016 through 2018; compared DOD's lessons learned activities with GAO's leading practices; and interviewed DOD and utility company officials. What GAO Found From fiscal years 2016 through 2018, Department of Defense (DOD) components awarded 21 new contracts for privatized utility services on military installations. The contracting process generally took an average of 4 years from solicitation to contract award. However, the entire pre-award contracting process could be longer, as GAO found that DOD does not maintain complete data on the time to conduct key steps in the acquisition planning phase (see table). GAO found that DOD does not maintain data on when military departments begin to consider privatization and when a complete inventory of the associated infrastructure, such as pipes and valves, is available to use in the solicitation. While no DOD regulation or policy that GAO reviewed requires the collection of data on the time to complete all pre-award activities, in 2014, Defense Logistics Agency Energy officials established milestones to plan and monitor key pre-award activities. GAO found that the length of time from receipt of requirements to contract award was reduced from an average of 61 months pre-2014 to an average of 35 months post-2014. The lessons learned efforts of DOD to shorten the time to award contracts have fully or partially demonstrated four of five leading practices. DOD's efforts include: collecting information through working groups and conferences; analyzing past privatization efforts to focus management oversight; validating changes by demonstrating new processes; storing lessons learned through revised guidance; and sharing lessons learned through working groups and training. However, as DOD does not collect consistent information on the total time to award utility services contracts, DOD is missing opportunities to use lessons learned to reduce the time. Further, DOD does not have a repository for archiving specific lessons learned from utilities privatization efforts. Rather, DOD officials note they consider lessons learned as they develop updated guidance, templates, and handbooks. Without a repository of specific lessons learned, such as conducting the privatization process, DOD is missing opportunities to collect and share lessons learned to assist stakeholders on the remaining 580 utility systems it considers available for privatization. What GAO Recommends GAO recommends that (1) DOD and the military departments collect information on the time to complete key steps when awarding these contracts, and (2) DOD develop a mechanism to store and archive lessons learned from across the department. DOD partially concurred with both recommendations, noting that it would be beneficial to expand the actions GAO had recommended. GAO agrees that such an expansion would be helpful in efforts to collect more data.

gao_GAO-19-565

gao_GAO-19-565_0

<1. Background> GDUFA and GDUFA II both provided supplemental resources to FDA by giving it the authority to collect user fees from the generic drug industry, in addition to its regular appropriations, in order to make improvements to the generic drug application review process. GDUFA was enacted in July 2012, in part, to provide funding for more generic drug application reviewers at FDA in order to handle an increase in the volume of application submissions and speed up reviews. GDUFA II was enacted in August 2017 to reauthorize the generic drug user fee program from fiscal year 2018 through fiscal year 2022. In return, FDA provided Commitment Letters to Congress that detailed its plans to implement program enhancements and meet certain performance measures related to the review of generic drug applications. For example, in its Commitment Letter for GDUFA II, FDA stated that, for applications in the first review cycle, it would review and act on at least 90 percent of them within specified timeframes 8 months for certain priority applications and 10 months for all other applications. FDA stated that it met this performance measure for fiscal year 2018. The Commitment Letter also indicated that one of the goals of GDUFA II is to minimize the number of review cycles for applications to attain approval. <1.1. Generic Drug Application Review Process> FDA s generic drug application review process includes a number of steps. The process begins when a generic drug application is submitted to FDA for review by the Office of Generic Drugs and the Office of Pharmaceutical Quality within FDA s Center for Drug Evaluation and Research. The Office of Generic Drugs is responsible for providing regulatory oversight and strategic direction for FDA s generic drug program to make safe, effective, and high-quality generic drugs available to the public. The Office of Generic Drugs Division of Filing Review determines whether the generic drug application is acceptable for review, meaning that the application is sufficiently complete for FDA to review the application, such as information about the amount of active ingredients present in the drug. If the generic drug application is not acceptable for review, FDA issues a Refuse to Receive letter to the applicant explaining what additional information is required before the application can be accepted for review. In response, the applicant can resubmit the generic drug application with additional information and officials within the Division of Filing Review will assess the information and determine if the resubmitted application is acceptable for review. Once the Division of Filing Review determines that a generic drug application is acceptable for review, the first review cycle begins, and FDA officials review the application across the following three review disciplines: Bioequivalence. Officials within the Office of Bioequivalence are responsible for examining whether the generic drug application is bioequivalent to the brand-name drug, meaning that the drug delivers the same amount of active ingredient in the same amount of time as the brand-name drug. Labeling. Officials within the Division of Labeling Review are responsible for ensuring that the proposed labeling language in the generic drug application, including the drug s prescribing information, matches the language found in the labeling of the corresponding brand-name drug. Pharmaceutical quality. Officials within the Office of Pharmaceutical Quality have responsibility for ensuring the quality of drug products and assessing all drug manufacturing facilities, including both domestic and foreign. Officials within this office assess the risk of toxic substances or bacterial content in the drug, among other things. All generic drug applications are reviewed by primary reviewers and secondary reviewers. Primary reviewers assess the application to ensure that the documentation meets regulatory requirements in their specific disciplines. For example, primary reviewers within the Office of Pharmaceutical Quality evaluate documentation related to the proposed drug manufacturing process to ensure that the process produces quality drugs consistently. Secondary reviewers ensure the quality and consistency of primary reviewers assessments and the clarity of communication to applicants. During the first review cycle, FDA communicates with applicants when issues arise during its review that may prevent the agency from approving the generic drug application. This communication is typically made through the issuance of information requests or discipline review letters: Information requests. Information requests are letters sent to applicants to request clarification or additional information that is needed or would be helpful for FDA to complete its review. These letters may be sent by any review discipline and can be sent at any point after the Office of Generic Drugs accepts the generic drug application for review. Discipline review letters. Discipline review letters are letters issued by each review discipline at about the mid-point of the review cycle to identify possible deficiencies. FDA officials said they aim to issue these letters no later than 6 months into the first review cycle. In response to these letters, applicants can submit additional information for FDA to consider before the end of the review cycle. After FDA s three review disciplines complete their review of an application and any additional information the applicant has submitted in response to information requests and discipline review letters, the agency issues an action letter that informs the applicant of whether the application is approved, marking the end of the first review cycle and the end of FDA s review if the application is approved. There are three types of action letters: Approval letter. Issued when the agency has concluded its review of a generic drug application and the applicant is authorized to commercially market the drug. Tentative approval letter. Issued when the agency has completed its review of an application and has concluded that the generic drug application is sufficient, but patents or other exclusivities prevent approval. A tentative approval letter does not allow the applicant to market the generic drug. Complete response letter. Issued at the completion of the review of an application where deficiencies remain at the end of the review cycle. The complete response letter describes any deficiencies that must be corrected in order for the application to be approved. For a generic drug application that receives a complete response letter, the applicant can amend the application and seek another full review, which begins the second or subsequent review cycles. During these cycles, FDA officials review changes made to generic drug applications in response to deficiencies that FDA identified. <2. FDA Approved 12 Percent of Generic Drug Applications in the First Review Cycle and Several Factors May Have Contributed to Whether Applications Were Approved> Our analysis of FDA data shows that 12 percent of the 2,030 generic drug applications that FDA reviewed in fiscal years 2015 through 2017 received approval in the first review cycle. See figure 1. We identified several factors, including certain characteristics of generic drug applications, that may have contributed to whether an application received approval in the first review cycle, including the sufficiency of the application, deficiencies in drug quality, the type of drug reviewed, and the application s priority status. Sufficiency of the application. We found that the sufficiency of the generic drug application, including the completeness of the application and the degree to which the applicants understood and fulfilled application requirements, affected its likelihood of receiving an approval in the first review cycle. According to FDA, one indication of the sufficiency of the generic drug application is whether FDA had previously refused to receive the application for review because it was not substantially complete upon its first submission. Our analysis of FDA data found that applications that had previously been refused were slightly less likely to be approved in the first review cycle compared with applications that had not previously been refused, and rates of approvals decreased for applications with two previously refused attempts. See table 1. According to stakeholders we interviewed, the sufficiency of a generic drug application may partially reflect the level of experience the applicant has in submitting applications, and we found some evidence to support this explanation. FDA managers and reviewers said that, in general, less experienced applicants are more likely to produce lower-quality generic drug applications compared to applicants with relatively more experience. Our analysis of FDA data found that applicants that submitted just one application during fiscal years 2015 through 2017 had a slightly lower rate of approval in the first review cycle (10 percent) compared to the rate across all applicants (12 percent). Additionally, in our review of 35 selected generic drug applications, we identified three applications that were from applicants that had no previously approved generic drug application submissions, an indication that they may have little or no experience with these applications. None of the three applications were approved in the first review cycle. One of these applications elicited reviewer comments that outlined basic application requirements, potentially reflecting the lack of experience of the applicant. Drug quality deficiencies. Our review of documentation from the first review cycle for 35 generic drug applications included 26 that were not approved in that cycle. Among those 26 applications, the most common deficiencies that remained at the end of the first cycle were related to the quality of the drug 356 out of 435 deficiencies. These deficiencies included issues related to the drug manufacturing facilities, which can affect the quality of the drug produced and the stability of the drug over time, among others. Officials from one large applicant told us that most of the comments they received from FDA reviewers are related to the quality of the drug. Three out of five applicants we interviewed also noted that the results from inspections of drug manufacturing facilities which FDA includes as a component of its review of the quality of the drug are a factor that may cause an application not to be approved in the first review cycle. Among the 26 applications we reviewed that were not approved, eight had an outstanding deficiency related to the manufacturing facility. Type of drug. We also found that the rate of approval in the first review cycle differed based on certain characteristics of the type of drug reviewed, including the route of administration, which may indicate the complexity of the drug. Complexity can also be influenced by other factors including, for example, the drug s active ingredient or formulation. FDA officials noted that some complex drugs including those that combine drug products with drug delivery devices, such as asthma inhalers are less likely to be approved in the first review cycle. Officials we interviewed from one large applicant which we identified based on the number of approved generic drug applications it had in fiscal year 2018 reported that their company had never submitted a generic drug application for a complex drug product that received approval in the first review cycle despite having significant experience with producing complex drugs. Officials we interviewed from another applicant said that very few of its dermatological products, which are considered complex, had received approval in the first review cycle. In our review of FDA data, we also found that applications for drugs with certain routes of administration the method by which the drug is taken, such as oral, topical, or intravenous had different rates of approval in the first review cycle. In particular, from fiscal years 2015 through 2017, FDA reviewed generic drug applications for 41 ophthalmic and 20 transdermal drugs types of drugs that FDA considers complex and none of these applications received approval in the first review cycle. In contrast, generic drug applications for topical drugs, which FDA also identifies as complex, had higher approval rates. Specifically, our analysis found that the rate of approvals in the first review cycle for generic drug applications for topical drugs was 25 percent more than double the rate for all applications included in our analysis. FDA officials stated that in recent years FDA released several product-specific guidances for topical drugs technical guidance intended to help applicants identify the most appropriate methodology for developing certain drugs and generating the evidence needed to gain approval. FDA officials told us these guidances may have contributed to the higher rates of approval in the first review cycle for topical drugs. See table 2. Generic drug application priority review designation. In addition, we found that a generic drug application s priority review status may affect the rate of approval in the first review cycle. FDA may grant priority review status to applications under several circumstances, including for the first generics of brand-name drugs and other designations, such as for drugs that could help address public health emergencies. Our analysis of FDA data found that the rates of approval in the first cycle were lower for applications for first generics than for applications with no priority designation 6 percent and 14 percent, respectively. One potential explanation for the relatively low rate of approval is that for a first generic, applicants have a financial incentive to be the first to submit an application to FDA. Officials from one trade association stated that applications for first generics may be of lower quality because the applicants are rushing to submit their applications. In other cases, priority designations were associated with higher first-cycle approval rates. First-cycle approval rates for applications with other types of priority designations were higher than for applications with no priority designation 18 percent for applications that were marked as priority for other reasons, such as drug shortages or public health emergencies. See table 3. <3. FDA Made Changes That Could Increase the Rates of Approval for Generic Drugs in the First Review Cycle, but Opportunities Exist to Enhance Its Efforts> <3.1. FDA Has Taken Steps to Enhance Communication with Applicants and Improve Reviewer Consistency to Increase the Rate of Generic Drug Approvals in the First Review Cycle> Our review of FDA guidance and regulations found that FDA has taken steps to enhance communication with applicants to increase the rate of generic drug application approvals in the first review cycle. Specifically, since the beginning of fiscal year 2013 in response to GDUFA, FDA increased communication with applicants prior to and during a generic drug application s first review cycle consistent with its goal of helping applicants prepare approvable applications. These changes have included the following: Additional product-specific guidance. FDA has continued to release new and revised product-specific guidance to support a generic drug application s approval within the first review cycle. Since GDUFA s implementation and at the time of our review, FDA told us that it issued 993 new and revised product-specific guidance documents that describe acceptable methodologies for developing generic drugs and generating evidence needed to support a generic drug application s approval. FDA officials indicated that product- specific guidance helps streamline both application development and review. Additional regulatory guidance. FDA has also issued regulatory guidance to communicate the agency s expectations for the content and format of generic drug applications, which can facilitate approval in the first review cycle. In addition, in 2018, FDA issued draft guidance that described common application deficiencies and sought to promote approval during the first review cycle by providing recommendations on avoiding these recurring deficiencies. Presentations to industry. In presentations to applicants and others, FDA officials have presented information about generic drug application reviews and deficiencies frequently identified in generic drug applications. FDA has posted some of these presentation materials, including several video recordings, publicly on its website to share the information with industry. Communication during the review cycle. FDA has changed its review process to encourage reviewers to communicate with applicants at about the mid-point of the review cycle. FDA reviewers now aim to issue discipline review letters at about the mid-point of the first review cycle, rather than waiting until the end of the review cycle to communicate deficiencies. According to FDA, these earlier communications are intended to provide applicants with an opportunity to address issues before the end of the first review cycle and facilitate more approvals during that cycle. Assistance with applications for complex drugs. FDA has taken steps to assist applicants developing generics of complex drugs, such as drugs with complex active ingredients, formulations, or routes of administration. Beginning in fiscal year 2018 when GDUFA II was implemented, applicants developing complex drugs may request meetings with FDA prior to submitting a generic drug application and at the mid-point of the review cycle. In addition, FDA officials told us that since fiscal year 2013 when GDUFA was implemented, the agency has released 378 product-specific guidance documents focused on complex drugs. While all five applicants we interviewed generally described FDA s efforts to increase communication as helpful, they offered opportunities for improvement. For example, four out of the five applicants said that product-specific guidance helps them understand exactly what the requirements are for product development, which can facilitate approval in the first review cycle. However, two of these applicants also said that FDA does not obtain sufficient input from the generic drug industry when developing product-specific guidance documents. To increase transparency, stakeholders said that FDA could solicit industry input to avoid proposing unrealistic guidance and one stakeholder suggested that FDA could create a workgroup to prevent unintended consequences following the implementation of new and revised guidance. However, FDA officials told us that draft guidance documents have a public comment period for stakeholders to provide comments on guidances before they are finalized. In December 2017, we similarly found that stakeholders indicated they would benefit from greater transparency in FDA s process for developing guidance. We recommended that FDA publicly announce the agency s plans for issuing new and revised product-specific guidance for nonbiological complex drugs within the next year. FDA agreed with this recommendation and published a website in April 2019 that provides information about upcoming product-specific guidance documents for complex generic drugs. In addition, all five applicants we interviewed said that FDA has improved communication with them, such as by increasing the frequency and timing of communications, and two applicants indicated that discipline review letters add predictability to the review process. (See app. I for more information on FDA s changes to the generic drug application review process to improve communication with applicants.) While all five applicants we interviewed generally agreed that the increased communications would help increase rates of first-cycle approval, they also suggested that additional flexibility to communicate with FDA informally mid-cycle, such as by phone, could further facilitate the review process by helping applicants respond to questions or get clarity on questions included in the information requests or discipline review letters. FDA officials told us that applicants currently can request teleconferences with FDA, such as after receiving a complete response letter; however, they also noted that applicants generally prefer email communications and such teleconferences are not frequently utilized. FDA has also taken steps to improve consistency among reviewers. These steps could facilitate more approvals in the first review cycle because receiving consistent comments from FDA reviewers typically makes it easier for applicants to respond more quickly, which according to some stakeholders can result in approval in the first review cycle. These changes include the following: Creating review templates. Officials from FDA s review disciplines have developed templates to guide reviewers through the generic drug application review process. According to FDA s Manual of Policies and Procedures, these templates are intended to increase reviewers efficiency and improve assessment consistency. Developing common phrases. FDA also issued internal guidance on common phrases that reviewers may use to communicate generic drug application deficiencies in their comments to applicants during the first review cycle. For example, officials from the Division of Labeling Review said they maintain a database of common phrases and train reviewers on how to explain deficiencies to applicants. Officials explained that the Division of Labeling Review is also working toward pre-populating some parts of the review template to increase efficiency and consistency in the review process. Understanding the generic drug industry. FDA has taken steps to increase reviewers and applicants common understanding of industry practices and FDA review standards, such as through visits to manufacturing facilities, to improve the quality and consistency of reviewers comments in the first review cycle. However, all five applicants we interviewed noticed inconsistency among reviewers. FDA officials and two applicants suggested that this may be because FDA reviewers have different professional backgrounds. One applicant noted that some reviewers benefit from visiting manufacturing facilities if they do not have prior experience in the generic drug industry. Officials from a trade association said that such steps improve applicants understanding of what FDA reviewers are looking for in generic drug applications and may enhance their ability to submit applications that are approvable in the first review cycle. <3.2. Opportunities Exist to Enhance FDA s Efforts to Increase the Rates of Approval for Generic Drugs in the First Review Cycle> While stakeholders stated that the changes FDA made to improve reviewer consistency were positive, they noted that inconsistency among reviewers still remained, and we also found inconsistencies among reviewers. In addition, while stakeholders we interviewed raised concerns that the timing of brand-name labeling changes could affect whether applications were approved in the first review cycle, FDA has not taken steps to assess the validity of these concerns. Inconsistency among FDA reviewers. While FDA has taken steps to improve consistency among generic drug application reviewers, stakeholders noted that inconsistencies persist, and these inconsistencies may influence whether an application is approved during the first review cycle. For example, most stakeholders we interviewed (three out of five trade associations and four out of five applicants) indicated that they were aware of examples when different FDA reviewers within the same review discipline provided substantively different assessments of similar generic drug applications, specifically by requesting additional information from applicants for some applications and not others. For example, one applicant cited an example of two similar topical drugs whose applications relied on the same data set. The reviewer for one application required additional data, while the reviewer for the other application did not. To improve consistency, four applicants we interviewed suggested that FDA improve its reviewer training and one suggested that FDA create a workgroup to examine and address inconsistencies among reviewers. Four of the five applicants we interviewed also reported variation in the consistency of reviewers comments, including a lack of clarity in the information required for the applicant to address the comments. For example, one applicant said that they have received comments where reviewers did not specify what further information was required, and added that comments that suggest specific resolutions are extremely helpful, which would be consistent with FDA s Manual of Policies and Procedures. This manual describes a standard process for FDA reviewers to use when assessing the completeness of generic drug applications, including clearly communicating with applicants about deficiencies that must be corrected for their applications to be approved in order to reduce the number of review cycles. According to the manual, primary reviewers are responsible for assessing whether applications meet the regulatory requirements for approval, while secondary reviewers are responsible for ensuring consistency among assessments and quality of communications to the applicant. Further, the manual advises primary and secondary reviewers to ensure that comments to applicants about deficiencies include similar content. The manual also indicates that comments should include the following four elements: (1) refer to a specific location within the generic drug application; (2) identify the omitted information or explain the problem with the information submitted; (3) explain the actions necessary to resolve the deficiency; and (4) explain why the information or revision is needed. Finally, FDA provides reviewers with plain language writing guidelines and other writing resources to support the development of clear messages for external communications. In our review of documentation from the first review cycle for 35 generic drug applications, we found variation in the clarity and specificity of some reviewer comments that may have influenced the outcome of the first review cycle. For example, some discipline review letters included clear descriptions of potential remedies for some deficiencies, while others did not clearly describe the deficiency or FDA s expectations for an approvable generic drug application. Of the 35 generic drug applications, we conducted a more detailed review of four applications from fiscal year 2018 two that received approval in the first review cycle and two that did not. In the two applications that were not approved in the first review cycle, we identified 32 instances in which the comments did not fully meet FDA s criteria. Two of the four applications we reviewed in more detail had similar numbers and types of deficiencies identified in the discipline review letters sent to the applicants mid-way through the first review cycle, such as quality deficiencies related to the drug substance and drug product, but the clarity and content of the comments included in the discipline review letters varied considerably. For one of the applications, the comments were written clearly and, consistent with FDA s Manual of Policies and Procedures, identified options for addressing the deficiencies. For the other application, the comments were less clear and did not clearly identify ways to address the deficiencies. The applicant of the generic drug application with clearly written comments resolved all of the deficiencies raised in their discipline review letter and the generic drug application was approved in the first review cycle. In contrast, the applicant of the other application did not resolve all deficiencies raised in their discipline review letter and was not approved in the first cycle. See Table 4 for more detail on these two examples. Inconsistency among reviewers could affect the rate of approvals in the first review cycle if comments provided to applicants differ in content or are not clearly communicated. For example, if some reviewers provide unclear comments, it could be more difficult for the applicant to address deficiencies in a timely manner, while applicants that received clear comments could potentially address deficiencies within the first review cycle. This could delay some generic drugs from entering the market if applicants require more time, including potentially additional FDA review cycles, to understand and respond to unclear comments. This has potential impacts on patient access to generic drugs and on applicants abilities to effectively manage their expectations for when their generic drug applications will be approved. FDA officials explained that although secondary reviewers are experienced, they do not consistently receive additional training to ensure clarity and consistency among primary reviewers. They noted that FDA offers training in clear writing for FDA employees but it is not required for reviewers. FDA managers noted that some inconsistency among reviewers may persist due to various factors such as tenure with the agency and different professional backgrounds or interpretations of the generic drug application information. They also said that standardizing reviewers writing is challenging since each reviewer might have his or her own writing style and scientific expertise. Two applicants and one trade association we interviewed also said that the length of reviewers tenure with the agency could impact the substance of their comments in information requests and discipline review letters and the likelihood of the applicant attaining approval in the first review cycle. For example, one trade association we interviewed said that inexperienced reviewers typically request information from applicants that a more experienced reviewer would already know, such as information about drug manufacturing facilities. Unknown effects of labeling changes. Three applicants we interviewed noted that they believe FDA could improve the rate of approvals during the first review cycle if they took steps to mitigate delays that stakeholders said result from brand-name drug labeling changes that occur mid-cycle. Because generic drug labels generally must match brand-name labels, most applicants we interviewed said that changes made by brand-name drug companies to the labeling of drugs during the review process can delay or prevent approval of generic drugs in the first review cycle because the applicant of the generic drug would likely need to update the label before it is approved. In addition, five of the 10 stakeholders we interviewed said they believe such labeling changes negatively impact the rate of first-cycle approvals, and three said they believe that brand-name companies may strategically time updates to a brand-name drug s labeling to occur right before the approval of a generic competitor in order to delay generic drug approvals. Although our review of 35 selected applications did not identify examples where labeling changes made during the first review cycle were the only factor that prevented approval, we identified two instances where labeling changes were among multiple factors that prevented approval. Specifically, we identified two applications for which the complete response letters noted recent changes in the brand-name drug s labeling as one of multiple factors that contributed to the generic drug application s failure to receive approval in the first review cycle. One of these applications had successfully addressed several labeling deficiencies during the first review cycle, but received a complete response letter that included new labeling deficiencies because of recent changes in the brand-name drug s labeling. Three applicants and one trade association identified labeling changes as a concern during our interviews. Two of these applicants and the trade association suspected updates are strategically timed to delay generic drug approvals. However, FDA does not know whether there is validity to these concerns because it has not conducted analysis that would enable it to assess their validity. FDA officials noted that they were aware of these types of concerns, but thought it would be difficult for brand-name drug companies to successfully time changes in their drugs labeling to affect applications under review, and that labeling changes for brand- name drugs must be justified, for example, to note an adverse reaction identified after approval. However, FDA officials also acknowledged that there may be an incentive for brand-name drug companies to change the label on a drug frequently to make it more difficult for a generic drug application to be approved. FDA officials stated that the Office of Generic Drugs does not assess how often brand-name companies change their labeling or track how often such labeling changes occur because such changes are reviewed by the Office of New Drugs. Further, while FDA officials noted that the two offices have coordinated on the review of some labeling changes, they stated that they do not coordinate on the timing of approval of brand- name drug label changes. This is inconsistent with federal internal control standards, which state that agencies should identify risks that affect their defined objectives and use quality information to achieve these objectives, including by identifying the information required to achieve the objectives and address related risks. In addition, FDA can approve a generic drug application even though changes have been made in the brand-name drug labeling that the applicant has not incorporated into its proposed labeling, provided the applicant meets certain criteria; however, FDA officials told us that applications rarely meet the required criteria. Conducting an assessment of the extent to which the timing of such changes affect the approval of generic drugs in the first cycle of review would provide FDA with the necessary information to respond to stakeholder concerns and take action, as appropriate, such as by coordinating with the Office of New Drugs on this issue. To the extent that brand-name companies labeling changes are creating unnecessary delays in generic drug approval, such delays may impede generic drug entry into the market, which would be inconsistent with FDA s stated goals of speeding up generic drug reviews. <4. Conclusions> The timely approval of safe generic drugs in FDA s first review cycle can provide substantial cost savings to patients and third-party payers. Since the enactment of GDUFA, FDA has taken steps to help applicants submit stronger generic drug applications and correct deficiencies within the first review cycle. However, according to FDA its most recent analysis found that the average generic drug application required three cycles of review before approval. Opportunities exist to enhance FDA s efforts to increase the rates of approval for generic drugs in the first review cycle, including improving the consistency and clarity of reviewer comments and assessing the effects of the timing of brand-name companies changes to labeling. Taking such steps could help FDA meet the agency s goals of minimizing the number of review cycles necessary for generic drug application approval and increasing the overall rate of approval, including within the first review cycle. Increasing the rate of approval in the first review cycle, while maintaining the efficacy and safety of generic drugs, can expand consumer access to relatively lower cost medications and has the potential to save patients and third-party payers billions of dollars. <5. Recommendations for Executive Action> We are making the following two recommendations to FDA. The Commissioner of FDA should take additional steps to address inconsistency in its written comments to generic drug applicants including the clarity of writing and the content of comments among reviewers, such as requiring additional training for reviewers. (Recommendation 1) The Commissioner of FDA should assess the extent to which the timing of brand-name drug companies drug labeling changes affect the approval of generic drug applications in the first review cycle, and take steps, as appropriate, to limit the effect of brand-name drug labeling changes on pending generic drug applications. (Recommendation 2) <6. Agency Comments> We provided a draft of this report to HHS for review and comment. In its written comments, which are reproduced in appendix II, HHS concurred with our recommendations. HHS stated that it will take steps to improve the clarity and content of primary reviewers comments by, for example, providing training on written communication. Additionally, HHS stated that it will take steps to assess examples in which a brand-name drug company labeling change impacted the timeline of a generic drug approval and assess what actions could address this issue. In addition, HHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the congressional addresses, the Secretary of Health and Human Services, 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 III. Appendix I: Changes to the Generic Drug Review Process to Improve Communications with Applicants The Food and Drug Administration (FDA) made several changes to its review process for generic drug applications in its implementation of the Generic Drug User Fee Amendments of 2017 (GDUFA II) that are intended to improve communications with applicants, such as drug companies, and included the following: Additional communication with applicants. In its GDUFA II Commitment Letter to Congress, 1. FDA committed to notify applicants of potential deficiencies in an application that could prevent approval in the first review cycle through information requests or discipline review letters by about the mid-point of the review cycle; and 2. FDA committed to continue to issue additional information requests or discipline review letters late in the review cycle as needed, and, in certain circumstances, to work beyond the review timeframe to issue an approval. Pre-submission facility correspondence. In its GDUFA II Commitment Letter to Congress, FDA committed to communicating with applicants of priority generic drug applications before the application is submitted. For priority generic drug applications, FDA accepts information about facilities associated with an application, such as manufacturing facilities, at least 2 months before the application is submitted. If FDA finds the pre-submission facility correspondence includes complete and accurate information, the application may receive a review timeline of 8 months, rather than 10. Figure 2 provides an overview of the timeline for the first review cycle for generic drug applications under the Generic Drug User Fee Amendments of 2012 (GDUFA) and the revised review process under GDUFA II. Appendix II: Comments from the Department of Health and Human Services Appendix III: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Gerardine Brennan (Assistant Director), Rebecca Rust Williamson (Analyst-in-Charge), Caroline Hale, and Elizabeth Leibinger made key contributions to this report. Also contributing were Kaitlin Farquharson, Cathy Hamann, Dan Lee, Laurie Pachter, and Vikki Porter.

Why GAO Did This Study Generic drugs—copies of brand-name drugs—lead to significant cost savings. Before a generic drug can be marketed, FDA must approve the generic drug application. According to FDA, applications go through an average of three cycles of review before being approved, which may take years. The FDA Reauthorization Act of 2017 included a provision for GAO to study issues regarding the approval of generic drug applications in the first review cycle. This report examines 1) the first review cycle approval rate of generic drug applications in recent years and factors that may have contributed to whether applications were approved; and 2) changes FDA has made to increase the first review cycle approval rate. GAO reviewed FDA data on all generic drug applications reviewed from fiscal years 2015 through 2017 and documentation from the first review cycle for a judgmental selection of 35 applications from fiscal years 2017 and 2018. GAO also interviewed a non-generalizable selection of stakeholders. Applications and stakeholders were chosen to ensure variation in experience with the approval process. What GAO Found GAO found that 12 percent of the 2,030 generic drug applications reviewed by the Food and Drug Administration (FDA) from fiscal years 2015 through 2017 were approved in the first review cycle. The first review cycle begins when FDA accepts a generic drug application for review and ends when FDA makes its first decision about whether the drug should be approved for marketing and sale. For applications that were not approved in that first cycle, the application must undergo one or more subsequent review cycles to obtain approval, delaying the generic drug's arrival to market. GAO identified several factors that may have contributed to whether a generic drug was approved during the first review cycle. For example, certain types of complex drugs were less likely to receive approval in the first review cycle, such as eye drops or other drugs administered through the eye. FDA has taken steps to increase the rate of generic drug approvals in the first review cycle. For example, FDA has increased communication with applicants and introduced templates for reviewers to improve the consistency and clarity of their comments. However, GAO's review of a judgmental selection of 35 applications found examples of variation in the clarity and content of FDA's comments to applicants. Such variation may have contributed to whether applicants could adequately address deficiencies within the first cycle, and therefore whether the applications were approved. In addition, stakeholders GAO interviewed expressed concern that changes to the brand-name drug's labeling mid-cycle could delay or prevent generic drugs' approval in the first review cycle, and some stakeholders said they believe that the labeling changes may be strategically timed to delay approvals. Although FDA officials noted that it would be difficult for brand-name companies to time labeling changes in this way, they said that the agency has not conducted analysis that would enable it to assess the validity of these concerns. Therefore, FDA lacks the information needed to respond to these concerns or address problems should they exist. What GAO Recommends GAO recommends that FDA 1) take additional steps to address inconsistency in its written comments to generic drug application sponsors and 2) assess the extent to which the timing of brand-name drug companies' drug labeling changes affects the approval of generic drugs and take steps, as appropriate, to limit the effect. HHS concurred with GAO's recommendations.

gao_GAO-19-411

gao_GAO-19-411_0

<1. Background> <1.1. Foster Care Placements> When children are removed from their homes, state or local child welfare agencies are typically responsible for coordinating their placement and provision of services. State or local child welfare agencies may also contract with private child welfare agencies to help them administer child welfare services. Child welfare agencies often place children in a foster home or in group care settings, depending on the child s needs. Children placed in foster families may live with unrelated foster parents, relatives, or fictive kin (e.g., close family friends who are not relatives). Group care settings also known as congregate care typically include group homes and child care facilities that provide 24-hour care and/or treatment for groups of children. For example, these settings may include child care institutions, residential treatment facilities, or maternity homes, according to HHS. Child welfare agencies may provide foster caregivers with a monthly payment (referred to as a foster care maintenance payment) to help cover the costs of a child s care, as determined by each state. Children generally remain in foster care until a permanent suitable living arrangement can be made, either by addressing the issues that led to the child s removal and returning the child to his or her family; or through adoption, guardianship, placement with a relative, or another planned permanent living arrangement. In some cases, the child reaches adulthood before leaving foster care, commonly referred to as aging out of foster care. Historically, aging out typically occurred at age 18, but some state-funded programs implemented prior to the enactment of the Fostering Connections Act in 2008 allowed youth to remain in care beyond their 18th birthday. <1.2. Federal Funding for Child Welfare Programs> Title IV-E of the Social Security Act authorizes federal funding to state child welfare agencies to help cover the costs of operating their foster care programs. ACF administers title IV-E and oversees states foster care programs for compliance with IV-E requirements. Title IV-E is the largest single federal source of funding for child welfare programs, comprising about 89 percent of federal child welfare appropriations in fiscal year 2017 (approximately $7 billion of nearly $7.9 billion), according to ACF. Under title IV-E, states can access funding for their foster care programs in a few ways. Title IV-E reimbursements: Title IV-E funds may be used to reimburse states for a portion of expenses to support the daily care and supervision of eligible youth in foster care (such as for food, clothing, and shelter). The eligibility requirements generally limit reimbursements under title IV-E to youth that were removed from homes with very low incomes, among other criteria. However, some states have received waivers from certain title IV-E funding requirements to carry out HHS-approved demonstration projects. According to HHS, under these waivers states receive a capped allocation of title IV-E funds for youth in foster care, and these funds are generally reserved for youth under age 18. Chafee Program funds: The Chafee Program provides funding to states, under title IV-E, for support services that are intended to assist eligible youth in the transition to adulthood. Chafee Program funds are allocated to each state based on the state s proportion of the nation s foster care caseload. Through the Chafee Program, states can offer services to youth who have experienced foster care at ages 14 or older, youth who are likely to age out of foster care, and certain older youth who have aged out or left the foster care system. States generally have flexibility in determining the goals, strategies, and other features of their Chafee programs, as long as states design and conduct their programs based on the key purposes outlined in the law. Chafee Program services may include help with education, employment, financial management, housing, and emotional support through mentoring. State and county child welfare agencies may contract with private entities to provide these services. Up to 30 percent of a state s Chafee Program allotment may also be used for room and board costs for certain eligible youth. According to HHS data, services provided under the Chafee Program may vary by state, including the extent to which states provide room and board financial assistance services. While title IV-E is the primary source of federal funding available to states for child welfare programs and services, states may also use other federal funds, such as title IV-B of the Social Security Act, Temporary Assistance for Needy Families (TANF) and Social Services Block Grant funds, as well as Medicaid. State child welfare agencies also generally combine state and local funds with federal funds to support their programs. According to a state survey funded by the Annie E. Casey Foundation and Casey Family Programs, in state fiscal year 2014, 43 percent of all child welfare expenditures were from federal sources, and 57 percent were from state and local funds. <1.3. Federal Option to Extend Care> Since the Fostering Connections Act was enacted in 2008, HHS has as of February 2018 approved 26 states and six federally recognized tribes to claim title IV-E funding to extend foster care to youth ages 18 to 21. According to ACF, most of these states (19 of 26) began offering federally funded extended care between 2010 and 2012, with one state beginning to provide extended care as recently as 2018. States have several different options for implementing their extended care programs. For example, in order to be eligible for extended care, title IV- E requires a youth to meet at least one of five employment or education conditions specified in the statute. States can choose to use all or some of these conditions to determine which youth are eligible for their extended care program (referred to in this report as eligibility criteria ). In addition, states can utilize supervised independent living settings for youth in extended foster care a placement setting not typically available for federal reimbursement for youth under age 18. (See table 1 and fig. 1). <1.4. Supervised Independent Living> The amendments made by the Fostering Connections Act permit states to use title IV-E funds to place eligible youth age 18 or older in supervised settings in which the youth live independently. According to a research brief sponsored by ACF, supervised independent living settings are unlike other foster care placement options (such as foster homes and group homes) because they are primarily intended for youth in extended care. States may place youth under age 18 in supervised independent living settings, but, as previously noted, they generally may not seek federal reimbursement for foster care maintenance payments for youth under 18 in such settings. According to ACF s program instructions for implementing the Fostering Connections Act, state child welfare agencies have the discretion to develop a range of supervised independent living settings which can be reasonably interpreted as consistent with the law, including whether such settings need to be licensed and any safety protocols that may be needed. These instructions state that child welfare agencies may determine that when paired with a supervising agency or supervising caseworker host homes, college dormitories, shared housing, semi- supervised apartments, or other housing arrangements meet the supervised setting requirement. Youth in such settings may not have onsite caregivers and often have increased responsibilities, such as paying bills, assuming leases, and working with a landlord, according to ACF documentation. However, youth may receive foster care services, such as financial support and case management, to help them become successful adults. Additionally, ACF encouraged child welfare agencies to continue to work with youth who are in supervised independent living settings to ensure that youth form permanent connections with caring adults. This could include exploring options for guardianship, adoption, or living with other caring adults, and helping youth work towards those outcomes. <2. Extended-Care States Reported Providing a Range of Supervised Independent Living Options and Some Allow Youth Under 18 to Live Independently> <2.1. Supervised Independent Living Arrangements in Extended-Care States Range from Group Settings with On-site Staff to Individual Apartments with Minimal Supervision> In response to our survey, all 26 extended-care states reported offering a variety of supervised independent living arrangements as a placement option for older youth in care, with most of the options falling largely in two broad categories transitional living programs and private residences in addition to a range of other types of supervised independent living settings (see fig. 2). Overall, across 21 of the 26 extended-care states for which we analyzed placement data, about 34 percent of youth in foster care who were ages 18 to 21 were placed in supervised independent living settings in state fiscal year 2017 (see appendix I for additional information). Twenty-three of the 26 extended-care states reported that they offer transitional living programs as a type of supervised independent living arrangement. Generally, officials said these programs provide youth with the opportunity to practice daily independence and may include on-site case management and high levels of support built into regular programming. Supports may include experiential learning activities to build independent living skills, such as grocery shopping and budgeting. Local officials in California told us that transitional living programs are a stepping stone to independence, and they encourage older youth to start in one of these programs before living on their own. In our discussion groups with youth in extended care, youth told us transitional living programs helped them gradually move towards more independence and learn how to pay bills on their own. Officials we spoke with in the five selected states California, Illinois, Maryland, New York, and Tennessee described transitional living programs that use single-site or scattered-site models, or both, ranging from a group of youth living in a single family home to youth living in apartments dispersed across a geographical area (see table 2). Local caseworkers may continue to check in with youth in both single-site and scattered-site transitional living programs, but private agencies operating these programs are typically responsible for providing more frequent case management and supervision, according to officials in the selected states (see text box). One youth in a scattered-site program in California told us that he meets with his county case worker every couple of months, but he meets with program staff on a weekly basis and sometimes several times a week. Examples of Single-Site and Scattered-Site Transitional Living Programs in Selected States Single-site program: Officials from a single-site, all-male program in Tennessee described it as a family-like environment. Youth in the program live in cottages and house managers live in private quarters attached to the cottages. Program participants have their own bedrooms, and share bathrooms and common areas such as the kitchen. Youth over age 18 do not require 24-hour supervision, but have 24-hour access and daily interaction with the house managers. Youth typically receive an allowance of $150 per month (reduced to $100 if they are employed) to purchase personal items such as hygiene products. Scattered-site program: Officials from a private agency in California explained that their agency holds master leases on one- and two-bedroom apartments across Los Angeles and Alameda counties for youth who have demonstrated their readiness for more independence. An education and employment specialist or youth advisor meets with youth living in these apartments once a week, but youth can access program staff via phone anytime and are encouraged to attend activities at the agency s main site. Youth receive a monthly stipend for personal expenses and their rent is paid by the program, but they are encouraged to work to manage additional living expenses. Those who stay in the program until they age out of foster care may remain in the apartment and take over the lease. Officials and representatives of private agencies we spoke with in four of the selected states said that they have transitional living programs specifically for certain populations that need specialized support. For example, Illinois officials described programs in their state that specialize in serving youth with mental illnesses, youth who are developmentally delayed, pregnant or parenting youth, youth who are dually involved with child welfare and justice systems, and youth with problematic sexual behaviors, such as sexual offenders. (See sidebar.) <2.1.1. Private Residences> State and local officials we spoke with in the selected states said that youth who are ready to practice living more independently, in many instances with no on-site supervision, may live in private residences. Youth in these settings may choose where they would like to live, in comparison to youth in transitional living programs whose options may be limited to the apartments and facilities offered by the programs. Officials said that youth may live in apartments or private homes that are integrated in the community, and they are often responsible for signing their own lease or rental agreement. According to officials in the selected states, the level of supervision provided to youth living in private residences varies, but is generally less than youth in transitional living programs. Officials we spoke with in all five selected states confirmed that, at a minimum, case workers are expected to have monthly, in-person contact with youth. These visits are typically to confirm if youth are still in their living arrangement, and to determine if youth are experiencing any challenges, such as limited access to resources in their community. However, officials said that some youth may receive more frequent case management and supervision, such as youth who have behavioral or mental health conditions. For example, officials at one private agency in Illinois told us their staff have weekly check-ins with youth who require legal assistance or have mental health needs. State and local officials in two states mentioned that in addition to monthly in-person contact, case workers typically have more frequent communication with youth via phone calls, texting, or video conferencing. If youth are located far away to attend college or pursue other opportunities, caseworkers may use these alternative modes of communication to maintain contact and provide support. For example, a case worker for a private agency in Illinois told us that she video chats with her client twice a week, and communicates via text messaging and email several times a week, to provide support for this college student living in a private residence while studying abroad. Generally, states vary in the types of settings they allow for private residences, according to our survey results. Among the 26 extended-care states, the most common types of settings states reported offering include living in a shared apartment or home with a friend or roommate (25) or living in a private apartment or home (24). Most states reported that they also allow supervised independent living arrangements where a young person lives in a foster family home (20) (see text box). Living Arrangements with Current or Former Foster Parents In response to our survey, most states reported that they allow youth in supervised independent living arrangements to live with a foster parent. Officials in two states mentioned that because these placements are considered supervised independent living settings, youth are eligible to receive a stipend directly from the child welfare agency for rent and living expenses. The youth and their foster parent(s) may establish a rental agreement so the youth can practice paying rent. In three states, officials also said that they provide foster families with information and resources to teach and demonstrate independent living skills, such as cooking and cleaning a home. State and local officials said this arrangement allows youth to remain connected to a supportive adult, while also learning to live independently. In our discussion groups with youth in extended care, one youth told us that living with a foster family can be a good choice when a youth has a good bond with the foster parents, and when the foster parents allow the youth to have more independence. Youth in private residences typically receive a stipend to pay for their rent and other costs, according to our survey results. States reported that stipend amounts ranged from $421.80 to $1,715 per month. However, states reported having different expectations for youths responsibilities in covering their living expenses. Officials in some states said they require youth to supplement their stipend with income from their employment to cover living expenses. Officials in other states said they may encourage youth to work because the stipend may not be enough to cover most of their housing and other costs. Officials in one county said that youth may receive up to $850 per month but that amount may be adjusted based on the income they earn while attending school. In another state, officials reported that youth are expected to pay at least $50 towards their rent and, depending on the young person s budget and financial obligations, the child welfare agency typically pays the difference directly to the landlord. One youth we spoke with in Illinois said that while working and going to school part-time, he built up his savings with help from the stipend that he received from the child welfare agency. <2.1.2. Other Supervised Independent Living Settings> States also reported allowing youth to live in a variety of other types of supervised independent living arrangements. According to our survey, other types of supervised independent living arrangements include college dorm rooms (22 states), Job Corps or employment training programs (21), single room occupancies (19), or mental health or substance use treatment facilities (15). Officials we spoke with said that they continue to provide case management and supervision to youth in these placements, and may also support youth with a stipend to assist with living expenses. Additionally, they said that when colleges go on break during the winter or summer, case workers work with youth to find a temporary placement if needed to ensure there is no lapse in housing. Temporary placements may include living with former foster parents, friends, or renting their own apartment. <2.2. States Reported Allowing Youth Under 18 to Live in Supervised Independent Living Arrangements in Certain Instances and Providing Additional Supports> Supervised independent living settings are primarily intended for youth age 18 and older in extended care; however, some states also reported allowing these arrangements for youth under 18. In response to our survey, 19 of 26 states reported allowing youth under age 18 to live in supervised independent living arrangements. State and local officials said that in instances when youth under 18 are placed in supervised independent living arrangements, they are generally placed in college dorms or transitional living programs. In one state we visited, a transitional living program official said that the program accepts youth as young as 15 years old in a very few instances. (See table 3.) Local officials and case workers said that they place youth under age 18 in supervised independent living settings on a case-by-case basis if their case worker determines that the young person is mature and capable enough to manage living with less supervision (see text box). In response to our survey, 17 states reported that when youth under age 18 are placed in supervised independent living settings, they generally receive additional supervision or supportive services compared to youth 18 and older. Two states reported that no additional supervision or supportive services are provided for youth under 18 in independent living arrangements beyond those provided to youth ages 18 to 21. Officials we spoke with in three of the five selected states provided examples of the additional supports they offer to younger youth in these settings. Officials at one private agency in Tennessee told us that if youth under 18 in their transitional living program are unable to ride the bus to high school, program staff will transport them to school. State officials in California said that generally, youth under 18 living in transitional living programs receive more hands-on support. Officials at one private agency in California said the supports provided to youth under 18 in their transitional living program include 24 hour access to on-site program staff and weekly meetings with their case manager. Officials in Maryland told us youth under 18 living on their own receive additional case management support to evaluate how the youth is adjusting to living on their own, and to provide additional guidance on budgeting and household management. While many states allow youth under age 18 to live in supervised independent living settings in certain circumstances, over half of all extended-care states (15 of 26) reported that the typical age that youth enter this placement type is 18. Officials in three of the selected states said that even when the state allows it, these arrangements are not often used for youth under 18. Additionally, officials we spoke with reported that highly independent settings, such as their own apartment, are typically reserved for youth age 18 or older. <3. States Reported Considering Youths Readiness for Supervised Independent Living, but Officials Noted that Housing Availability can Affect Placements> Most states we surveyed reported considering youths readiness, such as life skills, education, and employment status, when placing youth in supervised independent living arrangements. Officials we spoke with in four of the five selected states similarly noted that supervised independent living is most appropriate for youth who have demonstrated their readiness. These officials also noted that they consider the availability of housing options, including for youth with complex needs, which can affect youths placement in supervised independent living arrangements. Life skills. In response to our survey, most states reported considering youths life skills when placing youth in supervised independent living. Specifically, 19 states reported requiring or recommending that youth participate in an assessment to gauge their mastery of certain life skills, such as the ability to budget finances or schedule medical appointments. For example, state officials in California said they developed an assessment form with questions such as whether youth understand the risks associated with using credit cards, can shop for food and prepare meals, and know how to do laundry. Caseworkers in one California county said that they consider youths ability to manage their living costs and their rental responsibilities prior to approving a supervised independent living placement. Education and employment. Most states also reported considering education and employment when placing youth in supervised independent living. Specifically, 16 states reported requiring or recommending that youth have a high school diploma or General Education Development certificate, or be enrolled in secondary or post- secondary school, in order to be placed in supervised independent living. Additionally, 17 states reported requiring or recommending that youth be employed or enrolled in a job training program. For example, in Illinois, youth who want to live in private residences must have a job for at least 45 days prior to being referred for placement, and continue working for at least 15 hours per week while in the private residence. Five states reported considering other indicators of readiness beyond life skills, education, and employment when placing youth in supervised independent living settings. For example, the District of Columbia reported requiring that youth (1) have no pending or unresolved criminal proceedings at the time they apply for supervised independent living, and (2) have a checking account with a minimum balance of $100 and actively participate in the child welfare agency s financial literacy program. Availability of housing options, including for youth with complex needs. State and local officials in two of the five selected states said that they may place youth in private residences as a default or short-term option when no other living arrangements are available for youth age 18 or older. For example, officials in Tennessee said that transitional living programs and other housing options for youth outside of metropolitan areas are more limited. To ensure that youth in these areas do not experience homelessness, the officials said they may rely on other living arrangements, such as providing youth with stipends to live in private residences. Additionally, officials in New York and California said in certain localities, there may be constraints offering certain supervised independent living settings due to a lack of affordable housing. For example, officials in one San Francisco area county said some youth who want to live independently choose to move to a different part of the state, or even out of state, because their stipend for a private residence is insufficient to afford an apartment there. Officials in all selected states also said that there are shortages of foster parents willing to provide care for youth ages 18 to 21, which can generally affect their options for living arrangements. State and local officials from all five selected states also cited challenges finding housing options that are equipped to serve certain subpopulations of youth with complex needs, such as youth with acute mental health needs, youth that are also involved in the juvenile justice system, and pregnant and parenting youth. For example, local and private agency officials said state child welfare agencies may require parenting youth in supervised independent living settings to be in larger apartments, which may be too costly to afford. In addition, officials in four selected states said private agencies may be less likely to accept youth with acute mental health conditions or youth involved in the juvenile justice system if the agencies do not have the resources to address their needs. In addition to these considerations, officials we spoke with in all five selected states and other stakeholders said they consider the importance of giving youth in extended care greater involvement in decision making as they become adults. Local officials in California said they believe in allowing youth to take risks and experience the challenges of living independently while they have support from the child welfare system. Similarly, local officials in Tennessee said that giving youth choices in their living arrangements and considering their needs and goals is important for keeping them engaged in extended care. <4. Most States Reported Using Title IV-E Funding for Supervised Independent Living Arrangements but Several had Low Title IV-E Eligibility Rates for Youth in Extended Care> Most (24 of 26) extended-care states we surveyed reported using title IV- E funds to support youth in supervised independent living arrangements. Most (19 of 26) states also reported using Chafee Program funds, which primarily support independent living services, to fund supervised independent living arrangements. For example, state officials in Tennessee said that in certain situations when youth need to secure an apartment quickly, officials may use Chafee Program funds to help with the deposit. Officials in Illinois told us that they also use some Chafee Program funds for room and board, particularly for youth who are not title IV-E eligible. In addition to title IV-E and Chafee Program funds, most states reported using a combination of sources, including other federal funds such as those available under title IV-B of the Social Security Act, as well as state and local funds, to pay for supervised independent living arrangements. All states reported using state funds for supervised independent living (see fig. 3). Although most states reported using title IV-E funds to support supervised independent arrangements, in several states, few youth in extended care (regardless of their living arrangement) were eligible for title IV-E funding. In 14 of the 17 extended-care states for which we calculated eligibility rates, we found that the majority of youth ages 18 to 21 in care were not eligible for title IV-E reimbursement in state fiscal year 2017, meaning that the state was responsible for most or all of the cost of their care. We found that six of the states had title IV-E eligibility rates of 30 percent or lower. Two states, Virginia and Hawaii, had eligibility rates of over 70 percent (see fig. 4). State officials we spoke with in three of the five selected states said that ineligibility frequently stems from family income exceeding the income limit for title IV-E funding. Specifically, title IV-E is limited to youth removed from homes that would have qualified for cash assistance under the Aid to Families with Dependent Children (AFDC) program as of July 16, 1996. To receive title IV-E funding, youth must have met eligibility requirements at the time they were initially removed from their home, or at the time of their voluntary placement agreement. ACF has reported that fewer families meet the AFDC income standards over time, thereby reducing the number of all youth who are eligible for title IV-E funding, regardless of their age. In 2018, we reported on declining title IV-E eligibility rates for the entire population of youth in foster care. Officials we spoke with in Illinois and Tennessee said they reconsider a youth s title IV-E eligibility once the youth turns 18, using the youth s income at that point in time. Officials from these two states told us they close the original foster care case when a young person turns 18 and then reopen the case when the young person re-enters extended care. Using this approach, officials said they can base the title IV-E eligibility determination on the youth s income at the time of re-entry into the foster care system, rather than the income of the home from which the youth was removed upon initially entering foster care. Illinois officials said this process helped increase the eligibility of their extended-care population by more than 30 percent since 2012. Officials we spoke with in the remaining three selected states said they do not use this approach. ACF officials said that states can choose to close and re-open cases for youth in extended care, which would allow new eligibility determinations based on a youth s income. However, ACF officials said they do not monitor states choices in this area, or how states choices affect their title IV-E eligibility rate. Officials said they focus on helping states identify options and provide examples in ACF program instructions so states can determine what works best with their own policies and procedures. Four states (Arkansas, Indiana, Maryland, and Massachusetts) reported in our survey not claiming title IV-E reimbursements for any youth in extended care in state fiscal year 2017. Officials in two states, Indiana and Maryland, reported not claiming title IV-E funds for youth in extended care at least in part because they use a title IV-E waiver. However, according to ACF, states can claim title IV-E reimbursements for youth over 18 in addition to their waiver funds, so these two states may be able to claim additional title IV-E funds for their extended care population. State officials in Arkansas told us they have not yet established the proper procedures, internal controls, and monitoring mechanisms to allow them to claim title IV-E funds for youth in extended care. Officials said they do not have systems to track when youth may have lost their jobs or dropped out of school, which could affect the youth s eligibility for extended care. <5. Selected States Reported Offering a Range of Training and Other Supports to Prepare Youth in Extended Care to Live Independently> <5.1. Youth in Extended Care May Receive Targeted Assistance in Selected States, As Well As Training and Other Supports Offered to All Older Youth in Care> To help youth develop independent living skills and successfully transition out of care, state and local officials in four of the five selected states reported offering targeted training and support for youth ages 18 to 21. For example: Officials in one Maryland county said they offer youth nearing age 21 a 3-week intensive training focused on employment and housing called Keys to Success. According to officials, Keys to Success offers experiential learning through cooking demonstrations, budgeting and financial literacy training, group trips to stores to look at furniture or interview-appropriate clothing, and housing fairs. (See fig. 5.) Officials from Youth Villages, a national nonprofit organization, said they offer the organization s intensive YVLifeSet program to youth in extended care in Tennessee. The program generally lasts six to nine months and pairs youth with a specialist to meet with weekly to help them achieve their goals for independent adulthood. For example, to help youth maintain employment, officials said specialists can help youth build skills such as how to handle conflict with supervisors or coworkers, provide customer service, and understand job expectations, among others. In Illinois, the state s Countdown to 21 program is intended to encourage youth to plan for long-term education and vocational goals, and promote their financial stability through financial literacy training. All youth, at age 19, are referred to the financial literacy training, which covers topics such as credit and investing, and officials said most youth complete the training prior to exiting extended care. Officials in one California county said they offer youth ages 18 to 21 an annual public transportation pass through the Youth on the Move program, to ensure they can get to work or school. According to ACF, some extended care states also have a specialized case management system for youth over 18. For example, officials from one county in Maryland told us that all youth in foster care are automatically enrolled in a supervised independent living case management track when they turn 18. This case management system is intended to identify a youth s areas of need and design a plan to prepare them for living independently, regardless of their current living arrangement. Youth in extended care can also participate in independent living services that are offered more broadly to all older youth in foster care. Officials in all five selected states reported offering services that support youth in extended care in their housing, education, financial literacy, and employment goals, as well as offering health education, mentoring, and training on daily living skills (e.g., grocery shopping and budgeting). Examples of types of services the selected states reported offering to all older youth include: Housing. Officials from Youth Villages described how their organization assists youth in Tennessee to learn to find and maintain stable housing. For example, Youth Villages specialists work with youth to search for affordable housing options, develop a housing budget, complete applications, and address background check issues. Specialists also help youth build and maintain relationships with roommates and landlords. Education. County officials in New York described how a local community college helps youth complete financial aid forms, and conducts college day simulations and resume-building workshops. Financial literacy. County officials in Maryland told us they offer classroom instruction on financial literacy which includes how to understand financial aid, good banking practices, and how to asses loans and grants. Employment. In California, county officials told us about several programs they offer to help youth meet their employment goals, such as a youth worker program in which 16- to 21-year-olds are hired to rotate through different county departments for 18 months. Health. County officials in Maryland told us they offer yoga classes and other stress reduction techniques, as well as outings to local clinics for youth to learn about family planning resources. Mentoring. County officials in California told us they host weekly social events to establish community connections between youth in care, and youth have regular meetings with supportive adults focused on building connections with family and friends. Daily living. Officials at a private agency in Illinois told us the youth in their housing programs have a set schedule to participate in different life skills activities, such as cooking, doing laundry, and other chores. Although officials in all five selected states said they offer a variety of training and supports to help youth in extended care develop independent living skills, officials in these states also said that youth may experience challenges using these skills. For example, officials said youth in private residences may have difficulty covering their living expenses, which can lead to evictions. A New York county official said some youth living on their own may struggle with the lack of structure and the amount of independence in making their own decisions and setting their schedule. For these youth, officials said the child welfare agency will increase the level of case management, and offer additional support or services. <5.2. Selected States Reported Directing Youth in Extended Care to Services Based on Their Needs and Encouraging Participation with Financial Incentives> To best support the development of independent living skills in youth in extended care, officials we spoke with in all five selected states said they use assessments such as the Casey Life Skills assessment, transition planning, or regular check-ins to determine youth goals, direct youth to services to meet their needs, and to measure their progress. A county official in New York described how private child welfare agencies use the Casey Life Skills assessment every 6 months for youth in care to target services to areas in which the youth needs to build skills. Through its Ready by 21 program, Maryland has yearly independent living benchmarks for youth, starting at age 14. Officials we spoke with said that caseworkers can use these benchmarks to assess a youth s progress towards living independently, create an individual service plan based on their progress, and direct youth to additional resources as needed (see fig. 6). In addition, title IV-E requires that caseworkers assist youth with developing a transition planning document. According to state and local officials, youth periodically meet with their caseworkers to discuss their progress on their goals, and caseworkers may provide additional guidance and support as needed during these meetings. For example, a caseworker in Tennessee described providing youth funds for driver s education classes and licenses, prom expenses, and extracurricular activities, based on conversations with youth about their needs. Officials we spoke with in all five states also discussed providing financial incentives to encourage youth to participate in independent living services. For example, according to officials in Illinois, if youth complete the financial literacy course offered by the state child welfare agency, they receive $1,200 when they exit care. County officials in Maryland described participating in the Jim Casey Opportunity Passport program. In this program, officials said, youth who complete financial literacy training are eligible for a matched savings program of up to $3,000 to purchase an asset, such as a car. In our discussion groups with youth in extended care, youth told us that they are responsible for taking the initiative to participate in services, but financial incentives are helpful. Youth told us that as a result of these incentives, as well as other supportive savings programs, some are able to exit care with substantial savings. <6. Agency Comments> We provided a draft of this report to HHS for review and comment. In response, HHS provided technical comments, which we incorporated as appropriate, but did not provide general comments on the draft report. As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution until 30 days from its issue date. At that time, we will send copies of this report to interested congressional committees and to the Department of Health and Human Services. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Youth in Extended Foster Care by Placement Type Figure 7 below presents the total number and percentage of youth in extended care by living arrangement (referred to as placement type) during states fiscal year 2017. Table 4 and Figure 8 present the number and percentage of youth in extended care by state and placement type during each state s fiscal year 2017, respectively. Placement types include foster family homes with relatives or non-relatives, group homes or institutions, supervised independent living arrangements, and other types of arrangements. Figure 7, Table 4, and Figure 8 present information for 21 extended-care states. We excluded five of the 26 extended-care states we surveyed because they reported point in time data that did not reflect their entire state fiscal year 2017, or they reported data that were not reliable for the purposes of our analysis. To develop Figure 7, Table 4, and Figure 8, we assessed the information we collected in our survey of extended-care states on youth ages 18 to 21 for whom the state child welfare agency had responsibility for placement, care, or supervision during states fiscal year 2017. We administered the survey to state child welfare agencies in the 26 states approved by the Department of Health and Human Services (HHS) to offer federally funded extended care as of February 2018. The survey was conducted between August and October 2018 and we obtained a 100 percent response rate. Specifically, we asked states to provide data on the number of these youth in care by placement type. In addition, we asked states to provide data on the number of youth under age 18 that were placed in supervised independent living or other independent living arrangements. To ensure the quality and reliability of the survey, we pretested the questionnaire with three extended-care states to check (1) the clarity and flow of the questions, (2) the appropriateness of the terminology used, (3) if the information could be easily obtained and whether there were concerns about the reliability of data that would be collected, and (4) if the survey was comprehensive and unbiased. We revised the questionnaire based on the pretests. We reviewed responses to assess if they were consistent and contained all relevant information, and followed up as necessary to determine that states responses were complete, reasonable, and sufficiently reliable for the purposes of this report; we excluded data where we had concerns about their reliability. Appendix II: GAO Contact and Staff Acknowledgments <7. GAO Contact> <8. Staff Acknowledgments> In addition to the contact named above, Sara Schibanoff Kelly (Assistant Director), Aimee Elivert (Analyst-in-Charge), Ada Nwadugbo, and Alexandra Squitieri made key contributions to this report. Also contributing to this report were Lucas Alvarez, Sarah Cornetto, Erik Gartland, Jean McSween, Mimi Nguyen, Jessica Orr, Jerry Sandau, and Almeta Spencer. Related GAO Products Foster Care: Additional Actions Could Help HHS Better Support States Use of Private Providers to Recruit and Retain Foster Families. GAO-18-376. Washington, D.C.: May 30, 2018. Foster Care: Most Tribes Do Not Anticipate Challenges with Case Goal Changes but HHS Could Further Promote Guardianship Assistance. GAO-16-625. Washington, D.C.: August 8, 2016. Higher Education: Actions Needed to Improve Financial Access to Federal Financial Assistance for Homeless and Foster Youth. GAO-16-343. Washington, D.C.: May 19, 2016. Foster Care: HHS Could Do More to Support States Efforts to Keep Children in Family-Based Care. GAO-16-85. Washington, D.C.: October 9, 2015. Foster Care: HHS Needs to Improve Oversight of Fostering Connections Act Implementation. GAO-14-347. Washington, D.C.: May 29, 2014. Child Welfare: States Use Flexible Funds, but Struggle to Meet Service Needs. GAO-13-170. Washington, D.C.: January 30, 2013. Foster Youth: HHS Actions Could Improve Coordination of Services and Monitoring of States Independent Living Programs. GAO-05-25. Washington, D.C.: November 18, 2004.

Why GAO Did This Study Youth who leave the foster care system at age 18 are often ill-prepared to live on their own and may face challenges as they transition to adulthood, such as difficulties finding stable housing. The Fostering Connections to Success and Increasing Adoptions Act of 2008 allowed states to receive federal reimbursement through title IV-E of the Social Security Act for a portion of the cost of extending care to certain eligible youth up to age 21. The Act also allows youth ages 18 up to 21 to live in a supervised setting in which the individual is living independently. One such setting may be an apartment, with monthly check-ins with a case worker (referred to as supervised independent living arrangements). GAO was asked to review supervised independent living arrangements and services for older youth. Among other things, this report examines (1) the types of supervised independent living arrangements available; (2) factors states reported considering when placing youth in these living arrangements; and (3) how selected states prepare youth to live independently. GAO surveyed state child welfare agencies in the 26 states approved by the Department of Health and Human Services (HHS) to receive federal funding to support their extended foster care programs; interviewed state and local child welfare officials and stakeholders in five states selected for factors such as variation in child welfare administration systems; reviewed relevant federal laws, regulations, and guidance; and interviewed HHS officials. What GAO Found The 26 states that have approval to receive federal funding to support their extended foster care programs for youth ages 18 up to 21 reported providing a range of supervised independent living arrangements. These arrangements include transitional living programs, private residences, and other settings (see figure). Officials we spoke with in five selected states said transitional living programs typically involve private child welfare agencies that lease apartments or facilities for youth, either at a single site or scattered across a geographic area, and offer on-site case management and supports to help youth build independent living skills. For private residences, youth may choose where to live, such as a private or shared apartment. In these cases, youth are typically responsible for their own lease, and may receive minimal supervision compared to youth in transitional living programs. For other settings, states reported options such as college dorms and residential employment training programs. Nineteen states also reported allowing youth under 18 to live in supervised independent living settings in certain instances, such as when they are pregnant, parents, or attending college, although such placements are generally not eligible for federal funding. Factors that most states reported considering when placing youth in supervised independent living arrangements include the youth's life skills—for example, their ability to budget finances and schedule medical appointments—as well as their education and employment status. Officials in selected states also said they consider the availability of housing, which may be limited in certain localities due to a lack of affordable housing options or other factors, and the options available to youth with complex needs, such as those who are pregnant and parents. Officials in four selected states said they help prepare youth in extended foster care to live independently by providing targeted trainings and other supports, such as financial literacy training. In all five selected states, youth can also learn independent living skills through services offered more broadly to all older youth in foster care, officials said, including assistance with housing, education, employment, and daily living skills, such as grocery shopping and budgeting.

gao_GAO-20-120

gao_GAO-20-120_0

<1. Background> In addition to retirement benefits to older individuals and their families, SSA administers the nation s largest disability benefit program, the Disability Insurance (DI) program. DI generally pays benefits to individuals if they are unable to work due to qualifying impairments that are expected to last at least 1 year or result in death. In fiscal year 2018, SSA paid DI benefits to more than 10 million beneficiaries each month for a total of about $144 billion that year. In addition to monthly financial benefits, which averaged about $1,234 per disabled worker in 2018, those eligible for DI also gain access to Medicare after a 2-year waiting period, which can help pay for their medical costs, including prescription opioids. Disabled workers claiming DI benefits must meet work and other requirements to be considered eligible for DI. First, they must have worked for a specified amount of time covered by Social Security as well as worked within a specified timeframe before becoming disabled, based on their age. If these work requirements are met, SSA will assess a number of medical and vocational requirements, including whether the claimant earned more than a set monthly amount, the severity of any impairments they have, and whether they are able to continue working in a similar or other capacity given their age, education, and prior work history (see fig. 1). DI claimants may also apply concurrently for SSA s Supplemental Security Income (SSI) program, which provides income to individuals who are aged, blind, or disabled with limited income and resources. Such claimants may be deemed eligible for both programs if they meet certain income and resource requirements in addition to those for DI. Under SSI, they may receive additional financial benefits as well as access to Medicaid. Several different program staff are involved in processing DI claims. First, staff in SSA field offices receive applications and determine whether claimants meet nonmedical eligibility requirements, such as having a sufficient work history. Claims for those who meet these requirements are then forwarded to state government Disability Determination Services (DDS) offices, where DDS staff review the claimant s eligibility based on the medical and vocational requirements outlined in figure 1 above. Specifically, DDS examiners assemble any medical and vocational information for the claim. This can involve contacting a claimant s treatment providers, and third parties such as family members, friends, and employers, and referring the claimant for consultative exams, such as with physicians or psychologists if recent treatment records are unavailable. DDS examiners then confer with DDS medical consultants, such as in-house or contracted physicians and psychologists, to determine whether the claimant meets the law s requirements for having a disability. DDS examiners use all of this information to decide whether claimants are eligible for DI. Claimants who are dissatisfied with the initial DDS decision have several opportunities to appeal. First, they generally may request a reconsideration of the claim, which is conducted by a DDS examiner who was not involved in the original decision. Next, they may request a hearing before an SSA administrative law judge, who may collect new evidence and ask other witnesses, such as medical and vocational experts, to testify at the hearing. If their claim is denied at this hearings level, claimants may request that it be reviewed by the Appeals Council, which is comprised of SSA administrative appeals judges and appeals officers. Beyond the Appeals Council, the claimant may appeal to a federal district court. Staff at each level of the process must document their decision in a claimant s case file, in accordance with the agency s policies. For example, staff are generally required to document the medical evidence they reviewed, any assessments regarding the claimant s severity of impairments and vocational abilities, and the rationale for their decisions. For allowed DI claims, federal law requires beneficiaries cases to be periodically reviewed within specified timeframes to ensure the beneficiary continues to meet DI requirements. DDS examiners conduct such reviews, called continuing disability reviews, conferring with medical consultants and making a decision regarding a beneficiary s disability in comparison to the evidence from when the claim was allowed to determine if medical improvement has occurred. According to SSA, benefits typically continue unless evidence exists that a beneficiary s impairment has medically improved and that they are able to return to work. Musculoskeletal conditions, which are pain-related, make up the largest proportion of impairments allowed by SSA for DI benefits. Specifically, these conditions, such as back and joint impairments, made up nearly 33 percent of impairments for disabled workers in 2018. Treatments for pain-related symptoms can include prescription opioids. <2. Opioid Prescriptions and DI Claims Have Declined in Recent Years; Our Analysis Shows a Correlation between Them> <2.1. Opioid Prescriptions and DI Claims Have Declined in Recent Years, but Few Studies or Data Sources Provide Information on the Relationship between Them> Nationwide data show that trends in the numbers of opioid prescriptions and DI claims have followed a similar pattern, with both peaking between 2010 and 2014 and then declining. From 2006 through 2017, total opioid prescriptions peaked at about 255 million prescriptions in 2012, and then decreased in each of the following years (see fig. 2). Similarly, DI claims peaked at a maximum of about 1.1 million claims in 2014 and have steadily declined since (see fig. 3). Claims in which individuals applied concurrently for DI and the SSI program (i.e., DI/SSI concurrent claims) peaked a little earlier at about 1.3 million claims in 2010 before also steadily declining. While trends in opioid prescriptions and DI claims have moved in the same general direction over time, few studies and data sources provide information on the relationship between these trends. For example, we identified two studies, both funded by SSA, that examined the relationship between prescription opioids and disability. One preliminary study in 2017 found a positive correlation between prescription opioids and DI claims, but noted that this correlation was not statistically significant in every model. Researchers for this study noted that additional data and analysis are needed to refine the results. A second study in 2018 did not identify a direct relationship between opioid misuse and disability, but found that they may have an indirect relationship because of other factors such as having poor health, which may lead to unemployment due to disability. Other studies have examined the relationship between prescription opioids and employment, but not DI claims specifically. One such study noted that, based on available data, it is difficult to separate the effects of prescription opioid use and disability on employment outcomes. The study noted further that disentangling the relationship between prescription opioid use and disability is an area in need of additional work. In addition to funding research, SSA collects some administrative data on substance use among DI claimants, including use of prescription opioids. However, these data have limitations for analyzing prescription opioid use. Specifically, SSA collects administrative data on the medications claimants report using when filing their claim, which may include prescription opioids. However, these data may be incomplete because claimants may not report all substances they use. Further, researchers working on a study funded by SSA said analyzing these data is challenging because many claimants manually enter the names of their medications into an optional free-text field on their electronic applications rather than selecting from a dropdown menu, and that these entries often include misspellings or alternative names. SSA also collects administrative data on whether its staff evaluated a substance use disorder while processing a DI claim. However, SSA headquarters officials told us that staff are not required to record this information in the administrative data unless substance use disorders are the basis for a denial. Further, these data only indicate whether a substance use disorder involved alcohol or other drugs. They do not include additional details on the types of drugs involved (e.g., opioids versus methamphetamines). According to SSA headquarters officials, these details are not necessary for evaluating the claim or managing the process for DI eligibility decisions. <2.2. Our County-Level Analysis Shows Wide Variation in Rates of Opioid Prescriptions and DI Claims, and Differences by Geographic Region> Given the limitations with the claimant-level data described above, we analyzed county-level data for 2006 through 2017 and found that rates of opioid prescriptions and DI claims varied widely across counties. Specifically, the rate of opioid prescriptions ranged from nearly 0 to 396 opioid prescriptions per 100 people per year across all counties in 2017. Likewise, the rate of DI claims ranged from nearly 0 to 16.4 DI claims per 1,000 people. Most counties, however, were clustered around the median of 65 opioid prescriptions per 100 people and 3.7 DI claims per 1,000 people (see fig. 4). In examining counties with the highest rates of opioid prescriptions and DI claims (i.e., counties in the top third of the distributions for each rate), we found that those with the highest rates of both were generally concentrated in the Southeast (see fig. 5). Specifically, almost 30 percent of counties in the Southeast were among the highest for rates of both in 2017. In comparison, many counties in the West were among the highest for rates of opioid prescriptions, but not for DI claims. Conversely, many counties in the Northeast were among the highest for rates of DI claims, but not for opioid prescriptions. We also observed that these geographic differences were generally consistent over a 10-year period we analyzed. <2.3. Rates of Opioid Prescriptions and DI Claims Are Correlated, Even After Accounting for Economic, Demographic, and Other Factors> Our analysis shows a positive correlation between rates of opioid prescriptions and DI claims, as well as correlations between these rates and other factors (see fig. 6). Specifically, we conducted regression analyses to examine the relationship between rates of opioid prescriptions and DI claims at the county level from 2010 through 2017, taking into account economic, demographic, and other factors. However, we were unable to determine whether there is a causal relationship between rates of prescription opioids and DI claims or other factors, given readily available data. Further, given the small numbers of DI claims in most counties, we would not expect differences in the rate of DI claims to fully explain differences in the rate of opioid prescriptions. Correlation between opioid prescriptions and DI claims. We found that rates of opioid prescriptions and DI claims were positively correlated before and after accounting for other factors. Specifically, counties with higher rates of opioid prescriptions tended to have higher rates of DI claims and vice versa from 2010 through 2017. We would expect this correlation, given that many DI claimants experience pain, and prescription opioids are intended to help manage pain. Correlations between opioid prescriptions and other factors. Our analysis showed that rates of opioid prescriptions were correlated with poverty rates, population size, and access to health insurance. In particular, counties with higher rates of opioid prescriptions tended to have higher poverty, be less urban and with small- to mid-size populations, and have more people with health insurance from 2010 through 2017. Correlations between DI claims and other factors. Our analysis showed that rates of DI claims were also correlated with poverty rates, as well as unemployment, age, and race. In particular, counties with higher rates of DI claims tended to have higher unemployment and poverty from 2010 through 2017. Those with higher rates of DI claims also tended to have higher percentages of older adult and white populations. <3. SSA Has Policies to Evaluate Potential Prescription Opioid Misuse, but Staff Faced Challenges Understanding and Following These Policies> <3.1. SSA s Policies Require Staff to Evaluate Potential Substance Use Disorders in Certain DI Claims, but These Disorders Are Seldom the Key Factor in Denying Benefits> SSA s policies require staff to deny DI benefits to claimants if substance use disorders (including opioids not taken as prescribed) are material to the impairments that preclude the claimant from work. For example, substance use disorders would be considered material to the claimant s impairment if (1) they are the claimant s only impairment, or (2) the claimant would not be considered disabled if they stopped using drugs or alcohol. To illustrate, program staff described an example, under SSA s policies, in which they would deny a claimant with a mental health condition, such as depression, who also has a substance use disorder. In particular, if staff determined that substance use was affecting the claimant s depression, and their mental health would improve to the point of non-disability in the absence of drugs or alcohol, SSA would deny the claim. In contrast, they may allow a claimant with permanent liver damage, even if caused by drug or alcohol use, because the damage is irreversible and would continue to be disabling even if the claimant were to stop using these substances. SSA uses a six-step process, referred to as the Drug Addiction and Alcoholism (DAA) evaluation, to determine whether substance use disorders are material to a claimant s impairments. In the first two steps of this process, SSA determines whether a claimant is disabled and whether one of the claimant s medically determinable impairments is a substance use disorder. Medically determinable impairments include physical or psychological abnormalities identified through medically acceptable diagnostic techniques and documented in objective evidence from an acceptable medical source, such as a physician or psychologist. If the answer is yes to both questions in the first two steps of the DAA evaluation, program staff use the remaining steps to help determine whether the substance use disorder is material to the claimant s disability (see fig. 7). In conducting DAA evaluations, program staff can involve medical experts to assist them. At the initial level, DDS examiners confer with DDS medical consultants, such as in-house or contracted physicians and psychologists. At the hearings level, administrative law judges can also seek opinions from medical experts during the claimant s hearing. Substance use disorders are seldom the key factor in DI eligibility decisions, according to SSA data and staff. Specifically, SSA data show that DAA evaluations of substance use disorders aside from those that involved alcohol only were the reason for a denial in about 0.1 percent of all decisions at the initial level and 0.3 percent of all decisions at the hearings level in 2017. Staff in our three selected states cited these potential reasons for why substance use disorders are seldom the key factor in DI eligibility decisions: Claimants with substance use disorders may not have qualifying impairments. Staff explained that those who do not have any impairment severe enough to meet SSA s disability standards can be denied without a DAA evaluation. Medical records do not include enough evidence of a substance use disorder to warrant a DAA evaluation. Staff said some claimants may not have any evidence of a substance use disorder in their file because they may not report all substances they are taking or lack past medical treatment. In addition, staff said those with suspected substance use disorders may not have enough evidence of a disorder in their medical records to warrant a DAA evaluation. For example, they said pain clinics will often discharge a claimant from the clinic (i.e., stop providing services) due to drug-seeking behaviors. However, these pain clinics may not always document the reasons why the claimant was discharged. Further, staff said isolated instances of drug-seeking behaviors or discharges from pain clinics documented in medical records may not necessarily mean that a DAA evaluation is warranted. Some claimants have qualifying impairments, despite having substance use disorders. Staff said substance use disorders may not be the reason a claimant cannot work and may have little or no effect on a claimant s impairments. For example, in one case file we reviewed, an administrative law judge conducted a DAA evaluation because of the claimant s substance use disorders, likely involving alcohol and prescription medications, including opioids. The judge allowed the claim after determining that the claimant s back issues were disabling, independent of the substance use disorders. Use of substances as prescribed by a treatment provider, including opioids, is not considered a substance use disorder. Program staff explained that, per SSA s policies, they would not consider the use of opioids as prescribed to be a substance use disorder warranting a DAA evaluation, even if they thought the claimant was using unusually high amounts. SSA headquarters officials added that the use of prescription opioids could be considered a substance use disorder and result in a denial if medical records from an acceptable medical source included information about excessive or inappropriate use. <3.2. Evaluating Substance Use Disorders Can Be Complex, and Staff Faced Challenges Understanding and Following SSA s Policies> Staff told us that making DI eligibility decisions for claims involving substance use disorders, including prescription opioids not taken as prescribed, can be complex. For example, staff in our three selected states noted challenges with subjectivity in conducting DAA evaluations, particularly when the claim involves mental health conditions. They said that certain conditions, such as depression or psychosis, can be exacerbated by substance use disorders. Thus, they said evaluating whether these conditions would continue to be disabling in the absence of drug or alcohol use can be difficult and subjective. We found that program staff faced challenges understanding or following SSA s policies, based on our interviews with staff in three selected states and our review of 30 case files for DI beneficiaries, which included 15 in which a DAA evaluation had been conducted. Specifically, we found challenges with two aspects of the DAA evaluation process: Determining when to conduct a DAA evaluation. SSA headquarters officials told us that their policies do not require an official diagnosis of a substance use disorder from a treatment provider to conduct a DAA evaluation. Rather, they said a DAA evaluation is required if the potential disorder is considered a medically determinable impairment as defined by the current edition of the American Psychiatric Association s Diagnostic and Statistical Manual of Mental Disorders which includes descriptions of many types of substance use disorders and documented by an acceptable medical source. However, program staff in five of the six offices we visited in the three selected states, including DDS managers and examiners participating in group interviews and three administrative law judges, told us they believed they should not conduct a DAA evaluation unless they see an official diagnosis documented in the medical evidence. SSA headquarters officials discussed why staff may be confused about when to conduct a DAA evaluation, and acknowledged the potential effects. Specifically, they said staff may be confused about the policies for determining what is considered a medically determinable impairment for substance use disorders. Officials said there must be evidence of substance use that is consistent with the general definition of a substance use disorder as defined in the Diagnostic and Statistical Manual of Mental Disorders. They said staff may mistakenly interpret this requirement to mean that they need an official diagnosis to conduct a DAA evaluation. In fact, SSA s operations manual for determining DI eligibility may also cause confusion. Though officials told us that SSA s policies do not require an official diagnosis, the operations manual states that staff should only conduct a DAA evaluation when an acceptable medical source establishes that a claimant is diagnosed with a substance use disorder. SSA headquarters officials acknowledged that confusion about when to conduct a DAA evaluation could result in evaluations not being done when they should be, as well as claims being evaluated for substance use disorders unnecessarily when they do not meet the standards for being a medically determinable impairment. Documenting the rationale for why substance use disorders did not affect the claimant s impairment. SSA s policies for the DAA evaluation process generally require staff to document sufficient information about their evaluations so that a subsequent reviewer can understand the rationale for the decision, which is in keeping with federal standards for internal control. These policies also indicate that a single statement documenting that DAA is not material to the claimant s impairments is not sufficient, and that documentation should be included in the determination and decision, or in other appropriate documents for DDS staff. In the 15 case files in which SSA had conducted a DAA evaluation, nine did not include a documented rationale. For example, in one case file we reviewed, a DDS examiner initially denied a claim for mental health issues after determining that these issues would not be disabling in the absence of the claimant s substance use disorders, which involved benzodiazepines. An administrative law judge at the hearings level later allowed the claim, but did not document a rationale for why the claimant s substance use disorders did not affect the claimant s impairments. SSA headquarters officials agreed that a documented rationale was inappropriately missing in four of the nine case files mentioned above, although they did not indicate why the documentation was missing. For the remaining case files, while they agreed that there was no documented rationale, they asserted that neither a DAA evaluation nor a documented rationale was required. For example, for four of these five case files, officials stated that the substance use disorder was not established as a medically determinable impairment, that the claimant s impairments were disabling by themselves regardless of whether there was any history of substance use disorders, and that the impairments were irreversible or could not improve to the point of non-disability. Nonetheless, a DAA evaluation was conducted in these case files, underscoring staff s confusion about when an evaluation is necessary. Furthermore, regardless of whether a documented rationale was required in these case files, such documentation, if included, would ensure the rationale for the decision is clear to a subsequent reviewer, a recommended practice in federal internal control standards. SSA headquarters officials acknowledged that a poorly documented rationale could lead to reversals or remands if staff conducting appeals or quality reviews are unable to understand the decision. This could result in increased processing time for those conducting appeals and quality reviews, as well as for staff who may be required to revisit their decision. For example, in one case file we reviewed, an administrative law judge allowed a claim for mental health issues that had previously been denied at the initial level as a result of the claimant s substance use disorders involving prescription opioids, alcohol, and marijuana. The case file was later randomly selected for quality review by the Appeals Council, which remanded the case back to the administrative law judge due, in part, to the lack of documented rationale regarding the claimant s substance use disorders. As a result of the remand, the administrative law judge held a new hearing and issued a new decision that still allowed the claim, but provided a rationale for the DAA decision. SSA headquarters officials told us about efforts that could help ensure staff understand and follow policies for the DAA evaluation process. For example, they discussed training on DAA evaluation and documentation requirements. For DDS examiners, they said this training includes presentation slides and videos on these topics. Similarly, for new administrative law judges and other hearings-level staff, they said mandatory trainings include a module on the DAA policies. While SSA headquarters officials said they generally do not offer additional training beyond this, they noted that DDS examiners and administrative law judges are able to revisit the training materials and receive more local, ongoing training and resource materials as needed. We found examples of local, ongoing training and resource materials on the DAA evaluation process during our interviews in our three selected states. For example, one DDS office we visited had developed a DAA flowchart for its internal website, as well as a question and answer section derived from existing SSA information. Another DDS office had developed its own guidance specifically on documentation requirements for DAA evaluations. DDS managers and examiners in this office said they had sought clarification from the SSA office overseeing their region in developing the guidance, which was used during a local training for disability examiners in January 2019. In addition to training and guidance, SSA headquarters officials told us that compliance with policies for the DAA evaluation process is examined as part of the agency s larger quality review processes. These processes are designed to ensure that cases are decided accurately. They include national and local reviews of randomly selected decisions at the initial level, as well as national reviews at the hearings level. Identified errors are reported back to the respective offices for correction. However, these reviews do not target claims involving substance use disorders. SSA headquarters officials said the agency does not track how often they review such claims at the initial level. DDS managers in the three selected states who are involved in local quality reviews also told us that such claims are not targeted for review. Despite SSA s efforts to train staff on the DAA requirements, provide guidance, and conduct quality reviews that may cover DAA evaluations, we found that confusion about implementing the policies remains and staff are not always documenting the rationale for their evaluations as required. If SSA does not clarify its policies regarding when to conduct a DAA evaluation, as well as ensure that staff document the rationale for these evaluations, staff may not be in compliance with the policies. Further, if SSA does not take action, staff conducting subsequent appeals and quality reviews may not have the information needed to effectively examine prior evaluations of substance use disorders. Thus, the agency may expend resources re-working cases and, in turn, delay benefits to individuals eligible for assistance. <4. Conclusions> The DI program helps people with eligible impairments even if they are also struggling with substance use disorders, including opioids not taken as prescribed, if the impairments would continue to be disabling in the absence of drugs or alcohol. Many people with disabilities have chronic pain for which prescription opioids are used as a legitimate treatment option. Thus, it is not surprising that many people who apply for DI benefits have opioid prescriptions, or that we would observe a positive correlation between these rates. Though SSA data show that substance use disorders are seldom the key factor in denying benefits, the agency nonetheless has a responsibility to show accountability for the decisions made by staff. Evaluating substance use disorders can be complex. However, without clarification to help staff better understand the policies for evaluating such disorders and ensuring staff document the rationale for their decisions, SSA likely cannot know whether claims are thoroughly assessed and efficiently examined as they move through subsequent reviews. Such inefficiencies can result in delayed benefits to those eligible for assistance. Further, while our review focused on prescription opioids, any improvements SSA makes to this process could help the agency stay ahead of shifting trends in the broader opioid epidemic. <5. Recommendations for Executive Action> We are making the following two recommendations to SSA: The Commissioner of the Social Security Administration should clarify policies and procedures to remind staff that a diagnosis of a substance use disorder is not necessary to conduct a Drug Addiction and Alcoholism evaluation. (Recommendation 1) The Commissioner of the Social Security Administration should ensure that staff document their rationale for decisions involving the Drug Addiction and Alcoholism evaluation process. (Recommendation 2) <6. Agency Comments and Our Evaluation> We provided a draft of this report to SSA and HHS for review and comment. SSA provided technical comments, which we incorporated as appropriate, and formal comments. As part of its technical comments, SSA suggested that we revise the language of Recommendation 1 to focus more directly on the cause of staff s confusion about when to conduct a DAA evaluation (i.e., staff s misconception that a diagnosis of a substance use disorder is required). We agreed with this suggestion, and revised the recommendation accordingly. A letter conveying SSA s formal comments is reproduced in appendix IV. SSA agreed with our recommendations. Regarding both recommendations, SSA stated that it will continue to train staff on the agency s policies and procedures related to substance use disorders and the DAA evaluation process, as well as the importance of fully documenting these evaluations. HHS did not provide any comments. We are sending copies to the appropriate congressional committees, the Commissioner of the Social Security Administration, the Secretary of Health and Human Services, and other interested parties. The report will also be available at no charge on the GAO website at 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 V. Appendix I: Objectives, Scope, and Methodology We examined (1) what is known about the relationship between trends in prescription opioids and Disability Insurance (DI) claims, and (2) how the Social Security Administration (SSA) considers potential prescription opioid misuse in its DI eligibility decisions. This appendix provides a detailed account of the information and methods we used to answer these objectives. Section 1 provides an overview of our methods and key data sources. Sections 2 through 4 provide additional details on the three main methods we used to answer our objectives. <7. Section 1: Overview of Methods and Key Data Sources> To answer our first objective on the relationship between trends in prescription opioids and DI claims, we reviewed relevant literature and analyzed data from the Department of Health and Human Services (HHS) Centers for Disease Control and Prevention (CDC) and SSA. Specifically, we reviewed existing studies and interviewed several researchers currently examining the relationship between prescription opioids and DI claims. We also reviewed available data from SSA on prescription opioid use among DI claimants. In addition, we analyzed county-level data on the rates of opioid prescriptions from CDC and number of DI claims from SSA from 2006 through 2017, the most recent year of data available at the time of our review. We used aggregate data to illustrate nationwide trends over time. We also examined variation among counties, including differences among those with the highest rates of opioid prescriptions and DI claims. Lastly, we used these data to conduct multiple regression analyses to examine the relationship between opioid prescriptions and DI claims, taking into account economic, demographic, and other factors. We discuss these analyses in greater detail in Section 2. To answer our second objective on how SSA considers potential prescription opioid misuse in its DI eligibility decisions, we reviewed relevant information, interviewed program staff, and reviewed DI case files. We reviewed relevant federal laws, regulations, and SSA policies, as well as federal standards for internal control. We also interviewed SSA headquarters officials and staff involved in DI eligibility decisions in six offices in Alabama, Kentucky, and West Virginia. We discuss the criteria we used to select these states in Section 3. Lastly, we selected and reviewed 30 case files for DI beneficiaries who had been identified by the Centers for Medicare & Medicaid Services (CMS) as being at risk for prescription opioid misuse or abuse in 2017. We discuss the data and criteria we used to select these case files in Section 4. To answer our objectives, we used a variety of electronic data from data sources administered by CDC, SSA, and other federal agencies. Tables 1 and 2 summarize the key data sources and how they were used for each objective. For each data source, we conducted a reliability assessment by completing two or more of these steps: conduct electronic tests for completeness and accuracy, review relevant documentation, and interview knowledgeable officials about how the data are collected and maintained. We found that the data we used were sufficiently reliable for the purposes of our analyses. However, our analytical approach was limited by the availability of data, as discussed below and in appendix II. <8. Section 2: Analyses of County-Level Data on Opioid Prescriptions and DI Claims> To answer our first objective on what is known about the relationship between trends in prescription opioids and DI claims, we conducted three sets of analyses using county-level data on the rates of opioid prescriptions and number of DI claims from 2006 through 2017. The data on opioid prescriptions are from CDC and represent the number of opioid prescriptions filled by retail (i.e., non-hospital) pharmacies per 100 people per year in each county. Though other datasets on prescription opioids exist, we chose to use CDC data because they show the actual number of prescriptions filled in each county, were publicly available at the time of our study, and included data through 2017. SSA provided data on the number of DI claims, which we used to calculate rates. We chose to include claims from individuals who are generally subject to a disability determination, such as disabled workers, widow(er)s, and adult children. We excluded individuals who are generally not subject to these determinations, such as dependent spouses and children under age 18. We examined DI only claims separately from DI/Supplemental Security Income (SSI) concurrent claims, and also examined similar data for DI allowances. We calculated rates of DI claims per 1,000 people per year in each county using population data from the U.S. Census Bureau. We used county-level data because claimant-level data, such as prescription opioid use by DI claimants, were not readily available. Our three sets of analyses examined: Nationwide trends. We used aggregate data from CDC on opioid prescriptions and data on DI claims from SSA to examine trends nationwide from 2006 through 2017. County variation. We used the data to examine variation among counties in their rates of opioid prescriptions and DI claims. Specifically, we examined the distribution of these rates among all counties. We had data available on both rates of opioid prescriptions and DI claims for 2,953 out of 3,142 counties nationwide. We then examined counties with the highest rates of opioid prescriptions and DI claims. We defined counties with the highest rates as those in the top third of the statistical distributions for each rate (i.e., at least 984 counties for each rate in 2017). Of these counties, 527 were in the top third of the statistical distribution for both rates. We plotted these counties with the highest rates on a U.S. map to observe any geographic differences across the Midwest, Southeast, Northeast, and West. In addition, we identified two counties to feature as illustrative examples. To select these counties, we first calculated the number of years from 2010 through 2017 a given county ranked in the top 10 for rates of opioid prescriptions and DI claims in each geographic region. We then selected two of these high-rate counties to serve as examples from different geographic regions and with different major industries. Regressions on the relationship between opioid prescriptions and DI claims. We used the county-level data to conduct regression analyses to examine the relationship between rates of opioid prescriptions and DI claims. In our regression models, we analyzed rates of opioid prescriptions and DI claims. In addition, we used data from a variety of sources to control for other county-level factors. Specifically, economic factors we accounted for included unemployment and poverty rates; demographic factors included sex, age, and race; and other factors included state, year, population size/degree of urbanization, and access to health insurance (i.e., uninsured rates). See table 1 above for additional information on the sources of these data, as well as appendix II for a detailed discussion of our regression analyses, including our models and limitations. <9. Section 3: Interviews with Program Staff in Selected States> To answer our second objective on how SSA considers potential prescription opioid misuse in its DI eligibility decisions, we conducted site visits to Alabama, Kentucky, and West Virginia. We selected these three states primarily because of their high rates of opioid prescriptions in 2016 and drug overdose deaths in 2017, and because a high percentage of their adult population received DI benefits in 2015. In each state, we visited one Disability Determination Services (DDS) office and one Hearing Office. These six offices included the Birmingham DDS and Birmingham Hearing Office in Alabama, the Frankfort DDS and Louisville Hearing Office in Kentucky, and the Charleston DDS and Charleston Hearing Office in West Virginia. We selected offices that were relatively larger, were nearest to or in counties with the highest rates of opioid prescriptions in the state in 2016, and where the DDS and Hearing Office were in close proximity, among other reasons. At each office, we interviewed a range of staff involved in making DI eligibility decisions. Specifically, for each DDS, we conducted group interviews with managers, disability examiners, and medical consultants. We initially conducted an exploratory site visit to the Frankfort DDS in Kentucky, where we met with all available managers, disability examiners, and medical consultants. In the remaining visits, we met with all available managers, but randomly selected five disability examiners and five medical consultants for the group interviews. Each group included between 5 and 15 participants. For each Hearing Office, we conducted individual interviews with three randomly selected administrative law judges, as well as the chief administrative law judge. For the purposes of our report, we include state government DDS staff in our general references to program staff. We used semi-structured interview protocols for all interviews that included open-ended questions about SSA s processes for making decisions on claims involving potential prescription opioid misuse and any challenges doing so, among other topics. Because those we interviewed provided answers in response to open-ended questions, not all respondents commented on every process or challenge. In addition, because we visited a non-probability sample of DDS and Hearing Offices in three selected states, the results of our review cannot be generalized to all offices and states. <10. Section 4: Case File Reviews for DI Beneficiaries> To gain a deeper understanding of how SSA considers potential prescription opioid misuse in its DI eligibility decisions, we selected and reviewed 30 case files from SSA involving DI beneficiaries who had been identified by CMS as being at risk of opioid misuse or abuse. To select case files, we used a dataset from CMS on Medicare Part D beneficiaries that we matched with SSA data on DI beneficiaries. The CMS dataset contained information on Medicare Part D beneficiaries who CMS identified as being at risk of prescription opioid misuse or abuse in 2017. CMS identifies beneficiaries as being at risk of prescription opioid misuse or abuse if they received high amounts of opioids (had an average daily morphine dose equivalent of 90 mg or more) and appeared to have coordination of care issues (either had three or more opioid prescribers and three or more opioid dispensing pharmacies, or five or more prescribers regardless of the number of pharmacies) during a 6-month period. We identified DI beneficiaries within this larger dataset of Medicare Part D beneficiaries using an identifier in CMS s data. This identifier signified that DI eligibility was a beneficiary s reason for Medicare enrollment, since those eligible for DI may gain access to Medicare after a 2-year waiting period. We then worked with SSA to match these data on DI beneficiaries within CMS s dataset with SSA data. Specifically, we obtained information for analysis from SSA s database on various demographic characteristics of this population of DI beneficiaries, including their sex, age, race, and impairments. We also obtained administrative data on beneficiaries claims. Using the CMS dataset on Medicare Part D beneficiaries that we matched with SSA s data on DI beneficiaries, we identified 30,273 DI beneficiaries who had been identified by CMS as being at risk of prescription opioid misuse or abuse in 2017. See appendix III for additional demographic and other information on this population. From the DI beneficiaries we identified, we selected 30 case files to review based on a number of claims characteristics related to potential prescription opioid misuse and SSA s processing of the claim. First, we only selected case files for individuals who had been allowed benefits during or after 2013, when SSA formalized its policies for evaluating substance use disorders, including prescription opioids. In addition, we randomly selected 15 case files where the beneficiary had been evaluated by SSA for an identified substance use disorder and 15 where they had not. As part of the selection of 30 case files, we also randomly selected 16 case files where the beneficiary had self-reported the use of a prescription opioid and 14 where they had not, and 14 case files where the beneficiary had their case reviewed for potential medical improvement (called a continuing disability review) and 16 where they had not (these characteristics were not mutually exclusive). To systematically collect information on how or whether SSA considered potential prescription opioid misuse in each case file, we developed a data collection instrument to conduct our review of them. We designed the instrument to examine SSA s implementation of its process for making DI eligibility decisions for claims involving substance use disorders, including opioids not taken as prescribed. For example, the instrument included questions about how SSA identifies and evaluates such disorders when making decisions, any documentation of this process, and how SSA reviews case files for potential medical improvement after allowing benefits. The instrument was not intended to examine the accuracy of decisions. In addition, we shared the instrument with SSA officials in advance, who provided notes on where the needed information could be found in the case files. Two GAO analysts independently reviewed each case file using the instrument, then met to review coding decisions and reconcile any differences between their reviews. We also discussed the results of our review with SSA headquarters officials. These officials provided comments on our observations for each case file, which we took into consideration. Though we examined information on all of the case file characteristics described above, we ultimately focused on SSA s implementation of its process for evaluating the beneficiary for an identified substance use disorder. We did not focus on SSA s implementation of its process for examining whether the beneficiary had self-reported the use of a prescription opioid. This is because the use of opioids as prescribed is not considered a substance use disorder under SSA s policies. In addition, we learned during our case file review that beneficiaries had multiple opportunities to self-report such use that would not be captured in SSA s administrative data, and that program staff also had multiple opportunities to examine such use when collecting and reviewing medical evidence. In addition, we did not focus on SSA s implementation of its process for reviewing the beneficiary for potential medical improvement because we learned during our case file review that substance use disorders seldom factor into SSA decisions about whether to continue or cease DI benefits. According to SSA, benefits typically continue unless evidence exists that a beneficiaries impairment has medically improved and that they are able to return to work. SSA headquarters officials told us that staff would not evaluate a substance use disorder during the continuing disability review unless the beneficiary has medically improved and a new impairment that may be affected by a substance use disorder is to be assessed. Several limitations exist with our review of case files. Because we selected from a population of DI beneficiaries, the sample did not include case files for claimants who were ultimately denied. However, we did not see this as a significant limitation because SSA s policies regarding the DAA evaluation are the same regardless of whether a claim is ultimately allowed or denied. In addition, 16 of the 30 case files we reviewed had been denied at the initial level before being allowed on appeal at later adjudicative levels. In addition, the case files may not have contained any evidence of prescription opioid misuse or abuse because of the timeframes we used to select them. Specifically, we selected case files for DI beneficiaries who had been allowed during or after 2013, but who were identified as being at risk of prescription opioid misuse or abuse in 2017. Because these beneficiaries may have been allowed benefits as early as 2013, they may not have had any issues with prescription opioids at the time SSA evaluated their claim (i.e., they may have developed potential issues after being allowed benefits). Lastly, because we reviewed a non-probability sample of 30 case files, the results of our review cannot be generalized to the larger population of DI beneficiaries. We conducted this performance audit from June 2018 to January 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. Appendix II: Regression Analyses of County- Level Data We used regression models and other data analyses to address our first objective on the relationship between opioid prescriptions and Disability Insurance (DI) claims. This technical appendix outlines the data, methodology, limitations, and results for the regression analyses in our report. <11. Data> We used county-level data from data sources administered by the Department of Health and Human Services Centers for Disease Control and Prevention (CDC) and other federal agencies from 2010 through 2017. These data included the rates of opioid prescriptions from CDC. We also used ZIP code-level data from the Social Security Administration (SSA) on the number of DI claims, which we transformed into county-level data using ZIP code-to-county crosswalk data from the Department of Housing and Urban Development. Similarly, we examined the numbers of DI allowances and DI/Supplemental Security Income (SSI) concurrent claims and allowances from SSA as well. In addition, we used data on a number of economic, demographic, and other factors. Economic factors included unemployment and poverty rates; demographic factors included sex, age, and race; and other factors included state, year, population size/degree of urbanization, and access to health insurance (i.e., uninsured rates). We used data from 2010 through 2017 because those were the years in which we had data for all of our factors, with the exception of degree of urbanization. We had data on degree of urbanization for 2013, and assumed that this factor was consistent from 2010 through 2017. For a list of the county-level data that we used in our analyses and their sources, see table 1 in appendix I. Table 3 provides summary statistics for factors included in our regression models. These include the mean, median, standard deviation, and range for the factors among counties from 2010 through 2017. <12. Methodology> We used linear regression models to analyze the relationship between rates of opioid prescriptions and DI claims, and controlled for the economic, demographic, and other factors described above at the county level. Our unit of analysis was the county-year, meaning that the observations are for each county each year. We had 22,789 observations, since there are over 2,977 counties and we used data from 2010 through 2017. Some of the factors we controlled for, such as unemployment rates, sex, age, race, and access to health insurance (i.e., uninsured rates), were similar to what other researchers used in examining the relationship between prescription opioids and employment variables. We included state and year fixed effects in our models to help account for additional factors that could vary across states or over time and national time trends. For example, differences in prescribing practices and increased law enforcement strategies across states could affect rates of opioid prescriptions. Further, factors that have previously been identified as possibly affecting the DI population include changes in the characteristics of the working-age population, federal policies (e.g., DI eligibility criteria), and employment opportunities. The results should be interpreted as changes in the dependent variable (i.e., rate of opioid prescriptions or rate of DI claims) associated with a change in the independent variables, within states. Compared to the previous model, the main dependent and independent variables are switched, but all other elements of the model are as described above. Though our primary focus was the relationship between rates of opioid prescriptions and DI claims, we also examined the relationship between rates of opioid prescriptions and DI allowances, as well as concurrent DI/SSI claims and allowances. <13. Limitations> We found that the data we reported on were sufficiently reliable for the purposes of our analyses. However, our analytical approach was limited by the availability of data. Consequently, our results should be interpreted with caution. Specifically, we were unable to establish whether there is a causal relationship between rates of opioid prescriptions and DI claims (e.g., whether higher rates of opioid prescriptions could have contributed to higher rates of DI claims or vice versa), in part because of potential reverse causality between these variables. While we could have potentially used an instrumental variable approach to establish a causal relationship, we did not identify an appropriate instrument to conduct that analysis. Moreover, individual-level data on opioid use among DI claimants were not readily available. Though we used county-level data, we were unable to account for variations within counties, also due to data not being readily available. Other researchers have noted similar limitations in their studies on prescription opioids. In addition, the opioid prescriptions data we analyzed only count the number of prescriptions filled, which could vary by number of pills, dosage, and potency (i.e., the morphine dose equivalent). The data also do not account for any potential diversion, or illicit transfer, of prescription opioids from one county to another. Further, we did not include county-fixed effects in our models. Though there may be constant or long-term characteristics of counties that are related to rates of opioid prescriptions and DI claims, we did not find enough variation in these rates within counties in the timeframe we analyzed to include county fixed effects in our models. In sensitivity analyses, we did include county fixed effects in our models and found that there was not a statistically significant relationship between rates of opioid prescriptions and DI claims with these effects included. However, this may be due to the large number of fixed effects introduced in the model (our analyses included about 3,000 counties) and the relatively short timeframe of 2010 through 2017. Lastly, we analyzed DI claims separately from DI/SSI concurrent claims in our models due to limitations with the units of analyses for these claims. Specifically, the number of DI claims represents the total number of claims an individual may have, rather than the number of individuals. For example, one individual may have five different DI claims and all five would be counted in the number of DI claims. On the other hand, the number of DI/SSI concurrent claims represents the number of individuals who had filed at least one DI and one SSI claim within a given year. The individual may have filed two DI claims and three SSI claims that year, but are counted as one DI/SSI concurrent claim. <14. Results> Though we were unable to determine whether there is a causal relationship between rates of opioid prescriptions and DI claims (e.g., whether higher rates of opioid prescriptions could have contributed to higher rates of DI claims or vice versa), as discussed above, we did find a significantly positive correlation between these rates across our models, on average, from 2010 through 2017. These results were consistent before and after accounting for the economic, demographic, and other factors described above. We also found correlations between rates of opioid prescriptions and some of the other factors. These correlations are detailed in figure 6 of our report. Table 4 also provides additional results from our regression analyses for rates of opioid prescriptions. In addition, we found correlations between rates of DI claims and other factors. Similarly, these correlations are detailed in figure 6 of our report. Table 5 provides additional results. We also examined the relationship between rates of opioid prescriptions and DI allowances, as well as DI/SSI concurrent claims and allowances, and found similar results. In various sensitivity analyses to check our results, we found that the positive correlation between rates of opioid prescriptions and DI claims remained consistent. For example, these results were consistent in models that: Included labor force participation rates instead of unemployment or poverty rates. Examined each year of data. Given that we did not find much variation in rates of opioid prescriptions and DI claims within counties from 2010 through 2017, we also ran our models for each year separately to explain variations across counties. Accounted for counties with small populations. There were eight counties that were omitted from our regression models because they had no DI claims. To ensure we accounted for all counties in our sensitivity analyses, we took an approach similar to other researchers and aggregated counties with less than 100,000 people in each state for each year. We ran our models when treating these counties with small populations as one county and found similar qualitative results. Appendix III: Characteristics of Disability Insurance Beneficiaries Identified as Being At Risk for Prescription Opioid Misuse or Abuse Using data from the Centers for Medicare & Medicaid Services (CMS) and the Social Security Administration (SSA), we identified 30,273 Disability Insurance (DI) beneficiaries who had been identified by CMS as being at risk of prescription opioid misuse or abuse in 2017. Figures 8 and 9 describe the demographics of this population, including beneficiaries sex, age, and race, as well as the primary impairments for which they were allowed DI benefits. Appendix IV: Comments from the Social Security Administration Appendix V: Staff Acknowledgments <15. GAO Contact> <16. Staff Acknowledgments> In addition to the contact named above, the following staff members made key contributions to this report: Erin Godtland (Assistant Director), Nhi Nguyen (Analyst-in-Charge), Justin Gordinas, Kathleen McQueeney, and Paul Wright. Also contributing to this report were James Bennett, Joy Booth, Mari Calder n, Breanne Cave, Jessica Farb, Justin Fisher, Alex Galuten, Melissa Jaynes, Lorin Obler, Jessica Orr, Oliver Richard, William Simerl, Almeta Spencer, Shana Wallace, and Eric Wedum.

Why GAO Did This Study The United States is in the midst of an unprecedented opioid epidemic. Opioids are prescribed to treat conditions such as chronic pain. However, opioid misuse can lead to addiction, disability, overdose, and death. Prior GAO and other reports have discussed the use of prescription opioids within federal programs, particularly Medicare. Less is known about the use of opioids in relation to SSA's DI program. GAO was asked to review any correlation between prescription opioids and rates of DI claims, and any related challenges for SSA. This report examines (1) what is known about the relationship between trends in prescription opioids and DI claims, and (2) how SSA considers potential prescription opioid misuse in its DI eligibility decisions. GAO analyzed county-level data on opioid prescriptions and DI claims from 2006 through 2017; interviewed program staff involved in DI eligibility decisions in Alabama, Kentucky, and West Virginia, selected because of their high rates of opioid prescriptions and percentage of the adult population on DI; and reviewed case files for DI beneficiaries identified by the Centers for Medicare & Medicaid Services as being at risk for prescription opioid misuse or abuse. What GAO Found The numbers of opioid prescriptions and claims for the Social Security Administration's (SSA) Disability Insurance (DI) program have each declined nationally in recent years, but rates vary widely across the country. National trends show both peaking between 2010 and 2014 and then declining. GAO's analysis shows counties with the highest rates of both were concentrated in the Southeast (see figure). After accounting for economic, demographic, and other factors, GAO found that counties with higher rates of opioid prescriptions tended to have higher rates of DI claims from 2010 through 2017. These rates were also correlated with other factors. For example, counties with higher rates of each tended to have higher poverty rates. However, GAO was unable to determine whether there is a causal relationship between rates of opioid prescriptions and DI claims or other factors, given readily available data. Program staff are required to evaluate and document substance use disorders (including opioids not taken as prescribed) when making certain DI eligibility decisions. Specifically, staff are required to evaluate potential substance use disorders for certain DI claims and deny benefits, for example, if the claimant would not be considered disabled if they stopped using drugs or alcohol. In addition, staff are generally required to document the rationale for their decision so that another reviewer can understand how they made the decision. However, staff in five of the six offices GAO visited in three states were confused about when to evaluate substance use disorders, and nine of 15 case files that GAO reviewed in which an evaluation was conducted did not have a documented rationale. SSA officials acknowledged the need to clarify policies on when to evaluate substance use disorders, and that a poorly documented rationale could lead to reversals or remands of decisions. Without ensuring that SSA's policies are understood and that staff document their rationale, the agency may expend resources re-working cases and, in turn, delay benefits to individuals eligible for assistance. What GAO Recommends GAO recommends that SSA 1) clarify policies and procedures to help staff better evaluate substance use disorders, and 2) ensure staff document their rationale. SSA agreed with GAO's recommendations.

gao_GAO-20-390

gao_GAO-20-390_0

<1. Background> <1.1. Roles and Responsibilities of Depots and Related DOD Organizations> Depots are government-owned, government-operated industrial installations that maintain, overhaul, and repair a multitude of complex military weapons systems and equipment for DOD. The military services operate 17 depots that perform depot-level maintenance on a wide range of vehicles and other military equipment, including aircraft, engines, combat vehicles, ships, and software. Of those, the Air Force operates three Air Logistics Complexes and the Navy operates three Fleet Readiness Centers for aviation depot maintenance (see figure 1). For the purposes of this report, we will be referring to them as Air Force and Navy aviation depots. The Air Force s and Navy s aviation depots operate through the Air Force and Navy working capital funds. Depot customers are charged for the anticipated full cost of goods and services. Over the past decade, we have audited the services working capital funds activities related to carryover, new orders, and revenue that can affect depot maintenance timeliness. For more information on the services working capital funds depot maintenance activities, see appendix II. The depots are part of a larger, DOD-wide logistics enterprise that involves a number of different organizations, which are identified in figure 2 and described below. Assistant Secretary of Defense for Sustainment. This official serves as the principal assistant and advisor to the Under Secretary of Defense for Acquisition and Sustainment on materiel readiness. Among other responsibilities, the Assistant Secretary of Defense for Sustainment prescribes policies and procedures on maintenance, materiel readiness and sustainment support. DOD officials report that the Office of the Deputy Assistant Secretary of Defense for Materiel Readiness is responsible for maintenance policy along with the development of a strategic vision for DOD s organic depot base. Also, the Air Force and Navy each has its own logistics or materiel command component, which provides day-to-day management and oversight of the services depots. Air Force Materiel Command. This command develops, acquires, and sustains weapon systems and their components, providing acquisition and life-cycle management services and logistics support, among other things. The Air Force Life Cycle Management Center within Air Force Materiel Command is responsible for the life-cycle management of weapon systems from inception to retirement, with a specific program office managing each type of aircraft. Air Force Materiel Command works with the program offices to develop, review, validate and prioritize aircraft depot maintenance workload requirements and associated funding. Naval Air Systems Command. This command is responsible for providing life-cycle support of aircraft, weapons, and systems for the Navy and Marine Corps including, acquisition, repair and modification, and in- service engineering and logistics support. As with the Air Force, a specific program office manages each type of aircraft. According to Navy officials, Naval Air Systems Command (NAVAIR), and Commander, Fleet Readiness Centers (COMFRC) work with the program offices to plan and approve the maintenance depot work executed at the Navy aviation depots, including obtaining fixed-wing aircraft workload requirements and associated funding. <1.2. Information on Selected Air Force and Navy Fixed- Wing Aircraft> The 36 Air Force and Navy fixed-wing aircraft types we selected for our review ranged from fighters to bombers. These aircraft completed a total of 4,513 depot maintenance events in fiscal years 2014 through 2019. See figure 3 for more information. <2. Air Force and Navy Depot Maintenance Timeliness Has Varied for Selected Fixed-Wing Aircraft with a Range of Factors Affecting Depot Performance> For the selected aircraft in our review, the Air Force completed depot maintenance on time or earlier an average of 82 percent of the time during fiscal years 2014 through 2019. However, the Navy completed depot maintenance on time or early in the same period an average of 52 percent of the time. We found that a range of factors, such as unexpected repairs and aircraft operating beyond their designed service life, have affected Air Force and Navy depot maintenance timeliness for fixed-wing aircraft. <2.1. The Air Force Has Generally Completed Depot Maintenance On Time While the Navy Has Not> Our analysis of aggregate depot maintenance data regarding fiscal years 2014 through 2019 shows that: Air Force aviation depots completed depot maintenance of the selected fixed-wing aircraft on time or early in 5 of 6 fiscal years. The annual average percentages for on-time or early-completion maintenance ranged from 78 to 90 percent. In total, selected Air Force fixed-wing aircraft have spent 22,572 fewer days in maintenance than expected since fiscal year 2014. Navy aviation depots were late in completing depot maintenance of the selected fixed-wing aircraft for each of the 6 fiscal years. The annual average percentages for on-time or early-completion maintenance ranged from 45 to 63 percent. In total, the maintenance for selected Navy fixed-wing aircraft has taken over 62,000 more days than expected since fiscal year 2014. Figure 4 shows the percentage of depot maintenance completed on time or early, as well as total days of maintenance delays, if applicable, for the Air Force and Navy. Analyzing the maintenance timeliness data on a per aircraft basis shows similar trends. The Air Force completed depot maintenance on average about 7 days early per aircraft during fiscal years 2014 through 2019, while the Navy completed depot maintenance on average nearly 55 days late per aircraft (see figure 5). In comparing depot maintenance timeliness for specific aircraft types, we found that timeliness varied for both Air Force and Navy aircraft. For example, Air Force aviation depots completed individual KC-135 aircraft maintenance an average of about 28 days earlier than projected and completed F-15E aircraft maintenance an average of almost 35 days later than projected. Navy aviation depots completed individual EA-6B aircraft maintenance an average of about 1 day earlier than projected and completed F/A-18A-D aircraft maintenance on average about 137 days later than projected. Figure 6 shows the average number of days by aircraft type that the Air Force and Navy aviation depots completed maintenance earlier or later than projected in fiscal years 2014 through 2019. <2.2. A Range of Factors Has Affected Air Force and Navy Aviation Depot Maintenance Timeliness> Our prior work has identified multiple factors that contribute to depot maintenance delays, including the size and skill of the depot workforce, the condition of weapon systems upon arrival at the depot, the availability of spare parts, and the condition of the depot s facilities and equipment, among others. In addition, all of these factors can be affected by funding and operational considerations (such as unexpected accidents). DOD officials have stated that disruptions to funding, to include continuing resolutions, also affect the ability to conduct depot maintenance. Over the course of this review, Air Force and Navy officials cited many of these factors as continuing to affect depot maintenance timeliness while offering specific details on issues contributing to the trends we identified above. Air Force s perspectives on early and late completions: Air Force officials stated a variety of reasons for completing aircraft maintenance earlier than projected, including frequent communication between program offices and depot stakeholders. For example, Air Force Sustainment Center officials told us that they conduct weekly aircraft performance review meetings with commanders and senior staff to provide a comprehensive status update on aircraft maintenance performance that has occurred since the previous meeting. In addition, on the KC-135 depot production line, Air Force officials told us they document tasks that can be done concurrently during a specific phase in the maintenance process, which has helped them meet their timeliness targets. Air Force officials from across the sustainment enterprise agreed that proactive planning for depot maintenance requirements helps the depots provide the appropriate resources to perform aircraft maintenance. Officials cited unexpected repairs or shortage of skilled depot maintainers as reasons for later-than-projected completion of maintenance on an aircraft. Navy s perspectives on late completions: Navy officials stated various reasons for completing aircraft maintenance later than projected, including growth in the scope of needed work after the aircraft was evaluated (e.g., finding damage that required tailored engineering instructions), a diminishing supply of manufactured parts for aircraft, and aircraft operating well beyond their designed service life such as the F/A-18A-D fighters and C-2A cargo aircraft. In addition to operating F/A- 18A-Ds longer than originally planned, Navy officials stated that they also had to manage aircraft production delays related to the F-35, which was scheduled to replace the F/A-18A-Ds. Navy officials explained that they have implemented a variety of strategies to improve on-time maintenance. These initiatives primarily focus on mitigating or reducing maintenance delays in the year of execution. For example: Naval Sustainment System initiative: The Navy implemented this initiative at the beginning of fiscal year 2019, which led to the service implementing private industry best practices and employing new strategies such as swarming, which refers to many artisans being put to work on a particular aircraft to expedite completion. The initial focus of these strategies was on the F/A-18E-F. During a site visit to Fleet Readiness Center Southwest, officials showed us how the initiative prompted reconfiguration of workstations clearing storage and material areas in the hangar and creating direct line of vision for maintainers to maximize an artisan s time spent on an aircraft. Tracking depots efficiency: Officials are using a new software program that enables real-time tracking of the progress of aircraft maintenance, which they told us has led to improved efficiency because it provides increased visibility into aircraft with delays. For example, officials stated over the past 2 years, they have decreased the number of aircraft undergoing maintenance from 390 in 2017 to about 270 across the aviation depots. <3. The Air Force Generally Has Accurately Planned for Aviation Depot Maintenance, but the Navy Has Not Fully Addressed Several Planning Challenges> The Air Force has largely accurately planned for aviation depot maintenance requirements for selected fixed-wing aircraft during fiscal years 2014 through 2019, but the Navy has not. Both services have initiatives underway to improve planning for aviation depot maintenance; however, we identified several planning challenges that the Navy has not fully addressed, such as not effectively using historical data to establish accurate planning targets for aircraft depot maintenance packages. <3.1. The Air Force Generally Has Accurately Planned for Aviation Depot Maintenance Requirements> Our analysis of Air Force planned maintenance workload data estimates of the number of days planned for depot maintenance made 3 years in advance found that the Air Force largely accurately planned for aviation depot maintenance requirements for selected aircraft for fiscal years 2014 through 2019. The difference between the number of days the Air Force planned in advance that it would need for maintenance and actually needed has been small and trending downward, from 12 percent in fiscal year 2014 to 3 percent in fiscal years 2018 and 2019 (see figure 7). Our analysis shows that, for the 6 fiscal years we reviewed, the Air Force slightly underestimated the amount of time it needed to complete fixed- wing aircraft maintenance by an average of about 6 days per aircraft. To accurately plan for aviation depot maintenance, Air Force Materiel Command officials told us they had implemented three key initiatives including: Conducting early inspections: Air Force officials stated that they have been conducting pre-inspections of selected aircraft a year before scheduled maintenance to check for unplanned maintenance needs, and to ensure the availability of parts. Officials stated that the early inspections can clarify the scope of work and avoid extended delays in completing maintenance. For example, the Air Force has been conducting pre-inspections of its KC-135 an aerial refueling aircraft by sending Boeing engineers to pre-inspect a sample of KC- 135s that are scheduled for depot maintenance in the following year. The inspections can inform parts orders with long-lead times and initiate developing procedures to resolve any new repairs identified during inspections, Air Force officials stated. Developing and implementing a new metric: To help measure the effectiveness of planning, Air Force officials stated that in 2017 Air Force Materiel Command created a new metric the Planned Obligations Weighted for Execution Review comparing which customer orders were planned for funding versus which ones actually received funding. According to Air Force officials, the metric provides visual information to leaders of the degree of variance between the planned and actual aircraft that come into the depots for maintenance. Air Force Materiel Command officials stated that the metric has helped them identify factors affecting the differences between planned and actual aircraft entering the depots for maintenance and to adjust resources when needed to address the workload. Reviewing planning performance and making adjustments: Air Force Materiel Command annually conducts a two-phased planning process to establish the organic Air Force depot-level resources necessary to support the projected funded maintenance requirements for the next 2 fiscal years. Later, the Air Force conducts an after-action review of the performance of the planning process. In addition, command leadership, senior staff, and other members of the aviation depot community hold weekly performance review meetings and make necessary adjustments. This includes reviewing visual information such as standardized charts and graphs that provide the current status of aircraft undergoing depot maintenance, as well as any issues they are monitoring. <3.2. The Navy Generally Has Not Accurately Planned for Aviation Depot Maintenance Requirements> Our analysis of Navy-planned maintenance workload data estimates of the number of days planned for depot maintenance made 3 years in advance found that the Navy generally has not accurately planned for aviation depot maintenance requirements for selected fixed-wing aircraft for fiscal years 2014 through 2019. We found a trend of underestimating actual days needed for aircraft maintenance. The difference between the number of days the Navy planned in advance it would need for maintenance and the number actually needed ranged from a low of 3 percent in fiscal year 2014 to a high of 69 percent in fiscal year 2018. However, we found the difference declined to 42 percent in fiscal year 2019. Figure 8 shows the difference between planned and actual work days for selected Navy fixed-wing aircraft in fiscal years 2014 through 2019. Our analysis, for the 6 fiscal years that we reviewed, showed that the Navy underestimated the amount of time it needed to complete fixed-wing aircraft maintenance by an average of about 55 days per aircraft. The Navy has acknowledged that it has not accurately planned for depot maintenance requirements. The Navy conducted risk assessments and internal control assessments in 2018 and 2019 and found material weaknesses, such as a trend of underestimating time needed to address aviation depot maintenance requirements. Specifically, the two risk and internal control assessments stated that Navy policies for defining, costing, and executing maintenance did not allow them to correctly predict cost estimates and duration of depot maintenance. In addition, the Navy s 2019 risk and internal control assessment highlighted the need to improve planning accuracy; the report stated that internal reviews found workload standards did not accurately capture the required maintenance and that planned maintenance requirements exceeded depot capacity. Navy officials stated that they implemented an initiative in fiscal year 2020 to improve maintenance requirements called Performance to Plan. This initiative is focused on incorporating data collection and analysis to, among other things, improve forecasts of maintenance period durations according to Navy documentation. For example, the approach of Performance to Plan is to incorporate predictive data into planning to improve forecasts of maintenance period durations, according to the same documentation. While this initiative is a positive step, it is still in the early stages of implementation and we identified three reasons that have in part led to inaccurate planning that the Navy has not fully addressed. <3.2.1. The Navy Has Not Effectively Used Historical Data to Update Maintenance Planning> The Navy measures depot performance using turnaround time as one of the key timeliness metrics. Turnaround time is the overall duration of the maintenance cycle, from when the aircraft is inducted into the depot to when it is provided back to the squadron. According to Navy officials, the Navy reviews historical data to support the maintenance requirements planning process in various ways, including adjusting turnaround time based on historical depot performance. However, we found that the Navy has not effectively used historical data to analyze turnaround time total days planned for depot maintenance periods and to update maintenance requirements planning for selected fixed-wing aircraft. Specifically, our analysis of average turnaround time for selected aircraft depot maintenance packages shows that the Navy has not adjusted maintenance planning effectively to account for the actual days needed to perform maintenance. Figure 9 shows that the Navy kept planned turnaround time the same or with minimal changes for maintenance packages for the C-2A, the F/A-18A-D, and the F/A-18E-F, despite worsening trends in maintenance execution during fiscal years 2014 through 2019. C-2A: In fiscal years 2016 through 2019, the Navy did not adjust its planned turnaround time 270 days while the average number of actual work days to complete maintenance increased from 451 days in fiscal year 2016 to a high of 722 days in fiscal year 2018. Further, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 181 days in fiscal year 2016 to 352 days in fiscal year 2019, and peaked at 452 days in fiscal year 2018. F/A-18A-D: In fiscal years 2014 through 2019, the Navy adjusted its planned turnaround time by a total of 82 days, while the average number of actual work days to complete maintenance increased from 148 days in fiscal year 2014 to 694 days in fiscal year 2019, and peaked to 857 days in fiscal year 2018. In addition, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 52 days in fiscal year 2014 to 412 days in fiscal year 2019, and peaked at 629 days in fiscal year 2018. F/A-18E-F: In fiscal years 2014 through 2019, the Navy adjusted its planned turnaround time by a total of 28 days, while the average number of actual work days to complete maintenance increased from 51 days in fiscal year 2014 to 92 days in fiscal year 2019. In addition, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 10 days in fiscal year 2014 to 23 days in fiscal year 2019, and peaked at 59 days in fiscal year 2016. Naval Air Systems Command Workload Standards Required for the Aircraft and Engine Programs at the Fleet Readiness Centers states that COMFRC should analyze and review naval aviation proposed workload standard packages and compare to actual production and historical data. It also states that the workload standard development process, which includes the estimation and development of turnaround time is to provide a basis for the identification of resource requirements at the naval aviation depot, such as personnel skills mix and materials, and as a budgetary justification of workload for the repair of aircraft. In addition, the Navy 2014-2019 Depot Maintenance Strategic Plan states that NAVAIR and COMFRC will identify and sustain requisite core maintenance capabilities through a planning process that effectively estimates and monitors near and long-term workload. Navy officials explained that they have worked to incorporate historical data into their maintenance requirements planning process; however, they acknowledged that planning needs to improve and they are in the process of revising how COMFRC and NAVAIR determines planned turnaround time. For example, COMFRC and F/A-18 program office officials said as part of the Naval Sustainment System initiative, COMFRC is moving toward a 60-day fixed turnaround time on some F/A-18E-F depot maintenance packages in an effort to drive depot maintenance efficiency and, ultimately, improve aircraft mission capability rates. According to officials, they plan to apply a fixed turnaround time across all aircraft. As the Navy moves forward, it must ensure that it effectively uses historical data to analyze turnaround time and establish accurate turnaround time targets for fixed-wing aircraft depot maintenance packages. If it does not do so, the Navy will likely continue to underestimate the number of days required to perform depot maintenance and misalign the resources and funding needed at the depots to perform aircraft maintenance, which in part contributes to persistent maintenance delays that reduce the time aircraft are available for operations and training. <3.2.2. Navy Depot Planners Do Not Have Direct Visibility of Maintenance Performed Outside Aviation Depots> We found that Navy depot maintenance planners do not have direct visibility into fixed-wing aircraft maintenance that is performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility information critical to planning for the condition and depot maintenance needs of individual aircraft. Navy officials said that data exists on maintenance conducted on an aircraft outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility and on the condition of an aircraft while deployed with squadrons. However, depot planners do not have direct visibility over squadron-level information because the Navy has not provided depot planners regular reporting on fixed-wing aircraft maintenance performed outside the aviation depots. Instead, depot planners can access that data only through a request to the squadron and typically rely on general planning factors rather than aircraft-specific data when estimating maintenance needs. According to Navy officials, the lack of direct visibility into the condition and maintenance history of an aircraft has driven maintenance delays in the past. For example, COMFRC and F/A-18 program office officials said that high turnaround time on certain F/A-18A-Ds undergoing maintenance was due to extended squadron usage on the aircraft combined with a lack of logistics support to address these issues. Furthermore, for aircraft damage that was outside of the depot s repair capabilities, long lead times on parts procurement and extensive engineering analysis resulted in aircraft being placed in delay for extended periods of time, sometimes years, according to the officials. Figure 10 shows an F/A-18 undergoing depot maintenance at a Navy aviation depot. In other cases, high usage by squadrons can cause unexpected corrosion on many types of fixed-wing aircraft that depots have not prepared to address. For example, Office of the Chief of Naval Operations officials said that some aircraft have panels that are taken off during depot maintenance events. If depot maintainers find unexpected corrosion behind a panel, it may require additional time to repair that aircraft, resulting in an increase in the turnaround time. In addition, a COMFRC official stated an AV-8B arrived at an aviation depot without the engine installed, which prevents full operational checks being performed during disassembly. Once maintenance was completed, the aircraft went through operational checks and officials found canopy seal issues, which could have been identified if the depot had received data from the intermediate-level maintenance facility. The Navy 2014-2019 Depot Maintenance Strategic Plan states that NAVAIR and COMFRC will identify and sustain the necessary capabilities to perform maintenance through a planning process that effectively estimates and monitors near and long-term workload. Navy officials said direct visibility into data on the current condition and maintenance history of an aircraft at the squadron level better prepares COMFRC and NAVAIR to more accurately plan aircraft depot maintenance. This has been corroborated by Naval Sustainment System initiative findings that revealed that the Navy should be better informed about the condition of aircraft in order to improve their maintenance requirements planning. However, depot planners do not have direct visibility over squadron-level information because the Navy has not provided depot planners regular reporting on fixed-wing aircraft maintenance performed outside the aviation depots. Without regular reporting on fixed-wing aircraft maintenance performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility, depot planners cannot plan for the condition and depot maintenance needs of individual aircraft, which in part contributes to persistent maintenance delays that reduce the time aircraft are available for operations and training. <3.2.3. The Navy Does Not Have Formal Processes and Guidance for Communication and Coordination between Depot Stakeholders to Inform Maintenance Planning> We found that the Navy does not have formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Navy officials explained that depot maintenance stakeholders communicate in a variety of ways to inform maintenance requirements planning. For example, the Navy conducts annual and mid-year workload planning meetings. At the annual workload planning meeting, COMFRC and aircraft program leads provide plans to meet aircraft workload requirements for the current year and the next 2 fiscal years. The mid-year review provides an update on the current year s performance and the final workload plan for the next 2 fiscal years, according to Navy documentation. Various aircraft program office leads attend both the annual and mid-year planning meetings to provide an update on workload plans among others to COMFRC. Navy officials stated that they also informally communicate in a variety of ways to inform maintenance requirements planning. For example, depot maintenance engineers may find extra corrosion on an aircraft, and use those findings to update maintenance plans for other individual aircraft. While these meetings provide opportunities for collaboration and officials utilize other means to informally communicate, NAVAIR and COMFRC do not have formal processes and related guidance for communication and coordination between depot stakeholders to ensure they receive input from all key subject-matter experts regarding workload planning. Navy officials noted that not having formal processes and related guidance presents several challenges including: Navy officials said that there is no formal process or guidance for communication and coordination, and that the process instead involves a series of documents that COMFRC receives that are assembled to create a representation of future workload from the Commander, Naval Air Forces and from each of the aircraft program offices, among others. A COMFRC official said that different stakeholders manage various parts of workload planning and without guidance on specific documentation needs and process owners, it is challenging for the Navy to identify accountable stakeholders and discuss specific planning needs. NAVAIR officials said workload planners hold periodic meetings, but attendance by subject-matter experts is not mandatory. For example, subject-matter experts from the Fleet Support Teams officials who provide engineering and logistics technical support to fleet and aviation depot maintenance organizations are not required to attend workload planning meetings. Experts may potentially attend via video teleconference, but others, due to time zone differences, may not participate. As a result, workload planning meetings may not consistently include workload input from all relevant subject-matter experts. Navy officials said that once the Naval Sustainment System initiative began focusing on improving depot maintenance on the F/A-18E-F, deficiencies in the workload planning process became more apparent. They noted the challenges of coordinating key stakeholders along the maintenance planning timeline and its impact on planning and budgeting. In particular, Navy officials stated the current depot maintenance planning-time horizon was disconnected from long- range planning, such as the Program Objective Memorandum process. For example, due to a misalignment in the planning and budgeting processes, COMFRC reacts to the outcome of the Program Memorandum Objective process rather than influencing it, which results in many adjustments to their productions plans, such as improper staffing, material management, and facility-usage plans. NAVAIR Instruction 5221.1B, Workload Acceptance states that commanders will establish internal competency guidelines for communication and coordination of workload-related issues. In addition, the Navy 2014-2019 Depot Maintenance Strategic Plan, states the Navy will forge a strong liaison between maintenance activities and the acquisition community to ensure that maintenance requirements and planning are in sync. As a result of the Naval Sustainment System initiative, Navy officials said that COMFRC is developing a new workload planning process to become more proactive in depot maintenance planning and increase information exchanges. This includes ensuring that the new process involves all key depot maintenance stakeholders, such as COMFRC officials, program managers, and fleet officials. For example, NAVAIR officials said that most of the Fleet Support Team scheduled maintenance leads will be the primary point of contact to assist COMFRC with developing the future maintenance requirements planning and will be invited and asked to attend workload planning meetings. If they are unable to attend, they will then ask to have a program office representative attend in their place. However, Navy officials acknowledged that their efforts are still in the developmental stages and that the Navy needs formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Without these in place, the Navy cannot be assured that all subject-matter expert input is proactively solicited and incorporated into depot workload planning, which in part can contribute to persistent maintenance delays that reduce the time aircraft are available for operations and training. <4. Conclusions> The ability of the Air Force and Navy aviation depots to complete maintenance on time directly affects military readiness. Poor planning for depot maintenance contributes to longer delays and reduced unit readiness. The Air Force has generally accurately planned for aviation depot maintenance over the last 6 years and in turn has completed the vast majority of its depot maintenance on time or early over this timeframe. In contrast, the Navy has not accurately planned for aviation depot maintenance over the last 6 years and in turn has completed only half of its depot maintenance on time over this timeframe, which has adversely affected aircraft availability. While the Navy has implemented an initiative to improve maintenance planning, the Navy has not effectively used historical data to analyze turnaround time and establish accurate planning targets for aircraft maintenance packages. In addition, Navy depot planners do not have visibility into aircraft maintenance that is performed outside the depots by an operational unit or other maintenance facility information critical to planning for the condition and depot maintenance needs of individual aircraft. The Navy also has not established formal processes and related guidance for communication and coordination between depot stakeholders to ensure they receive input from all key subject-matter experts to inform maintenance planning. Without addressing these challenges, the Navy cannot appropriately plan for depot maintenance workload and may continue to experience maintenance delays that reduce the availability of aircraft for operations and training. <5. Recommendations for Executive Action> We are making three recommendations to the Department of Navy. The Secretary of the Navy should ensure that Naval Air Systems Command and Commander, Fleet Readiness Centers effectively use historical data to analyze turnaround time and establish accurate turnaround time targets for fixed-wing aircraft depot maintenance packages. (Recommendation 1) The Secretary of the Navy should ensure that Commander, Naval Air Forces and Commander, Naval Air Force, Pacific provide depot planners regular reporting on fixed-wing aircraft maintenance performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility to ensure they have information on the current condition and depot maintenance needs of individual aircraft. (Recommendation 2) The Secretary of the Navy should ensure that Naval Air Systems Command and Commander, Fleet Readiness Centers establish formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. (Recommendation 3) <6. Agency Comments> We provided a draft of this report to DOD for review and comment. In written comments on a draft of this report, DOD concurred with all three of our recommendations. DOD s comments are reprinted in their entirety in appendix III. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Secretaries of the Navy and Air Force. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact Diana Maurer at (202) 512-9627 or [email protected] or Asif A. Khan, at (202) 512-9869, 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 that made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology Senate Report 115-262 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019 included provisions for us to examine the Department of Defense s (DOD) aviation depots and maintenance operations. Our report examines the extent to which 1) the Air Force and Navy aviation depots completed selected fixed-wing aircraft maintenance on time from fiscal years 2014 through 2019, and 2) the Air Force and Navy accurately planned for depot maintenance requirements for selected fixed-wing aircraft from fiscal years 2014 through 2019 and addressed any associated challenges. We have separate ongoing reviews to examine maintenance timeliness and related issues at the Army and Marine Corps key weapons systems depots and Navy shipyards. For objective one, we selected a non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft types, including fighters, bombers, and aerial refuelers, based on information from Navy and Air Force maintenance data and our prior work. These aircraft had maintenance completed in fiscal years 2014 through 2019, at the Navy s three Fleet Readiness Centers and the Air Force s three Air Logistics Complexes. We selected this time period so we could identify and obtain insight on historical data trends regarding maintenance timeliness for the selected aircraft. For each aircraft, we collected data on the date maintenance began and was completed for individual aircraft, as well as the original estimate of time (in days) needed to complete maintenance. We also collected updated estimates if available. We used this information to calculate the difference between the number of days planned for maintenance (using the updated estimate if available) and the number of days used for maintenance in order to determine whether the services completed aircraft maintenance on time, early, or late. Additionally, we used the total number of aircraft completed in each fiscal year to calculate a measure of average maintenance timeliness by aircraft type. We presented the data based on aircraft that had maintenance completed in a given fiscal year; however, not all of the maintenance was necessarily completed in that given fiscal year. For example, an aircraft may have had maintenance begun on it in one fiscal year and its maintenance completed in the next fiscal year. In such case, we would count that aircraft in the second fiscal year. The aircraft types we selected were: F/A-18A-D Hornet T-6B Texan II Turboprop In addition, we interviewed DOD and service officials to gain a better understanding of factors influencing fixed-wing aircraft maintenance timeliness and reviewed our prior work on depot maintenance. For objective two, we collected information on the depot maintenance planning processes for Air Force and Navy fixed-wing aircraft. Using the non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft identified in objective one, we analyzed data on maintenance duration for maintenance completed in fiscal years 2014 through 2019, and compared the number of days planned for maintenance to the number of days used for maintenance to determine the extent to which planned and actual numbers aligned. We interviewed DOD, Navy, and Air Force officials to obtain their views on the challenges related to planning, incorporating historical data, and coordinating with stakeholders related to the maintenance requirements planning process for aircraft depot maintenance. For specific challenges identified in the Navy, we reviewed documents including Naval Air Systems Command (NAVAIR) workload standards, applicable Navy guidance, and the Navy depot maintenance strategic plan and interviewed Commander, Fleet Readiness Centers (COMFRC) and NAVAIR officials to determine the extent to which the Navy incorporates historical data into the maintenance requirements planning process and the extent to which Navy depot stakeholders communicate and coordinate to inform this planning process. In addition, we visited one Air Force aviation depot and one Navy aviation depot to interview officials from specific aircraft programs, depot production, and depot business offices to understand challenges associated with planning for depot maintenance. To assess the reliability of the maintenance timeliness and planning data collected for both objectives, we reviewed and evaluated two systems one for the Air Force and one for the Navy that are used to collect and track data on depot maintenance. We conducted these assessments by interviewing officials regarding their data-collection processes, reviewing related policies and procedures associated with the collection of the data, examining the data for missing values and other anomalies, and interviewing knowledgeable agency officials regarding their accuracy and completeness. Based on our assessments, we determined that the data used from these systems were sufficiently reliable for the purposes of summarizing trends in selected aircraft maintenance timeliness and planning accuracy for fiscal years 2014 through 2019. We also assessed the reliability of the working capital fund data related to aviation depot maintenance activities included in Appendix II, by (1) reviewing our prior work to determine if there were reported concerns with Air Force and Navy budgetary data, and (2) reconciling the working capital fund data that was previously published in our reports for consistency. Based on our assessment, we determined that these data were sufficiently reliable for the purposes of presenting information on the services working capital funds activities and budget estimates for fiscal years 2014 through 2019. Appendix II: Air Force and Navy Working Capital Funds Used for Aviation Depot Maintenance Activities The U.S. military use working capital funds to procure and provide certain materiel and commercial products and services to its forces. A Working Capital Fund (WCF) is a type of revolving fund that operates as a self- supporting entity conducting a regular cycle of businesslike activities, such as acquiring parts and supplies, equipment maintenance, transporting personnel, research and development. Department of Defense (DOD) WCFs are authorized under 10 U.S.C. 2208 and their amounts are generally available until expended. Ongoing WCF operations and maintenance of a minimum cash balance are funded through reimbursements to the WCF comprised of customer payments for goods or services received from WCF-supported activities, such as Navy and Air Force aviation depots. DOD WCFs operate on a break-even basis, although they may realize gains or losses within each fiscal year. As part of the annual budget submission for each upcoming fiscal year, however, prior year gains and losses are taken into account when new rates are established at levels estimated to recover the budgeted costs of goods and services, including all general and administrative overhead costs. Regardless, WCFs must maintain a net-positive cash balance at all times. Section 2464 of title 10 of the United States Code requires DOD to maintain a core depot-level maintenance and repair capability that is government-owned and operated. Maintaining this capability provides a ready and controlled source of technical competence and resources to enable effective and timely response to mobilizations, contingencies, or other emergencies. Additionally, DOD must assign these government- owned and operated facilities (the depots) sufficient workload to ensure cost efficiency and technical competence during peacetime, while preserving the surge capacity and reconstitution capabilities necessary to fully support the strategic and contingency plans prepared by the Chairman of the Joint Chiefs of Staff. The three Air Force and three Navy aviation depots operate through the Air Force and Navy working capital funds. Depot customers are charged for the anticipated full cost of requested goods and services. We reviewed the Air Force s and the Navy s budget estimates for fiscal years 2014 through 2019 and describe the information at a summary level below: Carryover (funded maintenance work leftover at the end of the fiscal year): Both services aviation depots underestimated carryover for most years during fiscal years 2014 through 2019. New orders (funded workload customers place at the aviation depots for maintenance work to be performed on their aircraft): Both services generally underestimated the amount of funds that their aviation depots received from new orders placed by customers and the work performed did not keep pace with those orders from year to year, during fiscal years 2014 through 2019. Revenue (dollar amount of work performed by depots in a single fiscal year): The services have varying trends for revenue for fiscal years 2014 through 2019. In fiscal years 2014 and 2017 through 2019 the Air Force, and for fiscal years 2014 through 2017 the Navy, overestimated the amount of revenue that was actually earned. Conversely, the Air Force underestimated for fiscal years 2015 through 2016, and the Navy underestimated during fiscal years 2018 through 2019. Workload (workload projections are expressed in Direct Production Earned Hours (DPEHs) for the Air Force and Direct Labor Hours (DLHs) for the Navy): A DPEH or DLH is an hour earned by a direct employee against an established work order, and includes civilians, contractors and military personnel. In fiscal years 2014 through 2019, Air Force depots workload increased from 21,337,000 DPEHs to 24,511,000 DPEHs an increase of about 3.2 million (14.9 percent) DPEHs. During those same years, Navy depots workload generally increased from 10,161,000 DLHs to 11,668,000 DLHs an increase of about 1.5 million (14.8 percent) DLHs. Personnel (civilian and military personnel performing depot maintenance at aviation depots and civilian staff performing support functions, such as finance and budgeting and supply and acquisitions): In fiscal years 2014 through 2019 the number of civilian personnel working at the aviation depots has generally increased by around 3,000 for both the Air Force and the Navy. <7. Carryover> Each year, customers order billions of dollars of maintenance work that the depots cannot complete by the end of the fiscal year. To the extent that the depots do not complete work at year-end, the work and related funding will be carried into the next fiscal year. DOD refers to this reported dollar value of work that has been ordered and funded (obligated) by customers, but not completed by working capital fund activities at the end of the fiscal year as Carryover . DOD allows and the congressional defense committees recognize that some carryover from one fiscal year to the next is needed to ensure a smooth flow of maintenance work during the transition from one fiscal year to the next. However, past congressional defense committee reports have raised concerns that the level of carryover may be more than is needed. DOD has reported that approximately 6 months of carryover is optimal. Excess carryover (i.e., more unfinished work than allowed) may reflect an inefficient use of resources and tie up funds that could be used for other priorities. Excessive amounts of carryover may result in future appropriations or budget requests of depot customers being subject to reductions by DOD and the congressional defense committees during the annual budget-review process. Tables 1 and 2 show Air Force and Navy carryover for fiscal years 2014 through 2019, respectively. <8. New Orders> Accurate budgets for the amount of new orders to be received by the depots are essential for them to plan their work, such as determining the right number of personnel, parts, and material needed. For example, if the services include workload in their new order estimates that do not materialize, a depot is at risk of incurring unplanned financial loss because the depot is allocating its overhead costs over less work than planned. These losses may lead the depots to increase their rates for repairing assets. If the customer receives more funding (e.g., Operations & Maintenance or Procurement) than they originally anticipated and they in turn increase their orders with the depots (new orders or just an increase to an existing order), or if operational decisions lead to changes in requirements or priorities, unplanned workload may materialize at the depots resulting in additional carryover. Tables 3 and 4 show Air Force and Navy new orders for fiscal years 2014 to 2019, respectively. <9. Revenue> Revenue represents the dollar amount of work performed by depots in a single fiscal year. DOD WCFs conduct businesslike activities to generate revenue from the sale of goods or services to customers, such as the military services or combatant commands, to cover costs expended throughout the year in support of those services. The DOD FMR 7000.14- R directs DOD WCFs to operate on a break-even basis (revenue generated equals the cost associated with receiving the revenue). See tables 5 and 6 for Air Force and Navy Depots Revenue (Budgeted vs Actual) for fiscal years 2014 through 2019. <10. Workload> The Air Force and Navy express depot workload projections in Direct Production Earned Hours (DPEHs) for the Air Force, and Direct Labor Hours (DLHs) for the Navy. A DPEH or DLH is an hour earned by a direct employee against an established work order in the performance of depot work on an end item. The Air Force and Navy include direct labor hours worked by civilians, contractors and military personnel in their DPEH and DLH projections. Tables 7 and 8 show Air Force DPEHs and Navy DLHs for fiscal years 2014 through 2019, respectively. <11. Personnel> The number of civilian personnel at the Air Force and Navy aviation depots referred to as end strength perform the majority of depot-level maintenance activities and are made up of personnel such as artisans and maintainers welders, machinist, sheet metal mechanics, aircraft mechanics, aircraft electricians, engineers and scientists performing aviation depot maintenance, but also includes personnel performing support functions such as finance and budgeting. Tables 9 and 10 show total civilian and military personnel employed at the Air Force and Navy aviation depots for fiscal years 2014 through 2019, respectively. As seen in table 9, in fiscal years 2014 through 2019, the number of civilian personnel working at the Air Force aviation depots has grown by over 3,000 civilians (25,540 to 28,576). As seen in table 10, in fiscal years 2014 through 2019, the number of civilian personnel working at the Navy aviation depots has grown by over 3,100 civilians (8,515 to 11,643). Appendix III: Comments from the Department of Defense Appendix IV: GAO Contacts and Staff Acknowledgments <12. GAO Contacts> Diana Maurer at (202) 512-9627 or [email protected], or Asif A. Khan at (202) 512-9869 or [email protected]. <13. Staff Acknowledgments> In addition to the contacts listed above, Chris Watson (Assistant Director), Delia Zee (Analyst-in-Charge), John Craig, Sergio Enriquez, Amie Lesser, Felicia Lopez, Amanda Manning, Keith McDaniel, Richard Powelson, Benjamin Sclafani, Michael Silver, and Roger Stoltz (Assistant Director) made key contributions to this report. Related GAO Products Military Depots: DOD Can Benefit from Further Sharing of Best Practices and Lessons Learned. GAO-20-116. Washington, D.C.: January 30, 2020. Navy Maintenance: Persistent and Substantial Ship and Submarine Maintenance Delays Hinder Efforts to Rebuild Readiness. GAO-20-257T. Washington, D.C.: December 4, 2019. Naval Shipyards: Key Actions Remain to Improve Infrastructure to Better Support Navy Operations. GAO-20-64. Washington, D.C.: November 25, 2019. F-35 Aircraft Sustainment: DOD Faces Challenges in Sustaining a Growing Fleet. GAO-20-234T. Washington, D.C.: November 13, 2019. Depot Maintenance: DOD Should Adopt a Metric That Provides Quality Information on Funded Unfinished Work. GAO-19-452. Washington, D.C.: July 26, 2019. Military Depots: Actions Needed to Improve Poor Conditions of Facilities and Equipment That Affect Maintenance Timeliness and Efficiency. GAO-19-242. Washington, D.C.: April 29, 2019. DOD Depot Workforce: Services Need to Assess the Effectiveness of Their Initiatives to Maintain Critical Skills. GAO-19-51. Washington, D.C.: December 14, 2018. Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation Readiness Will Require Time and Sustained Management Attention. GAO-19-225T. Washington, D.C.: December 12, 2018. Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.: November 19, 2018. Depot Maintenance: DOD Has Improved the Completeness of Its Biennial Core Report. GAO-19-89. Washington, D.C.: November 14, 2018. Air Force Readiness: Actions Needed to Rebuild Readiness and Prepare for the Future. GAO-19-120T. Washington, D.C.: October 10, 2018. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need to Be Clarified. GAO-18-678. Washington, D.C.: September 10, 2018. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. Naval Shipyards: Actions Needed to Improve Poor Conditions That Affect Operations. GAO-17-548. Washington, D.C.: September 12, 2017. Depot Maintenance: Executed Workload and Maintenance Operations at DOD Depots. GAO-17-82R. Washington, D.C.: February 3, 2017. Depot Maintenance: Improvements to DOD s Biennial Core Report Could Better Inform Oversight and Funding Decisions. GAO-17-81. Washington, D.C.: November 28, 2016. Army Working Capital Fund: Army Industrial Operations Could Improve Budgeting and Management of Carryover. GAO-16-543. Washington, D.C.: June 23, 2016. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Navy Working Capital Fund: Budgeting for Carryover at Fleet Readiness Centers Could Be Improved. GAO-15-462. Washington, D.C.: June 30, 2015. Army Industrial Operations: Budgeting and Management of Carryover Could Be Improved. GAO-13-499. Washington D.C.: June 27, 2013. Marine Corps Depot Maintenance: Budgeting and Management of Carryover Could Be Improved. GAO-12-539. Washington, D.C.: June 19, 2012. Air Force Working Capital Fund: Budgeting and Management of Carryover Work and Funding Could Be Improved. GAO-11-539. Washington, D.C.: July 7, 2011.

Why GAO Did This Study Three Air Force and three Navy aviation depots maintain critical fixed-wing aviation platforms, such as the KC-135 aerial refuelers and F/A-18 fighters. The ability of these depots to complete maintenance on time directly affects military readiness because delays reduce the time aircraft are available for operations and training. Senate Report 115-262, accompanying a bill for the Fiscal Year 2019 National Defense Authorization Act, contained provisions that GAO examine the Department of Defense's (DOD) aviation depots. GAO's report evaluates the extent to which 1) the Air Force and Navy aviation depots completed selected fixed-wing aircraft maintenance on time from fiscal year 2014 through 2019, and 2) the Air Force and Navy accurately planned for depot maintenance requirements from fiscal year 2014 through 2019 and addressed any associated challenges. GAO selected a non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft types; analyzed maintenance and planning data for fiscal year 2014 through 2019; and interviewed service officials. What GAO Found The Air Force and Navy varied in the extent that they completed depot maintenance on time for selected fixed-wing aircraft in fiscal years 2014 through 2019. Specifically, GAO's analysis of aggregate maintenance data found that: Air Force depots completed aircraft maintenance on time or early in 5 of 6 years, with percentages for on-time or early-completion maintenance ranging from 78 to 90 percent. Navy depots completed aircraft maintenance late for each of the 6 years, with percentages for on-time or early-completion maintenance ranging from 45 to 63 percent. Navy fixed-wing aircraft have spent over 62,000 more days in maintenance than expected since fiscal year 2014. The Air Force generally has accurately planned for depot maintenance requirements for selected fixed-wing aircraft during fiscal year 2014 through 2019, but the Navy has not. Both services have initiatives underway to improve planning for aviation depot maintenance; however, GAO identified planning challenges that the Navy has not fully addressed: The Navy has not effectively used historical data to analyze turnaround time—total days planned for depot maintenance periods—and established accurate planning targets for aircraft maintenance packages. Navy depot planners do not have visibility into aircraft maintenance that is performed outside the depots by an operational unit or other maintenance facility—information critical to planning for the condition and depot maintenance needs of individual aircraft. The Navy does not yet have formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Without addressing these challenges, the Navy cannot appropriately plan for depot maintenance workload and will likely continue to experience maintenance delays that reduce the time aircraft are available for operations and training. What GAO Recommends GAO is making three recommendations to the Navy: to use historical data to set turnaround time targets for depot maintenance; provide planners information on maintenance performed outside the depots; and establish processes for communication between depot stakeholders. DOD concurred with all three recommendations.

gao_GAO-20-150

gao_GAO-20-150_0

<1. Background> The majority of Americans receive their health coverage through private health insurance, either by purchasing health coverage directly or receiving coverage through their employer. Many of those with private coverage are enrolled in plans purchased from state-licensed or state- regulated issuers. Others are covered by plans where their employer sets aside funds to pay for employee health care, known as self-funded plans. In general, those who obtain private health coverage do so in one of three market segments: individual, small group, or large group. Enrollees in the individual market purchase private health insurance plans directly from a state-regulated issuer not in connection with a group health plan. In the small group and large group markets, enrollees generally obtain health insurance coverage through a group health plan offered through a plan sponsor (typically an employer). <1.1. MH/SU Parity Requirements> Health benefits commonly include plan design features that require enrollees to pay for a portion of their health care, limit the amount or number of treatments enrollees can receive, and limit the scope or duration of treatments that enrollees may receive. Prior to the implementation of the MHPAEA, health plans offered through employers covering MH/SU often used plan design features that were more restrictive or provided lower levels of coverage for MH/SU benefits than for medical/surgical benefits. For example, prior to MHPAEA, an employer s plan could cover unlimited hospital days and outpatient office visits and require 20 percent coinsurance for outpatient office visits for medical/surgical treatment while, for MH/SU, that same plan could cover only 30 hospital days and 20 outpatient office visits per year and impose 50 percent coinsurance for outpatient office visits. Congress passed MHPAEA in 2008 to help address discrepancies in health care coverage between mental illnesses and physical illnesses. MHPAEA both strengthened and broadened federal parity requirements enacted in 1996, including extending parity to cover the treatment of substance use disorders. MHPAEA requires coverage for MH/SU services when those services are offered by group health plans sponsored by large employers (generally employers with more than 50 employees) be no more restrictive than coverage for medical/surgical services. PPACA extended MH/SU parity requirements to individual insurance plans and some small group health plans. See figure 1 for a timeline of the laws and regulations establishing federal parity requirements and the types of plans affected. In general, MHPAEA requires that the financial requirements and treatment limitations imposed on MH/SU benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical/surgical benefits. Financial requirements. The most common types of financial requirements include: (1) deductibles, which are required payments of a specified amount made by enrollees for services before the issuer begins to pay; (2) copayments, which are payments made by enrollees and are a specified flat dollar amount usually on a per-unit-of-service basis with the issuer reimbursing some portion of the remaining charges; (3) coinsurance, which is a percentage payment made by enrollees after the deductible is met and until an out-of-pocket maximum is reached; and (4) out-of-pocket maximums, which are the maximum amounts enrollees have to pay per year for all covered medical expenses. Quantitative treatment limitations (QTL). QTLs are treatment limitations that can be expressed numerically, such as annual, episode, and lifetime day and visit limits. For example, QTLs include annual limits on the number of office visits an enrollee can make for a certain condition and lifetime limits on the coverage of benefits for a certain type of treatment. Non-quantitative treatment limitations (NQTL). NQTLs are non- numerical limitations on the scope or duration of MH/SU services. Common NQTLs include (1) medical management standards that limit or exclude benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative; (2) refusal to pay for higher-cost therapies until it can be shown that lower cost therapy is not effective known as fail first or step therapy protocols; (3) exclusions based on failure to complete a course of treatment; (4) standards for providers to be admitted to participate in a network, including the factors used to set provider reimbursement rates; and (5) requiring pre-authorization of services the requirement that an enrollee receives prior approval for care. The MH/SU parity regulations established a two-part analysis to determine if the financial requirements or QTLs in a plan are in compliance with MH/SU parity requirements. The first test determines if a particular type of financial requirement or QTL (such as a copay) applies to substantially all medical/surgical benefits in the relevant classification of benefits (e.g., inpatient in-network or outpatient out-of- network). Generally, a financial requirement or QTL is considered to apply to substantially all medical/surgical benefits if it applies to at least two- thirds of the medical/surgical benefits in the classification, according to the regulations. Once the first test is met, the second test checks for parity in the level or magnitude of the requirement (e.g., copay of $15 or $20 or treatment limit of 21 or 30 inpatient days per episode). Specifically, by regulation, the financial requirement or QTL cannot exceed the predominant level that is, the level that applies to more than half of the medical/surgical benefits subject to the financial requirement or QTL in the classification. For example, if at least two-thirds of outpatient, in- network, medical/surgical benefits are subject to a copay, and 75 percent (i.e. more than half) of outpatient, in-network visits involving medical/surgical benefits are subject to a copay of $30, the copay for outpatient, in-network visits involving MH/SU benefits cannot exceed $30. The MH/SU parity regulations extended parity requirements to NQTLs and establish a different test for assessing parity of NQTLs between medical/surgical and MH/SU benefits. Under the regulations, a plan generally cannot apply an NQTL on an MH/SU benefit unless both as written and in operation it is comparable to and applied no more stringently than the NQTL applied to medical/surgical benefits. According to guidance issued by HHS, DOL, and Treasury, the NQTL analysis in the regulations focuses on the underlying factors (such as processes, strategies, and evidentiary standards) used to apply the NQTL and ensuring there are not arbitrary or discriminatory differences in how a plan or issuer applies those factors to MH/SU benefits as compared to medical/surgical benefits. <1.2. MH/SU Parity Oversight> HHS, DOL, and Treasury share joint oversight responsibilities for certain federal laws applicable to private health coverage, including MHPAEA. The oversight of plans and issuers for compliance with MHPAEA is split between the states, HHS, DOL, and Treasury, depending on the type of coverage and whether the plan is self-funded or fully insured. Individual and fully insured group plans sold by issuers. States have primary responsibility for regulating insurance, and health insurance products sold within a state must meet both federal and state requirements, including MH/SU parity requirements. States oversee health insurance sold by issuers (1) in the individual market, where individuals purchase private health insurance plans directly from an issuer or through an exchange; and (2) in the group market, where a plan sponsor (typically an employer) purchases coverage from an issuer. Of the estimated 216 million Americans who were enrolled in private health insurance in 2016, the estimated enrollment in these state-regulated markets was 17.3 million in the individual market, 14.2 million in the small group market, and 42.9 million in the large group market. State oversight of health insurance applies only to fully insured health plans offered by state-licensed issuers. Because self-funded plans are financed directly by the plan sponsor, these plans are generally not subject to state law or oversight. With respect to health insurance issuers selling products in the individual and fully insured group market, HHS has primary enforcement authority over MH/SU parity requirements in two instances: (1) when a state notifies HHS that it does not have the authority to enforce MH/SU parity requirements or the state notifies HHS that it is not otherwise enforcing the requirements, or (2) when HHS determines the state failed to substantially enforce MH/SU parity requirements. States falling into these categories are known as direct enforcement states, and, in these states, the Centers for Medicare & Medicaid Services (CMS) within HHS assumes the responsibility for directly enforcing federal MH/SU parity requirements and other federal health laws covered by PPACA with respect to issuers. CMS is currently responsible for enforcing MH/SU parity requirements against issuers in four states: Missouri, Oklahoma, Texas, and Wyoming. While CMS enforces MH/SU parity requirements and other PPACA requirements for these direct-enforcement states, these states maintain enforcement authority over issuers for state-level regulatory requirements. For the estimate of overall enrollment in private health plans in 2016, see U.S. Census Bureau, Coverage Numbers and Rates by Type of Health Insurance: 2013 to 2016, Current Population Survey, 2014 to 2017 Annual Social and Economic Supplements, table 1. products they offer, DOL oversees the plans themselves for compliance through its Employee Benefits Security Administration (see table 1). DOL does not have the authority to enforce MH/SU parity requirements directly against issuers to correct noncompliant health policies that are designed, marketed, and sold by the issuer to numerous employers for the purposes of offering health plans to their employees. DOL has primary authority for overseeing compliance with MH/SU parity requirements for self-funded, private employer-sponsored group plans, as states generally do not have authority over these plans. The Internal Revenue Service (IRS) within Treasury is authorized to impose an excise tax on employers that sponsor private group plans that are not in compliance with MH/SU parity requirements. Similarly, HHS has primary authority for MH/SU parity requirements over employer-sponsored plans for state and local governments known as non-federal governmental plans. Within HHS, CMS oversees both fully insured and self-funded non-federal governmental plans. In 2017, an estimated 13 million state and local government employees enrolled in these plans. Sponsors of self-funded, non-federal governmental plans may elect an exemption from, or opt-out of, certain federal health care requirements, including MH/SU parity requirements. If a plan elects to opt-out of MH/SU parity requirements, CMS also reviews the plan s election to ensure they meet requirements for doing so. <2. Practices for Overseeing Compliance with MH/SU Parity Requirements Vary among State and Federal Agencies> <2.1. Nearly All States Reported Some Review of Fully Insured Group and Individual Plans for MH/SU Parity Compliance before Consumers Enroll; Post-Enrollment Reviews Vary> Through our survey and interviews with officials from the three selected states, we found that nearly all states conduct some type of review for MH/SU parity compliance as part of their oversight of issuers selling fully insured large and small group plans and individual plans. The reported type and frequency of these reviews vary, particularly for the reviews conducted after consumers enroll in plans. A product is a discrete package of health insurance coverage benefits that are offered using a particular product network type (e.g., health maintenance organization or preferred provider organization) within a service area. Issuers then sell plans to consumers by pairing health insurance coverage benefits with a particular cost sharing structure, provider network, and service area. The only two states that did not report that they conduct reviews for MH/SU parity compliance before products are approved for sale in their states are Missouri and Wyoming, which are two of the four states where CMS is directly enforcing MH/SU parity requirements. In the four direct enforcement states, CMS conducts reviews of issuer policies and documentation for compliance with federal MH/SU parity requirements before products are approved for sale in the states. The two other states Texas and Oklahoma reported in our survey that they review products for state-level MH/SU parity compliance; however, CMS maintains primary authority for reviewing products for compliance with federal MH/SU parity requirements in those states. consumers enroll in a plan. Additionally, according to CMS officials, the HHS mental health parity tool is not designed to facilitate an evaluation of NQTLs due to the nature of reviewing NQTLs. State oversight after consumers enroll in plans. In addition to the review they conduct prior to consumers enrolling in plans, 27 states reported in our survey they have conducted some type of review related to MH/SU parity after consumers enroll. The types of reviews states conduct vary. These review types include: targeted reviews based on consumer complaints or other information, random audits, and conducting broad routine reviews of issuers compliance with state and federal health insurance laws called market conduct examinations. Through our interviews of states and stakeholders we identified additional enforcement activities some states are using to assess the issuer compliance with MH/SU parity requirements after consumers enroll. These reviews and additional enforcement activities are described below: Conducting targeted reviews. Twenty states reported in our survey that they had conducted a targeted review that focused on specific issuers or particular MH/SU parity compliance concerns, while other states reported they had never performed such a review. Consumer complaints were most commonly identified as the reason at least in part that these 20 states conducted targeted reviews to assess compliance with MH/SU parity requirements. Thirty-eight states reported in our survey that they track MH/SU parity complaints, which can be submitted by consumers, providers, or advocates. For example, after receiving consumer complaints, Massachusetts examined the accuracy of the information on behavioral health services services that address mental health or substance use issues contained in issuers provider directories and compared this to the accuracy of medical/surgical provider information in a 2018 report. Officials from another state told us they frequently use targeted reviews in response to complaints because these focus on a specific issue, rely on more recent data, and are less time consuming than more comprehensive market conduct examinations that review an issuer s compliance with all state health requirements. States reported additional reasons for starting targeted reviews related to MH/SU parity requirements, including reviews initiated after receiving referrals from other departments, reviews driven by predictive analytics or market analyses, and reviews in response to media attention. In 2017 and 2018, the frequency of receiving MH/SU parity-related complaints and conducting targeted reviews varied across states. (See table 2). Market conduct examinations. Nearly all states conduct market conduct examinations and states have not routinely included a review for MH/SU parity compliance as part of the examinations. Market conduct examinations are a review of an insurer s marketplace practices. The examination is an opportunity for the state to verify data provided by the insurer and to confirm that companies internal controls and operational processes result in compliance with state laws and regulations. Eighteen states reported in our survey that they routinely conduct market conduct examinations (ranging from every 3 or 5 years), and, of those, nine states reported that they usually or always include a review of MH/SU parity compliance. Twenty-nine states reported that their market conduct examinations are not routine; they are conducted on an as-needed basis or in response to risk factors, such as market analysis or complaints. In order to assist states ongoing oversight of MH/SU parity compliance, NAIC developed guidance on MH/SU parity for its Market Regulation Handbook, which most states use to guide their market conduct examinations, an NAIC official told us. The guidance includes a data collection tool for mental health parity analysis. While the guidance was finalized in August 2019, an NAIC official told us most states were already using the guidance to conduct their market conduct examinations while it was in draft form. State-wide comprehensive reviews of issuers. Officials we interviewed from two of the three selected states told us they have conducted reviews of all issuers in their state as part of their oversight of MH/SU parity compliance after consumers enroll in plans. For example, as requested by its state legislature, Maryland conducted three annual MH/SU parity surveys with the state s major issuers. Maryland officials told us the first two surveys focused on MH/SU parity compliance in the issuers plan documentation, and the last survey assessed compliance in plan practices and operations. Maryland officials told us the review of all issuers in the state will give them a baseline understanding of issuer compliance with MH/SU parity requirements reviewed. Officials from Washington told us they are using a CMS grant to evaluate issuer claims data and to understand issuers NQTLs in operation, which officials say will enable them to identify statewide MH/SU parity-related concerns. Annual compliance reporting. At least eight states have established annual requirements for issuers to demonstrate their MH/SU parity compliance through data reporting or self-certifications, according to officials from one of the three selected states in our review and a provider organization. To fulfill the states requirements, issuers submit information such as the percentage of claims paid for in- network and out-of-network MH/SU services compared to those paid for medical/surgical services and the number of consumers denied prior authorizations for MH/SU services. For example, in 2012, Massachusetts began requiring issuers to submit annual reports certifying that their plans comply with federal and state MH/SU parity requirements and instructing issuers to compare denials of care for MH/SU and medical/surgical services, among other things. These certifications must be signed by the issuer s chief executive officer and chief medical officer, which Massachusetts officials told us ensures that issuer leadership is aware of the MH/SU parity requirements. Additionally, an official from NAIC told us that NAIC now includes data reporting requirements related to MH/SU parity, such as requiring information on prior authorizations and denials of care, in its annual nationwide collection of issuers post-enrollment information. An NAIC official told us states can use these data to compare information on MH/SU and medical/surgical services and examine issuers that operate in multiple states. In their survey responses, 47 states identified enforcement actions they can take if they find, through a review, that an issuer violated MH/SU parity requirements. States reported that these enforcement actions include: financial penalties, license termination, orders to pay claims or interest, and orders to pay restitution. However, an official from NAIC told us that in the majority of cases, issuers voluntarily come into compliance after state regulators identify an issue or parity violation. <3. DOL and CMS Conduct Targeted Oversight of Employer-Sponsored Group Plans after Receiving Information and Complaints about Possible Noncompliance> Both DOL and CMS oversee employer-sponsored group plans to ensure their compliance with MH/SU parity requirements. Specifically, the agencies conduct what are known as targeted reviews after consumers enroll in these plans. The agencies initiate these reviews after they receive complaints or other information regarding possible noncompliance with either MH/SU parity requirements or other, unrelated issues, such as a plan failing to provide a document explaining the health benefits covered. Unlike states, the agencies do not conduct any type of review of employer-sponsored plans before consumers enroll and do not have the authority to conduct such a review, according to DOL and CMS officials. DOL oversight. DOL s targeted reviews are triggered by inquiries, including complaints, or other information that identifies possible noncompliance with MH/SU parity requirements or other applicable federal health care laws. These targeted reviews can also originate from additional techniques DOL uses to target plans for review, such as reviewing bankruptcy filings or financial and operational information filed annually by employers. According to DOL s enforcement manual, DOL investigators generally identify the reasons for starting each review, obtain relevant information from the plan or issuer, and conduct a full review of compliance with applicable federal health care laws. These reviews which are performed by DOL s 10 regional offices can focus on specific private, employer-sponsored group plans, service providers (such as third party administrators), or issuers; however, DOL does not have the authority to take direct enforcement actions against issuers for violations of MH/SU parity requirements. DOL reported that it completed 302 reviews of private, employer- sponsored group plans that included a review for compliance with MH/SU parity requirements in fiscal years 2017 and 2018. According to DOL officials, these reviews can take 2 to 3 years to complete and investigators follow an extensive compliance checklist to conduct these reviews. The checklist includes specific questions to help determine compliance with all applicable requirements, including a section with questions on MH/SU parity. Because investigators complete the compliance checklist for every plan level health investigation, reviews not triggered by a parity complaint may still uncover a parity violation. For example, DOL might review a private employer-sponsored group plan in response to a consumer complaint about how long the plan covered a hospital stay for a mother and her newborn. The review would include a review of compliance with the related law (the Newborns and Mothers Health Protection Act of 1996), MH/SU parity-related requirements, and all other applicable federal health care requirements. Nearly all DOL reviews that assess compliance with MH/SU parity requirements originate from sources unrelated to MH/SU parity, including complaints or other information about potential noncompliance with other federal health care laws and DOL reviews of the annual financial and operational information filed by employers, based on data provided by DOL on the reasons targeted reviews were opened. DOL received few MH/SU parity complaints and opened few reviews based on a potential MH/SU parity violation, compared to complaints related to other federal health requirements, in fiscal years 2017 and 2018 (see table 3). When DOL identifies a violation of MH/SU parity requirements through one of its reviews, investigators first seek to bring the private employer- sponsored group plan or issuer into compliance voluntarily, according to DOL officials. When that is not possible, DOL can sue the plan for equitable relief, which can result in the plan being required to reimburse members whose claims were improperly denied. DOL can also request that the Treasury levy an excise tax on the non-compliant private employer-sponsored group plan, but DOL officials noted that the excise tax goes to the Treasury rather than toward payment of claims for plan members, and DOL s focus is on obtaining payment of claims. DOL officials told us they have never referred a plan to IRS to levy an excise tax based on an MH/SU parity violation. The 21st Century Cures Act requires DOL to conduct an audit of a private employer-sponsored group plan when DOL has identified five or more MH/SU parity violations; however, DOL officials told us the use of this authority has not been triggered, as of October 2019. DOL identified audit resources challenges faced by the agency given the universe of plans DOL oversees and reported that the agency is taking steps to better leverage its resources through targeted exams in its September 2019 enforcement report to Congress. Specifically, DOL reported that DOL has less than one investigator for every 12,500 employee benefit plans the agency oversees, including private health, pension, life, and disability insurance. In light of these challenges, DOL officials said they are focusing their targeted reviews on issuers and other service providers to obtain voluntary corrections whenever possible so they can address noncompliance across multiple private employer- sponsored group plans. To date, they have completed at least two investigations at the issuer level and brought an issuer into voluntary compliance after one investigation identified MH/SU parity noncompliance affecting over 4,000 private, employer-sponsored group plans and 7 million consumers. According to DOL officials, focusing on issuers will result in their opening fewer targeted reviews than in prior years, but will have more meaningful results. DOL officials also noted other efforts underway to assist in MH/SU parity oversight. For example, the DOL s Kansas City Regional Office has convened a task force that focuses on parity in opioid use disorder treatment coverage. DOL officials told us they require senior advisors in each of the 10 regions to identify trends in the types of violations DOL identifies and to identify when a violation could be happening at the issuer level, rather than the individual employer-sponsored group plan level. CMS oversight. CMS oversight of employer-sponsored, non-federal governmental plans for compliance with MH/SU parity requirements consists of targeted reviews. Like DOL, these targeted reviews originate from complaints or information about noncompliance about MH/SU parity or issues with other federal health care laws. The reviews are used to assess compliance with all applicable health requirements, and CMS officials told us CMS has broad authority to review or request information as a part of these reviews. However, according to CMS officials, CMS has limited authority to review or request information from these plans outside of these targeted reviews. Specifically, CMS officials said CMS does not have the authority to conduct random audits, reviews, or examinations of employer-sponsored, non-federal governmental plans, or to require the plans to provide documentation to demonstrate compliance with MH/SU parity requirements. CMS officials also said they do not have the authority to review employer-sponsored, non-federal governmental plans for compliance with MH/SU parity requirements prior to enrollment. While large, self-funded, employer-sponsored, non-federal governmental plans may opt-out of MH/SU parity requirements and certain other federal health requirements, CMS may identify MH/SU parity noncompliance if these plans did not properly opt-out. CMS officials told us that they review documentation for all plans that elect to opt out of MH/SU parity requirements to ensure it was properly submitted. If CMS finds a plan may have opted-out incorrectly, CMS officials said they can request additional information from the plan and can ultimately decide the opt-out was invalid. CMS reported that it closed five reviews related to MH/SU parity in fiscal years 2017 and 2018. Two targeted reviews originated from MH/SU parity complaints and three reviews were related to plans opting-out of MH/SU parity requirements. CMS officials told us that they received four complaints related to MH/SU parity in employer-sponsored, non-federal governmental plans in fiscal years 2017 and 2018. The officials told us all four complaints resulted in targeted reviews, two of which were ongoing as of September 2019. When CMS identifies MH/SU parity noncompliance through one of these targeted reviews, the agency takes one of several actions: working with the plan to implement a corrective action plan; initiating a full market conduct examination of the plan; or imposing civil money penalties. Like DOL, the 21st Century Cures Act requires CMS to audit an employer- sponsored, non-federal governmental plan or issuer when CMS has identified noncompliance five or more times. According to CMS officials, as of November 2019, the use of this audit authority has not been triggered. <3.1. DOL and CMS Do Not Have Assurance That Their Use of Targeted Reviews to Oversee MH/SU Parity Requirements Is Effective for Ensuring Parity> Under DOL s and CMS s oversight through targeted reviews, self-funded employer-sponsored group plans do not undergo review for compliance with MH/SU parity requirements unless the agencies receive complaints or other information about potential noncompliance with an applicable federal health care law, or the review is opened as a result of a targeting technique unrelated to MH/SU parity such as bankruptcy filing review. Relying on the receipt of such information to trigger a targeted review of MH/SU parity is a concern given the low number of complaints DOL receives related to MH/SU parity when compared to other federal health requirements. For example, as we have noted, DOL received 129 complaints in fiscal year 2018, and most of the noncompliance with MH/SU parity requirements DOL identified was found through reviews triggered by complaints and information unrelated to MH/SU parity in fiscal years 2017 and 2018, based on our review of DOL data. Further, as discussed later in this report, consumer advocates have noted that there is a lack of consumer awareness about MH/SU parity requirements, which may result in fewer complaints than would otherwise be made if consumers understood the requirements. Federal internal control standards state that agencies should identify, analyze, and respond to risks related to achieving their defined objectives. DOL has stated that its defined objective is the full implementation of MH/SU parity requirements through vigorous compliance assistance and enforcement. HHS has stated that it is committed to enforcing MH/SU parity requirements through CMS and to providing the sponsors of employer-sponsored, non-federal governmental plans the information needed to ensure that the plans are fully compliant with MH/SU parity requirements. DOL and CMS officials told us they have not completed any statistical analysis or study regarding the effectiveness of their targeted review approach to MH/SU parity compliance, nor whether this approach increases the risk of noncompliance. Specifically, they have not analyzed whether relying on targeted reviews alone increases the risk of noncompliance with MH/SU parity requirements in employer-sponsored group plans. The risk of noncompliance may be increased because incentives for plans to comply are limited when investigations are initiated only after receiving complaints or information about noncompliance. DOL and CMS officials also said they have not analyzed whether additional strategies, such as the attestation or issuer documentation requirements used by some states, would reduce the risk of noncompliance. For example, such an evaluation could assess whether a sample of health plans reviewed for compliance identified similar types of noncompliance as those identified when plans were reviewed in response to MH/SU parity complaints. According to officials from a provider organization, one such strategy to improve compliance would be to require issuers or plans to affirm that (1) their plans comply with MH/SU parity requirements and (2) they have documentation showing that they analyzed their plans for compliance. According to these officials, requiring this documentation from plans and issuers can increase compliance, even if there is a low probability that a plan will be audited. DOL and CMS officials told us that they currently do not have the authority to conduct oversight activities of this type. Specifically, they told us that for self-funded private or non- federal governmental employer-sponsored group plans they do not currently have the authority to: (1) review plans for compliance with MH/SU parity requirements before coverage is offered to consumers, (2) require plans to develop documentation to demonstrate compliance with MH/SU parity requirements, and (3) monitor or examine plans for compliance with MH/SU parity requirements outside of an investigation. Without evaluating the effectiveness of their targeted review approach, DOL and CMS do not know whether their oversight is adequate for ensuring compliance with MH/SU parity requirements, or whether they need to adopt additional strategies and seek new authorities, if needed. <4. Enforcement Activities and Research Identified Some Health Plans Not Compliant with MH/SU Parity Requirements, but the Extent of Compliance Is Unknown> <4.1. States, DOL, CMS, and Available Research Identified Some Noncompliance with MH/SU Parity Requirements> States, DOL, and CMS identified some plan or issuer noncompliance with specific MH/SU parity requirements in 2017 and 2018 through their various oversight efforts. Specifically, after consumers enrolled in plans: Seventeen of the 51 states that responded to our survey reported identifying noncompliance a total of 254 times among issuers of individual plans and fully insured, employer-sponsored group plans. DOL reported identifying noncompliance 113 times among private, employer-sponsored group plans or the issuers of these plans. CMS reported identifying noncompliance two times among employer- sponsored, non-federal governmental plans. Both states and DOL most commonly identified noncompliance with MH/SU parity NQTL requirements. Eleven of the 14 states that provided information on the types of MH/SU parity noncompliance in our survey reported that the noncompliance they found was related to NQTLs half the time or more. Similarly, DOL reported that 55 percent of noncompliance the agency found in fiscal year 2018 was related to NQTLs, while 40 percent was related to financial requirements or QTLs. Through our review of DOL letters informing plans of noncompliance, we found that the most common types of noncompliance with MH/SU parity requirements were related to (1) copayments or coinsurance, such as a higher copayments for MH/SU treatment than those generally applied to equivalent medical/surgical treatment (a financial requirement); (2) prior authorizations, such as requiring approval in advance for MH/SU treatment but not requiring it for equivalent medical/surgical treatment (an NQTL); and (3) the total number of treatments allowed, such as a limit on inpatient hospital days for MH/SU treatment that is not applied to equivalent medical/surgical treatment (a QTL). The scope of noncompliance with MH/SU parity requirements identified by states, DOL, and CMS in 2017 and 2018 varied both in terms of the number of consumers affected and the steps needed to come into compliance. While MH/SU parity requirements apply to plans, regulators may identify and seek to correct noncompliance in the underlying health policies that issuers use to design, market, and sell as health plans to numerous employers. For example, DOL letters show one particularly widespread violation affected more than 7 million enrollees. Most plans or issuers resolved the noncompliance identified by regulators voluntarily. For example, DOL officials told us that plans or issuers resolved all instances of noncompliance voluntarily. Nine states reported in our survey taking a total of 20 enforcement actions to bring plans or issuers into compliance in 2017 and 2018. See table 4 for examples of noncompliance and steps required to come into compliance. Additionally, while the literature we reviewed suggested that the individual, small group, and large group plans assessed by the studies were generally compliant with MH/SU parity requirements assessed by the studies, the studies identified some noncompliance or possible noncompliance. For example: One case study found that, in 25 percent of the total products offered on two state-based health insurance exchanges between October 2013 and March 2014 the first year of operation for the exchanges established by PPACA the financial requirements and certain NQTLs reviewed appeared to be noncompliant with MH/SU parity requirements. The study also found variation in the types of noncompliance in each of the states. The case study concluded that on one exchange more than half the products appeared inconsistent with MH/SU parity requirements, particularly the NQTLs reviewed; on the other exchange, 11 percent of the products had a financial requirement that violated MH/SU parity requirements. One study found that 18 percent of benchmark plans were not compliant with MH/SU parity requirements for substance use disorder benefits specifically. For example, five plans had limits on the number of inpatient and/or outpatient visits for substance use disorder services only. (See app. II for additional information about the studies we reviewed.) Each of the studies we reviewed were limited because they evaluated only selected requirements, with the authors of four studies noting there was insufficient information in plan documents to evaluate additional MH/SU parity requirements. As such, none of the studies could determine the extent of issuer compliance with all MH/SU parity requirements. A 2018 survey of employer-sponsored group plans suggests that there could be employer-sponsored plans that have not come into compliance with MH/SU parity requirements. Specifically, this nationally representative survey of employers that offer employer-sponsored group plans found that 61 percent of large and midsized employers reported they had taken steps to address compliance with MH/SU parity requirements such as reviewing plan documents. An additional 13 percent of large and midsized employers reported that they planned to take action to come into compliance and some plans may have already been in compliance. <4.2. Stakeholders and Research Reviewed Indicate the Full Extent of Compliance with MH/SU Parity Requirements is Not Known> According to advocacy groups and state and federal officials we interviewed and some of the research we reviewed, the full extent of compliance with MH/SU parity requirements is not known. As NAIC and consumer advocacy stakeholders have reported, regulators often rely on both individual complaints and aggregate consumer complaint statistics to identify problem issuers and problem areas for additional oversight. However, stakeholders from eight consumer advocacy groups told us that complaints are not a good measure of whether MH/SU parity issues exist and do not accurately reflect the number of enrollees facing problems with parity. Further, CMS, DOL, and state officials, as well as stakeholders and researchers, also noted the complexity of assessing plans for MH/SU parity compliance for NQTLs in particular, which may result in inconsistent identification of MH/SU parity violations or the inability to fully assess compliance. Limitations of relying on complaints to trigger enforcement activities. Stakeholders and state officials reported on the limitations of relying on complaints to trigger enforcement activities which contribute to the challenges in determining the full extent of compliance with parity requirements. Stakeholders from eight consumer advocacy groups told us that if regulators rely on complaints to identify possible noncompliance after consumers enroll in plans, they will not know the full extent of compliance with MH/SU parity requirements. These stakeholders identified several reasons complaints do not accurately reflect the number of consumers facing problems related to plan or issuer compliance with MH/SU parity requirements: Consumers may not be aware of MH/SU parity requirements, such as how to determine if the treatment challenge they are experiencing is a potential parity violation, how to file a parity-related complaint, or which entity they should contact to file a complaint, according to five consumer advocacy stakeholders we spoke to and one professional organization. For example, while a consumer would be aware of a denial for a particular treatment for a mental health condition because the issuer did not consider it to be medically necessary, the consumer could not easily determine if this standard was applied more stringently than to similar medical/surgical benefits and thus signaled a parity issue. Further, in our survey, officials from 21 states reported they do not provide any public information to consumers about MH/SU parity requirements, which may contribute to a general lack of consumer awareness in these states. Consumers may decide not to file a complaint due to the stigma associated with MH/SU treatment, three consumer advocacy stakeholders and state officials in one state told us. One stakeholder also noted that consumers expect substance use disorder services to be treated differently than medical services and are therefore less likely to file a complaint if they receive disparate treatment. Consumers may be hesitant to file a complaint that includes sensitive personal details, such as a mental illness diagnosis, two stakeholders told us. One of these stakeholders told us consumers in need of substance use disorder services in particular may not want to raise a complaint that documents their participation in illegal activities, such as drug misuse. In addition, two stakeholders and state officials in one state stated that individuals or families experiencing an immediate crisis associated with MH/SU conditions may not be well-equipped to navigate the complaint process or wait for a complaint resolution. Providers face barriers helping consumers file complaints or appeals related to MH/SU parity requirements, four consumer advocacy stakeholder groups and one professional organization told us. The barriers identified by these stakeholders include: providers being unable to file complaints on behalf of consumers in some states; the time consuming nature of the appeals or complaint processes; and provider fear that an issuer will drop them from their network if they file a complaint. Two consumer advocacy groups have identified that providers may be in a better position to understand a denial decision and justify a consumer s need for treatment, but noted that barriers discourage providers from filing an appeal or complaint. One of these consumer advocacy groups reported that providers might be unaware of what issuer actions would violate MH/SU parity requirements. Officials from the three selected states provided examples of specific efforts taken that may address stakeholder identified challenges consumers face in understanding parity requirements and filing related complaints. For example, Maryland officials told us they developed a webinar to help consumers with filing complaints related to substance use disorder treatment. Officials from Massachusetts told us they review for parity violations any complaint related to coverage of mental health- related services, regardless of whether the consumer indicates that the complaint might be a parity violation. While this process is still dependent on a consumer to make a complaint, it does not rely on the consumer having an in-depth understanding of parity requirements for their complaint to be reviewed for potential noncompliance. In light of concerns about consumers not filing complaints, officials from Washington told us their statewide comprehensive review includes an assessment of how issuers implemented state and federal MH/SU parity requirements and aims to help them assist consumers who are not reaching out directly. Additionally, 30 states reported in our survey that they provide public information such as frequently asked questions or brochures for consumers about MH/SU parity requirements. Complexity of assessing NQTLs for MH/SU parity compliance. CMS, DOL, NAIC, and state officials, as well as some stakeholders and researchers, identified complexities in assessing NQTLs for compliance with MH/SU parity requirements. As a result, regulators may fail to identify noncompliance, or may not always identify noncompliance, making current numbers on noncompliance with MH/SU parity requirements an unreliable indicator of the extent of noncompliance. Difficult to assess plan implementation of NQTLs. Officials from three states reported in our survey or interviews that it is challenging to determine how an NQTL described in plan documents is actually being implemented and experienced by consumers in practice. This can make it difficult to determine both if noncompliance has occurred and the extent of any noncompliance. Further, some state regulators do not conduct the types of detailed analyses necessary to determine if an NQTL is in compliance with MH/SU parity requirements, according to one consumer advocacy group. Finally, four studies we reviewed identified that researchers were unable to observe the plans implementation of NQTLs. Thus, they were unable to draw conclusions about whether or not the way plans implemented the NQTLs complied with MH/SU parity requirements. To address the complexities of these analyses for their own reviews, DOL officials told us that for its targeted reviews of MH/SU parity compliance, DOL uses seasoned investigators, early litigation support, technical guidance from DOL s regulations office, and outreach to other federal and state agencies. Lack of documentation on medical/surgical NQTLs. A lack of documentation on the factors used to apply NQTLs to medical/surgical benefits makes it difficult for issuers to demonstrate compliance with MH/SU parity requirements, according to two industry officials. They told us that information on NQTLs such as when to require prior authorization has to be created for medical/surgical benefits so that the information can then be compared to the application of NQTLs to MH/SU benefits to assess compliance with MH/SU parity requirements. One industry official noted that this poses an additional hurdle when MH/SU benefits are carved out or separately managed from the rest of a health plan. This lack of explicit information about medical/surgical benefits and difficulty drawing parallels between medical/surgical and MH/SU care also makes it difficult for regulators to determine parity compliance, officials from one of the three selected states told us. Lack of resources. Eight states reported in our survey that lack of staff resources, staff training, or clinical expertise are additional challenges to assessing compliance with MH/SU parity requirements. Further, states may hesitate to determine an issuer violated federal MH/SU parity requirements due to a lack of confidence or clarity in applying the federal laws and may cite state laws instead, according to officials from one of our three selected states and a provider organization. Officials from the provider organization told us this could result in an undercount of MH/SU parity violations if a state cites a potential violation of an MH/SU parity requirement as a violation of a state law unrelated to federal MH/SU parity requirements. One state official identified consumer protection laws as an alternative to pursuing possible MH/SU parity requirement violations. Officials from one state told us some state laws have more clear cut standards than federal MH/SU parity requirements, due to the lack of clarity regarding federal MH/SU parity requirements. However, different strategies were used in three states to obtain the needed clinical expertise to review NQTLs, including regular meetings with clinicians from the state mental health department and using grant money to contract with physicians with clinical expertise to help with compliance reviews. <5. HHS, DOL, and Treasury Jointly Develop Guidance and Provide Support to States for Enforcing MH/SU Parity Requirements> HHS, DOL, and Treasury have coordinated on oversight of MH/SU parity requirements by providing support and jointly developing guidance for state regulators, insurance industry officials, providers, and consumers. HHS described several recent and planned coordination activities in its public action plan to improve state and federal coordination of the oversight of MH/SU parity requirements. This plan was required by the 21st Century Cures Act. Recent and ongoing support and coordination activities include: Formal agreements with states. HHS and DOL officials told us they have established formal agreements such as collaborative enforcement agreements with states to help coordinate, share information about, or assist states with MH/SU parity enforcement activities. For example, DOL officials told us they have general enforcement and common interest agreements with nearly 40 states that allow them to share information related to MH/SU parity enforcement. HHS officials told us they have collaborative enforcement agreements with six states that allow HHS to intervene if a state s efforts to bring an issuer into compliance with MH/SU parity requirements are unsuccessful. In response to our survey, state officials reported few formal referrals between the states and HHS or DOL. Informal communication with states. HHS and DOL officials told us that state regulators can contact regional coordinators and individuals in their respective headquarters for assistance with MH/SU parity enforcement outside of formal agreements. HHS and DOL officials told us that referrals of specific complaints are informal and infrequent, noting that if a complainant contacted their office by mistake they would provide the contact information for the appropriate state or federal agency. Technical assistance and outreach. HHS and DOL jointly conduct technical assistance for state regulators and have conducted outreach with stakeholders, including consumers, consumer advocates, providers, issuers, and employers, to improve compliance with MH/SU parity requirements. DOL officials told us that they meet regularly with state regulators and NAIC to provide technical assistance and foster implementation and enforcement coordination. For example, in 2017, HHS and DOL held a commercial market parity policy academy technical assistance for teams of state officials on strategies to advance MH/SU parity compliance and lessons learned from other states implementation efforts. According to the HHS action plan, representatives from 20 states and territories attended. Additionally, DOL held a roundtable discussion with stakeholders to discuss NQTLs, disclosure, and federal-state coordination in January 2019. Grant funding. HHS has also awarded funding, provided by PPACA, to states to help improve oversight of MH/SU parity requirements. In 2016, CMS awarded $9.3 million to 20 states specifically for enforcement and oversight related to MH/SU parity. Maryland, for example, used these funds to create a position specific to MH/SU parity oversight, which the state made permanent after the funding period ended. In 2018, CMS awarded funding through the State Flexibility to Stabilize the Market Grant Program that focused on supporting state implementation and planning around several PPACA market reforms and consumer protections. Washington, for example, is using this grant to review issuer s implementation of state and federal MH/SU parity requirements and to assess access to MH/SU treatment. HHS, DOL, and Treasury also coordinate with state regulators and NAIC to issue guidance for stakeholders in an effort to increase understanding of and compliance with MH/SU parity requirements. From December 2010 to September 2019, the three agencies issued 10 guidance documents that included 58 frequently asked questions and answers specific to MH/SU parity requirements. These guidance documents cover a range of topics, including describing the types of plans covered by MH/SU parity requirements, providing definitions of QTLs and NQTLs, and using specific scenarios to show if a practice such as requiring prior authorization for certain medications to treat a substance use disorder is permissible under the law. HHS, DOL, and Treasury have also developed guidance or support on MH/SU parity aimed specifically at consumers. For example, as part of HHS s action plan, HHS developed a web-based portal to assist consumers in identifying, based on the consumer s insurance type, the appropriate entity to contact for filing a parity-related complaint HHS, DOL, or state insurance regulators. See appendix III for examples of guidance published by the agencies and the target audience. States have reported that existing guidance and support from the agencies helped states in their reviews of issuers for compliance with MH/SU parity requirements; however, some states and other stakeholders have identified a need for additional guidance. Specifically, officials from 43 states reported in our survey that guidance or other support from the agencies has helped inform state reviews of plans or issuers for compliance with MH/SU parity requirements, and officials from 24 states reported in our survey that additional guidance or support is needed. In written survey responses, state officials most commonly identified the need for additional guidance around reviewing NQTLs. In their comments for the 2017 HHS public listening session, some stakeholders identified the need for additional compliance information. Similarly, two industry stakeholders and one consumer advocacy organization also told us that additional guidance around NQTLs would be helpful to improve compliance with MH/SU parity requirements. HHS, DOL, and Treasury issued additional guidance after seeking public comment, as required by the 21st Century Cures Act. This guidance covers the types of information plans must release to consumers or providers related to MH/SU parity, known as disclosure requirements, and NQTL requirements. Specifically, the guidance document contains (1) answers to 11 additional frequently asked questions on NQTLs and disclosure requirements and (2) a disclosure template consumers can use to request MH/SU parity-related information from their employer- sponsored health plans and issuers of individual plans. Released in September 2019, the guidance may address the concerns identified by states and stakeholders. <6. Conclusions> Employer-sponsored group plan and issuer compliance with federal MH/SU parity requirements is important to ensure that individuals seeking MH/SU treatment do not face discriminatory practices. DOL s and CMS s oversight of employer-sponsored group plan compliance with federal health care laws is driven by information and complaints they receive about potential noncompliance; however the agencies receive relatively few consumer complaints about MH/SU parity and DOL refers a small percentage of those complaints to its investigators. DOL s and CMS s reviews of compliance with relevant federal health care laws including those related to MH/SU parity even when the origin of the investigation was unrelated to MH/SU parity concerns has enabled the agencies to identify some plan and issuer violations of MH/SU parity requirements. However, the frequency with which compliance issues are identified in these reviews suggests that noncompliance with MH/SU parity requirements may be common. Given stakeholder-identified concerns with relying on complaints for MH/SU parity, the complexity of MH/SU parity requirements, and the limited complaints received in this area, DOL and CMS may not be identifying and responding to the risks posed by the agencies oversight approach. As a result, consumers may be enrolled in plans that fail to comply with MH/SU parity requirements. Until DOL and CMS evaluate whether the current approach of targeted oversight in response to information received is effective for identifying compliance issues with MH/SU parity, they will not know whether this approach is effective or whether additional strategies are needed to help ensure that their oversight meets their commitment to full implementation of MHPAEA. <7. Recommendations for Executive Action> We are making a total of two recommendations, including one to DOL s Employee Benefits Security Administration and one to HHS s CMS. Specifically: The Assistant Secretary of Labor for the Employee Benefits Security Administration should evaluate whether targeted oversight in response to information received is effective for ensuring compliance with MH/SU parity requirements. If this evaluation determines the current targeted oversight approach results in significant program risks, the Employee Benefits Security Administration should develop a plan to more effectively enforce MH/SU parity requirements and if necessary seek additional oversight authority, as warranted. (Recommendation 1) The Administrator of CMS should evaluate whether targeted oversight in response to information received is effective for ensuring compliance with MH/SU parity requirements for non-federal governmental plans. If this evaluation determines the current targeted oversight approach results in significant program risks, CMS should develop a plan to more effectively enforce MH/SU parity requirements and if necessary seek additional oversight authority, as warranted. (Recommendation 2) <8. Agency Comments and Our Evaluation> We provided a draft of this report to DOL, HHS, and Treasury for review and comment. DOL and HHS both concurred with our recommendations. DOL s comments are reproduced in appendix IV and discussed below. HHS s comments are reproduced in appendix V and discussed below. DOL, HHS, and Treasury also provided technical comments, which we incorporated as appropriate. In its written comments, DOL elaborated on its current strategy to review its health enforcement program. Specifically, DOL noted that it reviews all MH/SU parity-related investigation findings and case closings, and all health plan investigations include a review of MH/SU parity requirement compliance, regardless of the source or reason for the investigation. DOL also stated that its current enforcement strategy to identify violations at the plan level and seek corrections of systemic violations at the service provider level has been successful. However, as explained in our report, DOL has not analyzed whether relying on targeted reviews alone increases the risk of noncompliance with MH/SU parity requirements in private, employer-sponsored group plans. Such an evaluation could help DOL identify and determine if additional enforcement strategies related to MH/SU parity requirements are needed. In its comments, DOL also noted its resource limitations. Specifically, DOL stated that despite the Employee Benefits Security Administration s small size and limited resources, it is responsible for overseeing 2.4 million health plans, among other things. DOL noted that it will consider GAO s recommendation in light of its resource constraints. Given these constraints, an evaluation could help ensure DOL s resources are most efficiently targeted. In its comments, HHS stated that it is committed to enforcing MH/SU parity requirements. HHS described its responsibilities for enforcement and noted that it works with plans and issuers to help them understand and comply with MHPAEA. HHS also stated that it collaborates with state regulators, DOL, and Treasury in an effort to increase understanding and compliance. We are sending copies of this report to the appropriate congressional committees, the Secretaries of Health and Human Services, Labor, and Treasury, 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 VI. Appendix I: Mental Health and Substance Use Disorder Parity Requirements in Medicaid and the State Children s Health Insurance Program (CHIP) Appendix I: Mental Health and Substance Use Disorder Parity Requirements in Medicaid and the State Children s Health Insurance Program (CHIP) In 2016, the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services, issued a final rule addressing the application of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) to Medicaid managed care organizations (MCO), Medicaid Alternative Benefit Plans (ABP), and CHIP. Under this final rule, all beneficiaries enrolled in Medicaid MCOs, ABPs, and CHIP are entitled to mental health and substance use disorder (MH/SU) benefits that comply with certain MH/SU parity requirements of MHPAEA, which generally requires that MH/SU benefits be no more restrictive than medical or surgical benefits when MH/SU benefits are offered. The CMS final rule defines the role of the states in evaluating overall compliance of state Medicaid and CHIP programs with MH/SU parity requirements. The final rule establishes the processes by which states must assess and document that their Medicaid and CHIP programs comply with MH/SU parity requirements. CMS guidance provides detailed information to help states assess their compliance with MH/SU parity requirements. These processes vary by program type, as described below. Medicaid MCOs. The final rule requires either the state or the Medicaid MCO to complete a parity analysis, depending on how Medicaid benefits are provided. In general, CMS guidance requires states or MCOs to assess if a plan s MH/SU benefits are no more restrictive than medical or surgical benefits for the following items: aggregate lifetime/annual dollar limits, financial requirements, quantitative treatment limitations (QTL), and non-quantitative treatment limitations (NQTL). The MCO must complete this analysis when it provides all Medicaid benefits both medical and MH/SU benefits. The state must complete the parity analysis if the benefits are provided through multiple delivery systems, such as through multiple MCOs or the state s fee-for-service Medicaid program, and provide the parity analysis to CMS for review. States are also required to make the documentation of compliance with the final rule available to the general public. The final rule also requires states to include contract provisions requiring compliance with MH/SU parity requirements in all MCO and other applicable contracts. CMS guidance encourages states to consider including provisions in their contracts with MCOs to ensure adequate oversight of the MCO s parity-related monitoring and compliance activities, such as ensuring the state can see the MCO s parity analysis. ABPs and CHIP. The final rule requires states to document that their ABP and CHIP plans comply with MH/SU parity requirements in the comprehensive state plans that describe the state s Medicaid and CHIP programs. CMS guidance requires that states conduct a parity analysis demonstrating this compliance as part of the documentation the states submit to CMS to request a change to the state plan, known as a state plan amendment. In certain CHIP programs and ABPs, the state does not have to complete the full parity analysis, known as deemed compliance. A plan may be deemed to be in compliance with MH/SU parity requirements for plan members aged 20 and under if Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefits are provided to those individuals, because EPSDT benefits include MH/SU services. CMS guidance requires that states demonstrate that EPSDT benefits are covered by their CHIP plans through documents such as member handbooks. (The state or MCO would still be required to conduct a parity analysis to ensure that plan benefits for those not eligible for EPSDT benefits satisfy parity requirements.) To ensure state Medicaid and CHIP benefits comply with MH/SU parity requirements, CMS must review states documentation of compliance. For Medicaid managed care, CMS must review state contracts with managed care plans to ensure they are compliant with CMS requirements. CMS reviews the parity provisions in MCO contracts and the state s parity analysis as part of the normal contract review process. Additionally, for states in which some but not all benefits are provided by an MCO, CMS reviews documentation of the state s parity analysis to ensure the full scope of services being provided complies with MH/SU parity requirements. For ABP and CHIP, CMS staff are required to review the state plan amendments submitted by the states and supporting documentation for compliance with MH/SU parity requirements. See figure 2 for a map of the parity compliance review process by program type. Appendix II: Literature Review We conducted a literature review to identify information about compliance with federal mental health/substance use disorder (MH/SU) parity requirements by individual and employer-sponsored small and large group health plans. We identified literature through keyword searches of several bibliographic databases, including ProQuest, MEDLINE, Scopus, and WorldCat. We focused our review on literature published between January 2011 and May 2019. Of the 828 study citations we identified, we reviewed 77 full studies; of those, we determined there were six relevant studies. We also identified four additional studies through web searches, interviews with stakeholders, and citations included in the literature we reviewed. Our review included studies that contained information collected about compliance by individual and employer-sponsored group health plans with federal MH/SU parity requirements by assessing compliance, comparing MH/SU plan benefits and requirements to medical/surgical benefits, or by assessing changes in MH/SU plan benefits over time. Our review excluded studies that focused on the effects of federal MH/SU parity requirements on consumer utilization of MH/SU services, consumer spending on MH/SU services, and plan spending on MH/SU services. The 10 studies are described in more detail below. Berry, Kelsey N., et al. A Tale of Two States: Do Consumers See Mental Health Insurance Parity When Shopping on State Exchanges? Psychiatric Services, vol. 66, no. 6 (2015): pp. 565 567. Methodology: The case study reviewed documents for all small group and individual health insurance products offered on two state health insurance exchanges between October 2013 and March 2014 and assessed compliance with observable quantitative treatment limitations (QTL) and non-quantitative treatment limitations (NQTL). Examples of key findings: The case study found that for 75 percent of products offered, the financial requirements and certain NQTLs reviewed appeared to be compliant with MH/SU parity requirements, but compliance varied by state. On one state health insurance exchange (with fewer products) more than half the products appeared inconsistent with the parity requirements reviewed, particularly the NQTLs. On the other state health insurance exchange, 11 percent of the products contained a financial requirement that violated MH/SU parity requirements. The case study was not able to assess all aspects of NQTL requirements because the available documents did not provide information about all NQTLs, such as whether or not a specific MH/SU treatment would be considered medical necessary. Cowell, Alexander J., et al. Changes in Individual and Small Group Behavioral Health Coverage Following the Enactment of Parity Requirements: Final Report. A report prepared for the United States Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. January 2017. Methodology: The study reviewed plan documents for a sample of individual and small group plans and assessed changes in MH/SU and medical/surgical benefits before implementation of MH/SU parity requirements in 2013 and after implementation in 2014. Examples of key findings: The study found that in 2014 most plans financial requirements and QTLs were compliant with MH/SU parity requirements. However, the plans included different limits on the quantity of prescription drugs covered for medications used for MH/SU treatments and those used for other chronic health conditions. This difference indicated possible noncompliance with MH/SU parity requirements for NQTLs, and the study noted that differences in NQTLs between MH/SU and other health conditions is an issue in need of additional study. The study stated that plan documents did not contain all information necessary to fully assess NQTLs. Friedman, Sarah, et al. The Mental Health Parity and Addiction Equity Act Evaluation Study: Impact on Mental Health Financial Requirements among Commercial Carve-In Plans. Health Services Research, vol.51, no. 1 (2018) pp.366-388. Methodology: The study analyzed a sample of health benefit design data from 2008 to 2013. This data on large group plans was obtained from a managed behavioral health organization and was analyzed for changes in cost-sharing requirements for plan members before and after parity requirements were implemented. Examples of key findings: The study found that there were both increases and decreases in cost-sharing after MH/SU parity requirements went into effect. For example, among plans that covered both in-network and out-of-network benefits and required coinsurance for inpatient stays, the likelihood of using coinsurance increased by 4 percentage points, and the coinsurance rate increased by .75 percentage points. However, outpatient copayments were reduced by $3.88 among plans that offered only in-network benefits. Goplerud, Eric. Consistency of Large Employer and Group Health Plan Benefits with Requirements of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. A report prepared for the United States Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Disability, Aging and Long-Term Care Policy. November 2013. Methodology: The study summarized the results of multiple assessments of compliance with MH/SU parity between 2009 and 2011 based on both plan data available from private databases and the Department of Labor, and survey data and interviews with health plan representatives. Examples of key findings: The study found that between 2009 and 2011 large group health plans made substantial changes to their plan designs to meet the parity requirements. By 2011, most large group health plans had removed most financial requirements that did not meet MH/SU parity requirements, although 20 percent still had a non- compliant copayment for outpatient services. Nearly all had eliminated the use of separate deductibles for MH/SU treatment and medical/surgical treatment. The study also noted that assessing consistency with NQTLs was difficult based on document reviews. Hodgkin, Dominic, et al. Federal Parity and Access to Behavioral Health Care in Private Health Plans. Psychiatric Services, vol. 69, no. 4, (2018): pp. 396 402. Methodology: The study reported results of surveys of senior executives at commercial health plans regarding changes to MH/SU benefits over time. The surveys were conducted between September 2010 and June 2011, and again between August 2014 and April 2015. The study did not independently verify the self-reported data from senior executives. Examples of key findings: The study did not find significant noncompliance with MH/SU parity requirements. It found that fewer plans required prior authorization for outpatient MH/SU treatment than medical treatment. This suggests compliance with the requirement that NQTLs applied to MH/SU treatment be no more restrictive than those for medical/surgical treatment. The study also found that 6 percent of products used coinsurance for MH/SU treatment and copayments for other medical care. While this is not necessarily noncompliant, this could result in noncompliant higher cost-sharing for MH/SU treatment than other medical care in some cases, because coinsurance may result in higher cost-sharing than a copayment. Horgan, Constance M., et al. Health Plans Early Response to Federal Parity Legislation for Mental Health and Addiction Services. Psychiatric Services, vol. 67, no. 2 (2016): pp. 162 168. Methodology: The study reported results of surveys of senior executives at commercial health plans regarding changes to MH/SU benefits over time. The surveys were conducted between September 2010 and June 2011. The study did not independently verify the self- reported data from senior executives. Examples of key findings: The study found that plans complied with MH/SU parity requirements by lifting QTLs that only applied to MH/SU benefits, although 4 percent of plans had QTLs that applied to mental health treatment that did not apply to medical/surgical treatment. This study also found that fewer plans had prior authorization requirements for outpatient MH/SU treatment than outpatient medical treatment, which suggests compliance with the requirement that NQTLs applied to MH/SU treatment be no more restrictive than those for medical/surgical treatment. The study was not able to assess if prior authorization requirements were implemented differently between MH/SU and medical/surgical treatment. Huskamp, Haiden A., et al. Coverage of Medications That Treat Opioid Use Disorder and Opioids for Pain Management in Marketplace Plans, 2017. Medical Care, vol.56, no 6(2018) pp.505-509. Methodology: The study compared coverage for medications used to treat opioid use disorder (an MH/SU benefit) and opioids used to treatment pain management (a medical/surgical benefit) in 2017 health insurance marketplace exchange plans, using publicly available data for a sample of 100 plans. Examples of key findings: The study found that most plans covered at least one of the four primary medications intended for opioid use disorder treatment, while 100 percent of plans cover short-acting opioid pain medications. For example, 80 percent of plans cover a generic combination of buprenorphine and naloxone for treatment of opioid use disorder, while 100 percent of plans cover the generic version of Oxycodone and Fentanyl for treatment of pain disorder. The study states that additional monitoring is needed to ensure that plan coverage of MH/SU medications complies with MH/SU parity requirements. Thalmayer, Amber Gayle, et al. The Mental Health Parity and Addiction Equity Act Evaluation Study: Impact on Nonquantitative Treatment Limits for Specialty Behavioral Health Care. Health Services Research, vol. 53, no. 6 (2018): pp. 4584 4608. Methodology: The study analyzed a sample of health benefit design data from 2008 to 2013. This data on large group plans was obtained from a managed behavioral health organization and was analyzed for changes in NQTL requirements for plan members before and after parity requirements were implemented. Examples of key findings: The study found plans were less likely to require NQTLs, such as prior authorization and financial penalties for failure to obtain prior authorization for MH/SU treatments after MH/SU parity requirements were implemented, among plans that manage MH/SU benefits separately from other medical benefits. However, the study also found that plans were more likely to include a penalty for failing to obtain prior authorization for MH/SU treatments after MH/SU parity requirement implementation if the MH/SU benefits were managed by the same plan that managed other health benefits. The study was limited in that it did not assess how NQTLs were implemented by plans and so could not determine if there were differences in how MH/SU and medical requirements were applied. Thalmayer, Amber Gayle, et al. The Mental Health Parity and Addiction Equity Act (MHPAEA) Evaluation Study: Impact on Quantitative Treatment Limits. Psychiatric Services, vol. 68, no. 5 (2017): pp. 435 42. Methodology: The study analyzed a sample of health benefit design data from 2008 to 2013. This data on large group plans was obtained from behavioral health organizations and was analyzed for changes in QTL requirements for plan members before and after MH/SU parity requirements were implemented Examples of key findings: The study found that QTLs were nearly eliminated after MH/SU parity requirements were implemented. This suggests that plans became compliant with parity requirements because if a QTL does not exist it cannot be more stringent than a medical/surgical QTL. The study noted that plans that continued to have QTLs might be noncompliant with MH/SU parity requirements, but did not assess that. Center on Addiction, Uncovering Coverage Gaps II: A Review and Comparison of Addiction Benefits in ACA Plans, (New York: March 2019). Methodology: The study reviewed plan documents to assess compliance with MH/SU parity requirements from a sample of 2017 benchmark plans and plans sold on health insurance exchanges. Examples of key findings: The study identified nine benchmark plans and 10 states that sold plans that were not compliant with MH/SU parity requirements (where this could be identified through plan documents). The study was able to identify non-compliant financial requirements in three benchmark plans and non-compliant QTLs in six benchmark plans, and found one state that sold a plan to with a possible non-compliant QTL. The study also identified two benchmark plans that had possibly noncompliant NQTLs, and 21 states that had either NQTL violations or indications of possible NQTL violations that could not be fully assessed with the available information. The study noted that plan documentation did not contain sufficient information to fully assess compliance with MH/SU parity requirements related to NQTLs. Appendix III: Examples of Mental Health and Substance Use Disorder Parity-Related Guidance from HHS, DOL, and Treasury Summary This October 2016 publication provides an overview of federal disclosure laws affecting private-sector, employer-sponsored group health plans and health insurers. Between December 2010 and September 2019, the three agencies issued 10 guidance documents with 58 frequently asked questions about MH/SU parity requirements. These frequently asked questions are designed to help people understand the law, and benefit from it as intended through examples that illustrate the requirements. Topics include the types of plans covered by MH/SU parity requirements and specific examples of how to determine if a practice or policy is permissible under the law. This June 2016 brochure gives a high-level overview of MH/SU parity requirements and lists common limits placed on MH/SU services that are subject to parity. This April 2018 action plan released by HHS covers recent and planned actions related to HHS, DOL, and Treasury s implementation of MH/SU parity requirements. The plan, required by the 21st Century Cures Act, includes information about a public listening session the agencies held in July 2017. This February 2016 publication describes MH/SU parity requirements for people with employer-sponsored health plans who need MH/SU treatment. It describes why some MH/SU benefit claims are denied and how to file a claim, the denial of a claim, and the appeals process. Self-Compliance Tool for the Mental Health Parity and Addiction Equity Act (MHPAEA) DOL issued this self-compliance tool in April 2018 to help both issuers and regulators determine if a plan or issuer complies with MH/SU parity requirements and other related federal health care laws. In May 2016, DOL and HHS published this brief guide of examples of plan provisions that absent similar restrictions on medical/surgical benefits could be red flags that a plan or issuer may be imposing an NQTL that is out of compliance with MH/SU parity requirements and should be reviewed. Appendix IV: Comments from the Department of Labor Appendix V: Comments from the Department of Health and Human Services Appendix VI: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, Kristi Peterson (Assistant Director); Summar C. Corley (Analyst-in-Charge); Kerry Casey; and Eric J. Schwab made key contributions to this report. Also contributing were Leia Dickerson, Cynthia Khan, Laurie Pachter, Ethiene Salgado- Rodriguez, and Emily Wilson Schwark.

Why GAO Did This Study MHPAEA requires large group health plans that offer MH/SU benefits to ensure parity between MH/SU and medical/surgical benefits. To meet the essential health benefits requirements of the Patient Protection and Affordable Care Act, certain issuers offering small group and individual plans must comply with MHPAEA's MH/SU parity requirements. The 21st Century Cures Act included a provision for GAO to review federal and state oversight of MH/SU parity requirements and the extent to which health plans comply with these requirements. This report, among other objectives, (1) examines how DOL, HHS, and states oversee health plan compliance with MH/SU parity requirements; and (2) describes what is known about the extent to which health plans are complying with MH/SU parity requirements. For this report, GAO reviewed DOL and HHS policies, guidance, and reports; conducted a survey and received responses from all 50 states and the District of Columbia about oversight practices; interviewed officials from DOL, HHS, and selected states; interviewed national and state stakeholders; and reviewed available research studies regarding health plan compliance with MH/SU parity. What GAO Found The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) generally requires that coverage for mental health and substance use disorder (MH/SU) be no more restrictive than coverage for medical/surgical services. State agencies and the Departments of Labor (DOL) and Health and Human Services (HHS) share responsibility for overseeing compliance with these MH/SU parity requirements among group and individual health plans. These oversight practices vary. While nearly all of the state officials who responded to GAO's survey reported that they perform some review of group and individual insurance plans for compliance with MH/SU parity requirements before they are approved to be sold to consumers, states vary in the frequency and type of reviews they conduct after consumers enroll in plans. For example, officials from 12 states reported that they conducted a targeted review of specific MH/SU parity concerns in 2017 and 2018, with the number of reviews ranging from one to 22 reviews per state. DOL and HHS conduct targeted reviews of certain employer-sponsored group plans when they receive information—such as consumer complaints—about possible noncompliance with MH/SU parity requirements or other federal heatlh care requirements. Unlike states, these reviews only occur after consumers enroll in these plans. For example, in fiscal years 2017 and 2018, DOL completed 302 reviews that included a review of MH/SU parity compliance in its oversight of 2.2 million plans. Nearly all these reviews originated from complaints or other information about potential noncompliance with federal health care laws unrelated to MH/SU parity. According to DOL and HHS officials, the departments have not analyzed whether relying on targeted reviews alone increases the risk of noncompliance with MH/SU parity requirements in employer-sponsored group plans. Without such an evaluation, DOL and HHS do not know if their oversight is effective or whether they need to adopt additional strategies. While states, DOL, HHS, and the research GAO reviewed identified some instances of noncompliance with MH/SU parity requirements, the extent of compliance with these requirements is unknown. States, DOL, and HHS have identified some noncompliance with MH/SU parity requirements based on consumer complaints and other information about potential noncompliance. For example, DOL reported citing 113 violations of MH/SU parity requirements through its reviews in 2017 and 2018. The available research studies GAO reviewed also identified noncompliance with some of the requirements by reviewing plan documentation and benefit data, among other methods. However, according to stakeholders GAO interviewed, complaints are not a reliable indicator of the extent of noncompliance because consumers may not know about MH/SU parity requirements or may have privacy concerns related to submitting a complaint. What GAO Recommends GAO is recommending that DOL and HHS evaluate whether relying on targeted oversight is effective for ensuring compliance with MH/SU parity requirements or whether alternative approaches are needed. DOL and HHS concurred with GAO's recommendations.

gao_GAO-20-246G

gao_GAO-20-246G_0

<1. 1.1 Reasons to Conduct and Uses of a Technology Assessment> TAs are significant given their increasing importance to policymakers, and the growing effects of S&T on society, economy, and other areas. While technological changes can be positive, they can also be disruptive. Therefore, it is critical for Congress to be able to understand and evaluate these changes, to ensure, for example, national security and global competitiveness. Examples of potential uses of TAs related to enhancing knowledge and awareness to assist decision-making include: Highlight potential short, medium, and long-term impacts of a Elaborate on and communicate the risks and benefits associated with a technology, including early insights into the potential impacts of technology Highlight the status, viability, and relative maturity of a technology Plan and evaluate federal investments in S&T GAO TAs are most commonly requested by congressional committees, which may use them to, among other things, make decisions regarding allocating or reallocating resources to address research gaps, support updated rulemaking for a regulatory agency, or inform a legislative agenda or the development of a national strategy. Technologies present opportunities and challenges that may vary, depending in part on the policy context in which they are evaluated. Therefore, part of a TA is considering the policy context surrounding a given technology. GAO may, where appropriate, identify and analyze policy options as part of its TAs, which may also include: clarifying and summarizing policy-related issues and challenges, and providing information that can be used for decision-making. In this situation, policy options can be defined as a set of alternatives or menu of options (including the status quo) that policymakers, such as legislative bodies, government agencies, and other groups, could consider taking. Policy options can be used to articulate a range of possible actions a policymaker could consider in the context of a given technology and policy goal. Policy options do not state what policymakers should do in a given circumstance with a certain technology. Policy options do not endorse or recommend a particular course of action; they are not recommendations or matters for congressional consideration, which GAO makes in its audits. In addition, policy options are addressed to policymakers more broadly, and are not addressed to a specific federal agency or entity. <2. 1.2 Importance of Spending Time on Design> Developing a written TA design helps TA teams agree on and communicate a clear plan of action to the project team and the team s advisers, requesters, and other stakeholders. Written TA designs also help guide and coordinate the project team s activities and facilitate documentation of decisions and procedures in the final report. In addition, focusing the TA on answering specific researchable questions can assist teams to define and select the appropriate scope, approach, and type of product, ensuring usefulness of the product to the intended users. More specific reasons for spending time on systematically designing a TA include: Enhance its quality, credibility, and usefulness Ensure independence of the analysis Ensure effective use of resources, including time Data collection and quality assurance of data can be costly and time- consuming. A thorough consideration of design options can ensure that collection and analysis of the data are relevant, sufficient, and appropriate to answer the researchable question(s), and helps to mitigate the risk of collecting unnecessary evidence and incurring additional costs. This chapter highlights design phases, cross-cutting considerations, and GAO TA design examples for sound technology assessment (TA) design. To ensure that the information and analyses in TAs meet policymakers needs, it is particularly useful to outline the phases and considerations involved in sound TA design, while remaining aware of the iterative and nonlinear process of designing a TA. The information presented in this chapter is based on review of results of a literature search, an expert forum, select GAO reports, and experiences of GAO teams and technical specialists. For more information, please refer to Appendix I: Objectives, Scope, and Methodology. <3. 2.1 Sound Technology Assessment Design> Below are questions to consider for a sound TA design. Reflecting on these questions may help teams make important decisions (like selecting an appropriate design) and ensure quality TAs. Does the design address the needs of the congressional requester? Will the design yield a quality, independent, balanced, thorough, and objective product? Will the design likely yield information that will be useful to stakeholders? Will the design likely yield valid conclusions on the basis of sufficient and credible evidence? Will the design yield results in the desired time frame? Will the design likely yield results within the constraints of the resources available? How will policy options be identified and assessed, if applicable? <4. 2.2 Phases and Considerations for Technology Assessment Design> Figure 1 outlines three phases and seven considerations for TA design. While Figure 1 presents TA design as a series of phases, actual execution is highly iterative and nonlinear. Teams may need to be prepared to re-visit design decisions as information is gathered or circumstances change. Below are some considerations for the team to think about while designing a TA and throughout the process of performing the TA. This list is not exhaustive, and some of the considerations may not be unique to TAs. of the technology) and context of the technology (such as social, political, legal, and economic factors) circumstances change and new information comes to light, it may be necessary to revisit scope and design. The initial situational analysis may also be used to: Inform the goal(s), purpose, and objectives (also known as researchable questions) challenges to design and implementation of the TA, such as: (1) possible changes in operating environment; (2) characterizing or quantifying anticipatory factors, uncertainty, and future condition(s); and (3) lack of or limitations with data. See Chapter 3 for more specific examples. Communication strategy: Consider potential users of the product(s) and how information regarding the TA will be communicated. How results are communicated can affect how they are used, so it is important for TA teams to discuss communication options. statement. TA teams will need to think about whether the initial policy options are appropriate to the size and scope of the TA, as well as whether they are in line with the policy goal and the overall TA purpose and objectives. In keeping with the iterative nature of TA design and execution, any initial policy option list will be revisited, modified, or refined, as needed, as the work progresses and more information is gained. TA teams may also need to plan to include policy analysis and exploration of the ramifications of each policy option during subsequent design and implementation phases. <4.1. Phase 2: Develop Initial Design> During this phase, TA teams continue to build on the situational analysis work and gather more background information. In addition, TA teams: Confirm and validate the scope from phase 1 Reach agreement with stakeholders on the initial design May perform an environmental scan to further highlight limitations, assumptions, divergent points of view, potential bias, and other factors that may help the team select a design Other specific activities that take place during this phase include: Identify and select appropriate design, methodologies, and analytical approaches (refer to the next section of this chapter for example TA design approaches and App. III for examples of TA methods) Examples of data collection and analytical techniques used in GAO TAs to date include: interviews, literature review, expert forums, site visits, technology readiness assessments, surveys, conceptual models, small group discussion, content analysis such as Delphi, among others. OTA reported using similar methodologies for its TAs (OTA, Policy Analysis at OTA: A Staff Assessment, 1983). Identify and select appropriate data sources, or the need to gather data Identify, select, and possibly develop appropriate dimensions of analysis, if applicable Develop possible policy goal(s) Clarify the possible initial policy options that will be considered and describe how they may be analyzed, if applicable Identify and consult with external experts to inform design and implementation, and assist with external review, as appropriate If policy options are being considered, it is important to determine the relevant dimensions along which to analyze the options. The dimensions will be highly context- specific, vary from TA to TA, and depend on the scope and policy goal statement of the TA. <4.2. Phase 3: Implementation of Design> During this phase, the design and project plan are being implemented, potentially while aspects of phase 2 are still underway. It is important to consider changes in the operating context such as changes in the operating environment, understanding of the issues, and access to information and review and make changes to the design and project plan accordingly. We reviewed select GAO products that used policy analysis to present policy options. We found that these products used a variety of data collection and analytical approaches, such as: interviews, literature review, survey, expert forum, site visits, case studies, analysis of secondary data, content analysis, among others. If an initial policy options list was developed earlier in design, it may be necessary to revisit the list as work progresses. During this phase, TA teams may gather additional information regarding the policy options, further analyze policy options, and present the results of the analysis. Policy options are to be presented in a balanced way, including presentation of opportunities and considerations, and not resulting in a single overall ranking of policy options. <5. 2.2.1 GAO Technology Assessment Design Examples> We found that GAO TAs used a variety of design approaches and methodologies to answer various categories of design objectives (researchable questions). GAO TAs generally include one or more of the following categories of design objectives, which are not mutually exclusive: (1) describe status of and challenges to development of a technology; (2) assess opportunities and challenges arising from the use of a technology; and (3) identify and assess cost-effectiveness, other policy considerations, or options related to the use of a technology. Provided below are example questions, design approaches, and GAO TAs, for each of these categories of objectives. GAO TA examples were used given our familiarity with GAO products, though numerous non-GAO TA design examples exist. This is not intended to be a comprehensive list of design examples. For more examples of methodologies, please refer to App. III. Describing the status and challenges to the development of a technology. Table 2 provides example questions, design approaches, and GAO TAs, for design objectives related to describing the status and challenges to the development of a technology. Questions may address, for example, what the current state of the technology is, and may involve identifying and describing the status of the technology, which GAO TAs have done using a variety of methods. Assessing opportunities and challenges that may result from the use of a technology. Table 3 provides example questions, design approaches, and GAO TAs, for design objectives related to assessing opportunities and challenges that may result from the use of a technology. Questions may address, for example, what are the expected or realized benefits of the technology, and may involve gathering and assessing evidence on the results from using the technology, which GAO TAs have done using a variety of methods. Assessing cost-effectiveness, policy considerations, or policy options related to the use of a technology. Table 4 provides example questions, design approaches, and GAO TAs, for design objectives related to assessing cost-effectiveness, policy considerations, or policy options related to the use of a technology. Questions may address, for example, what are the economic trade-offs of a technology, and may involve gathering and analyzing evidence related to cost, which GAO TAs have done using a variety of methods. This chapter describes select challenges regarding technology assessment (TA) design and implementation, as well as possible strategies to mitigate those challenges. The information in this chapter is based on review of results of a literature search, an expert forum, select GAO reports, and experiences of GAO teams and technical specialists. The tables provided below are not intended to be a comprehensive list of challenges or strategies. For more information, please refer to Appendix I: Objectives, Scope, and Methodology. <6. 3.1 Ensuring Technology Assessment Products are Useful for Congress and Others> To be useful, TA assessment products must be readable and timely, among other things, which may present a challenge for numerous reasons. Table 5 provides examples of potential mitigation strategies to address these challenges. <7. 3.2 Determining Policy Goals and Measuring Impact> Another challenge in TA design arises from determining policy goals and policy options, and estimating their potential impacts. Many of the effects of policy decisions may be distant, and policy outcomes may be uncertain at the time of the TA. Table 6 provides examples of potential mitigation strategies to address these challenges. <8. 3.3 Researching and Communicating Complicated Issues> TAs are complex and interdisciplinary, and emerging technologies are inherently difficult to assess. Table 7 provides examples of potential mitigation strategies to address these challenges. <9. 3.4 Engaging All Relevant Stakeholders> An additional challenge in conducting TAs is engaging all relevant internal and external stakeholders, ensuring none are overlooked. Table 8 provides examples of potential mitigation strategies to address this challenge. Appendix I: Objectives, Scope, and Methodology This handbook identifies key steps and considerations in designing technology assessments (TAs). Below is a summary of methodologies used for all chapters of the handbook. <10. Review of GAO Documents> We reviewed GAO documents, including: Designing Evaluations (GAO-12-208G) select GAO products utilizing policy analysis approaches to identify and assess policy options We reviewed and analyzed 14 GAO TAs, including their designs and considerations, using a data collection instrument that contained fields regarding each report s purpose, methodologies, and key considerations for each methodology used (such as strengths and weaknesses). The data collection instrument also contained fields regarding whether policy considerations were presented or if specific policy options were identified and assessed in each TA report, what methodologies were used to identify and assess policy options, and key considerations associated with the methodologies used. We also reviewed GAO reports from non-TA product lines that utilized policy analysis approaches to assess policy options. An initial pool of 56 GAO reports was generated based on a keyword search of GAO s reports database. Of the 56 GAO reports, 12 were selected for review based on the following criteria: (1) the reports were publicly released after January 1, 2013 and (2) the reports included identification and assessment of policy options (not solely a presentation of agency actions related to policy options or general policy considerations). Testimonies and correspondence were excluded. We analyzed each of these selected GAO reports according to a data collection instrument that contained the following fields regarding policy options in the report: purpose, methodologies, and key considerations for each methodology used (such as strengths and weaknesses). A list of GAO documents reviewed is provided below. <10.1. GAO Documents Reviewed for Preparing this Handbook> Retirement Security: Some Parental and Spousal Caregivers Face Financial Risks. GAO-19-382. Washington, D.C.: May 1, 2019. GAO Science Technology Assessment, and Analytics Team: Initial Plan and Considerations Moving Forward. Washington, D.C.: April 10, 2019. Retirement Savings: Additional Data and Analysis Could Provide Insight into Early Withdrawals. GAO-19-179. Washington, D.C.: March 28, 2019. Critical Infrastructure Protection: Protecting the Electric Grid from Geomagnetic Disturbances. GAO-19-98. Washington, D.C.: December 19, 2018. Postal Retiree Health Benefits: Unsustainable Finances Need to Be Addressed. GAO-18-602. Washington, D.C.: August 31, 2018. Data Collection Seminar Participant Manual. Washington, D.C.: March 2018. Artificial Intelligence: Emerging Opportunities, Challenges and Implications. GAO-18-142SP. Washington, D.C.: March 28, 2018. Chemical Innovation: Technologies to Make Processes and Products More Sustainable. GAO-18-307. Washington, D.C.: February 8, 2018. Federal Regulations: Key Considerations for Agency Design and Enforcement Decisions. GAO-18-22. Washington, D.C.: October 19, 2017. Medical Devices: Capabilities and Challenges of Technologies to Enable Rapid Diagnoses of Infectious Diseases. GAO-17-347. Washington, D.C.: August 14, 2017. U.S. Postal Service: Key Considerations for Potential Changes to USPS s Monopolies. GAO-17-543. Washington, D.C.: June 22, 2017. Internet of Things: Status and Implications of an Increasingly Connected World. GAO-17-75. Washington, D.C.: May 15, 2017. Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance Resilience. GAO-17-425. Washington, D.C.: April 27, 2017. Flood Insurance: Review of FEMA Study and Report on Community- Based Options. GAO-16-766. Washington, D.C.: August 24, 2016. Medicaid: Key Policy and Data Considerations for Designing a Per Capita Cap on Federal Funding. GAO-16-726. Washington, D.C.: August 10, 2016. Municipal Freshwater Scarcity: Using Technology to Improve Distribution System Efficiency and Tap Nontraditional Water Sources. GAO-16-474. Washington, D.C.: April 29, 2016. GAO Memorandum: Quality Assurance Framework Requirements for Technology Assessments. Washington, D.C.: April 6, 2016. Biosurveillance: Ongoing Challenges and Future Considerations for DHS Biosurveillance Efforts. GAO-16-413T. Washington, D.C.: February 11, 2016. Social Security s Future: Answers to Key Questions. GAO-16-75SP. Washington, D.C.: October 2015. Water in the Energy Sector: Reducing Freshwater Use in Hydraulic Fracturing and Thermoelectric Power Plant Cooling. GAO-15-545. Washington, D.C.: August 7, 2015. Nuclear Reactors: Status and Challenges in Development and Deployment of New Commercial Concepts. GAO-15-652. Washington, D.C.: July 28, 2015. Veterans Disability Benefits: Improvements Needed to Better Ensure VA Unemployability Decisions Are Well Supported. GAO-15-735T. Washington, D.C.: July 15, 2015. Debt Limit: Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches. GAO-15-476. Washington, D.C.: July 9, 2015. Temporary Assistance for Needy Families: Potential Options to Improve Performance and Oversight. GAO-13-431. Washington, D.C.: May 15, 2013. Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies. GAO-13-240. Washington, D.C.: March 28, 2013. Designing Evaluations: 2012 Revision. GAO-12-208G. Washington, D.C.: January 2012. Neutron Detectors: Alternatives to Using Helium-3. GAO-11-753. Washington, D.C.: September 3, 2011. Climate Engineering: Technical Status, Future Directions, and Potential Responses. GAO-11-71. Washington, D.C.: July 28, 2011. Technology Assessment: Explosives Detection Technologies to Protect Passenger Rail. GAO-10-898. Washington, D.C.: July 28, 2010. Technology Assessment: Protecting Structures and Improving Communications during Wildland Fires. GAO-05-380. Washington, D.C.: April 26, 2005. Technology Assessment: Cybersecurity for Critical Infrastructure Protection. GAO-04-321. Washington, D.C.: May 28, 2004. Technology Assessment: Using Biometrics for Border Security. GAO-03-174. Washington, D.C: November 15, 2002. <11. Review of Experiences of GAO Teams and Technical Specialists> We spoke with and gathered input from GAO teams that are in the process of or have successfully assessed and incorporated policy options into GAO products. In addition, to augment our understanding of TA design and implementation challenges, we collected input from GAO staff who had provided key contributions to GAO TAs. Specifically, we asked for their thoughts regarding: (1) the strengths and limitations of TA methodologies and (2) challenges they faced, and strategies to address those challenges. <12. Review of Select Office of Technology Assessment Reports> A GAO librarian performed a search for relevant Office of Technology Assessment (OTA) reports, using keyword searches. From this initial list of OTA reports, we selected 17 reports to review that were frameworks, guides, models, or other compilations. We also reviewed the methodologies of the OTA reports selected for review. A list of OTA reports reviewed is included below. <12.1. Office of Technology Assessment Reports Reviewed for Preparing this Handbook> Office of Technology Assessment. Insider s Guide to OTA. Washington, D.C.: January 1995. Office of Technology Assessment. Policy Analysis at OTA: A Staff Assessment. Washington, D.C.: May 1993. Office of Technology Assessment. Research Assistants Handbook. Washington, D.C.: June 1992. Office of Technology Assessment. Strengths and Weaknesses of OTA Policy Analysis. Washington, D.C.: 1992. Office of Technology Assessment. The OTA Orange Book: Policies and Procedures of the Office of Technology Assessment: Communication with Congress and the Public. Washington, D.C.: February 1986. Office of Technology Assessment. What OTA Is, What OTA Does, How OTA Works. Washington, D.C.: March 1983. Office of Technology Assessment. Draft: An OTA Handbook. Washington, D.C.: June 7, 1982. Office of Technology Assessment. Draft: A Management Overview Methodology for Technology Assessment. Washington, D.C.: February 2, 1981.* Office of Technology Assessment. Draft: Technology Assessment in Industry: A Counterproductive Myth. Washington, D.C.: January 30, 1981.* Office of Technology Assessment. Draft: Technology Assessment Methodology and Management Practices. Washington, D.C.: January 12, 1981.* Office of Technology Assessment. Draft: Technology Assessment in the Private Sector. Washington, D.C.: January 9, 1981.* Office of Technology Assessment. Draft: A Process for Technology Assessment Based on Decision Analysis. Washington, D.C.: January 1981.* Office of Technology Assessment. Draft: Technology as Social Organization. Washington, D.C.: January 1981.* Office of Technology Assessment. A Summary of the Doctoral Dissertation: A Decision Theoretic Model of Congressional Technology Assessment. Washington, D.C.: January 1981.* Office of Technology Assessment. Report on Task Force Findings and Recommendations: Prepared by the OTA Task Force on TA Methodology and Management. Washington, D.C.: August 13, 1980. Office of Technology Assessment. Phase I Survey Results: Draft Papers Prepared for the Task Force on TA Methodology and Management. Washington, D.C.: April 10, 1980. <13. Review of Select Congressional Research Service Reports> We identified a pool of 29 Congressional Research Service (CRS) reports to consider reviewing that were technology assessments or included an analysis of policy options, based on a keyword search of CRS s website. We also interviewed CRS officials. Of the initial 29 CRS reports we identified, we selected six CRS reports to review, based on the following criteria: (1) published within the past 15 years (2004-2019) and (2) if a review of technology (technology assessment) and/or policy options was included. Reports were excluded based on the following criteria: (1) for technology assessment related reports if they represented a summary of a technology assessment that was included in our review or (2) for policy options related reports the report did not indicate how CRS arrived at the policy options (no methodology to review or analyze). A list of CRS reports reviewed is included below. <13.1. Congressional Research Service Reports Reviewed for Preparing this Handbook> Congressional Research Service. Advanced Nuclear Reactors: Technology Overview and Current Issues. Washington, D.C.: April 18, 2019. Congressional Research Service. Drug Shortages: Causes, FDA Authority, and Policy Options. Washington, D.C.: December 27, 2018. Congressional Research Service. Policy Options for Multiemployer Defined Benefit Pension Plans. Washington, D.C.: September 12, 2018. Congressional Research Service. Shale Energy Technology Assessment: Current and Emerging Water Practices. Washington, D.C.: July 14, 2014. Congressional Research Service. Carbon Capture: A Technology Assessment. Washington, D.C.: November 5, 2013. Congressional Research Service. Energy Storage for Power Grids and Electric Transportation: A Technology Assessment. Washington, D.C.: March 27, 2012. <14. Review of Literature> A GAO librarian performed a literature search based on keyword searches for two areas TA and policy options. For TA literature, the team selected 29 documents to review that were frameworks, guides, models, or other compilations, based on a review of the literature titles and abstracts. In general, we excluded specialized types of TAs, such as health-related TAs, as we focused on TA design more broadly. For policy options literature, the team selected 14 documents to review that were frameworks, guides, models, or other compilations and focused on policy options related to science and technology. We also asked experts we consulted to suggest literature for our review; these suggestions confirmed the literature list noted below. A list of literature reviewed is included below. <14.1. Literature Reviewed for Preparing this Handbook> Grunwald, Armin. Technology Assessment in Practice and Theory. London and New York: Routledge, 2019. Armstrong, Joe E., and Willis W. Harman. Strategies For Conducting Technology Assessments. London and New York: Routledge, 2019. Noh, Heeyong, Ju-Hwan Seo, Hyoung Sun Yoo, and Sungjoo Lee. How to Improve a Technology Evaluation Model: A Data-driven Approach. Technovation, vol. 72/73 (2018): p. 1-12. Larsson, A., T. Fasth, M. W rnhjelm, L. Ekenberg, and M. Danielson. Policy Analysis on the Fly With an Online Multicriteria Cardinal Ranking Tool. Journal of Multi-Criteria Decision Analysis, vol. 25 (2018): p. 55-66. Nooren, P., N. van Gorp, N. van Eijk, and R. O. Fathaigh. Should We Regulate Digital Platforms? A New Framework for Evaluating Policy Options. Policy and Internet, vol. 10, no. 3 (2018): p. 264-301. Smith, A., K. Collins, and D. Mavris. Survey of Technology Forecasting Techniques for Complex Systems. Paper presented at 58th AIAA/ASCE/AHS/ASC Structures, Structural Dynamics, and Materials Conference, Grapevine, TX (2017). Ibrahim, O., and A. Larsson. A Systems Tool for Structuring Public Policy Problems and Design of Policy Options. Int. J. Electronic Governance, vol. 9 , nos. 1/2 (2017): p. 4-26. Christopher, A. Simon. Public Policy Preferences and Outcomes. 3rd ed. New York: Routledge, 2017. Weimer, David L., and R. Aidan Vining. Policy Analysis Concepts and Practice. 6th ed. London and New York: Routledge, 2017. Mulder, K. Technology Assessment. In Foresight in Organizations: Methods and Tools, edited by Van Der Duin, Patrick, 109-124, 2016. Coates, Joseph F. A 21st Century Agenda for Technology Assessment. Technological Forecasting and Social Change, vol. 113 part A (2016): p. 107-109. Coates, Joseph F. Next Stages in Technology Assessment: Topics and Tools. Technological Forecasting and Social Change, vol. 113 (2016): p. 112-114. Mazurkiewicz, A., B. Belina, B. Poteralska, T. Giesko, and W. Karsznia. Universal Methodology for the Innovative Technologies Assessment. Proceedings of the European Conference on Innovation and Entrepreneurship (2015): p. 458-467. Sadowski, J. Office of Technology Assessment: History, Implementation, and Participatory Critique. Technology in Society, vol. 42 (2015): p. 9-20. Larsson, A., O. Ibrahim. Modeling for Policy Formulation: Causal Mapping, Scenario Generation, and Decision Evaluation. In Electronic Participation: 7th IFIP 8.5 International Conference, 135-146, Springer, 2015. Moseley, C., H. Kleinert, K. Sheppard-Jones, and S. Hall. Using Research Evidence to Inform Public Policy Decisions. Intellectual and Developmental Disabilities, vol. 51 (2013): p. 412-422. Calof, J., R. Miller, and M. Jackson. Towards Impactful Foresight: Viewpoints from Foresight Consultants and Academics. Foresight, vol. 14 (2012): p. 82-97. Parliaments and Civil Society in Technology Assessment, Collaborative Project on Mobilization and Mutual Learning Actions in European Parliamentary Technology Assessment. The Netherlands: Rathenau Instituut, 2012. Blair, P. D. Scientific Advice for Policy in the United States: Lessons from the National Academies and the Former Congressional Office of Technology Assessment. In The Politics of Scientific Advice: Institutional Design for Quality Assurance, ed. Lentsch, Justus, 297-333, 2011. Paracchini, M.L., C. Pacini, M.L.M. Jones, and M. P rez-Soba. An Aggregation Framework to Link Indicators Associated With Multifunctional Land Use to the Stakeholder Evaluation of Policy Options. Ecological Indicators, vol. 11 (2011): p 71-80. Roper, A. T., S. W. Cunningham, A. L. Porter, T. W. Mason, F. A. Rossini, and J. Banks. Forecasting and Management of Technology, 2nd ed. New Jersey: Wiley, 2011. Lepori, B., E. Reale, and R. Tijssen. Designing Indicators for Policy Decisions: Challenges, Tensions and Good Practices: Introduction to a Special Issue. Research Evaluation, vol. 20, no. 1 (2011): p. 3-5. Russel, A. W., F. M. Vanclay, and H. J. Aslin H.J. Technology Assessment in Social Context: The Case for a New Framework for Assessing and Shaping Technological Developments. Impact Assessment and Project Appraisal, vol. 28, no. 2 (2010): p. 109-116. Shiroyama, H., G. Yoshizawa, G., M. Matsuo, and T. Suzuki. Institutional Options and Operational Issues in Technology Assessment: Lessons from Experiences in the United States and Europe. Paper presented at Atlanta Conference on Science and Innovation Policy, Atlanta, 2009. Tran, T.A., and T. Daim T. A Taxonomic Review of Methods and Tools Applied in Technology Assessment. Technological Forecasting and Social Change, vol. 75 (2008): p. 1396-1405. Brun, G., and G. Hirsch Hadorn. Ranking Policy Options for Sustainable Development. Poiesis Prax, vol. 5 (2008): p. 15-31. Tran, T.A. Review of Methods and Tools applied in Technology Assessment Literature. Paper presented at Portland International Conference on Management of Engineering and Technology, Portland Oregon, 2007. Burgess, J., A. Stirling, J. Clark, G. Davies, M. Eames, K. Staley, and S. Williamson. Deliberative Mapping: A Novel Analytic-Deliberative Methodology to Support Contested Science-Policy Decisions. Public Understanding of Science, vol. 16 (2007): p. 299-322. Decker, M., and M. Ladikas. Bridges Between Science, Society and Policy: Technology Assessment Methods and Impacts. Berlin: Springer-Verlag, 2004. Guston, D. H., and D. Sarewitz. Real-time Technology Assessment. Technology in Society, vol. 24 (2002): p. 93-109. Rip, A. Technology Assessment. In International Encyclopedia of the Social & Behavioral Science, vol. 23, edited by Smelster, N. J. and B. P. Baltes, 15512-15515. Amsterdam: Elsevier, 2001. Van Den Ende, J., K. Mulder, M. Knot, E. Moors, and P. Vergragt. Traditional and Modern Technology Assessment: Toward a Toolkit. Technological Forecasting and Social Change, vol. 58 (1998): p. 5-21. Wood, F. B. Lessons in Technology Assessment: Methodology and Management at OTA. Technological Forecasting and Social Change, vol. 54 (1997): p. 145-162. Janes, M. C. A Review of the Development of Technology Assessment. International Journal of Technology Management, vol. 11, no. 5-6 (1996): p. 507-522. Hastbacka, M. A., and C. G. Greenwald. Technology Assessment - Are You Doing it Right? Arthur D. Little PRISM, no. 4 (1994). Rivera, W. M., D. J. Gustafson, and S. L. Corning. Policy Options in Developing Agricultural Extension Systems: A Framework for Analysis. International Journal of Lifelong Education, vol. 10, no. 1 (1991): p. 61-74. Lee, A. M., and P. L. Bereano. Developing Technology Assessment Methodology: Some Insights and Experiences. Technological Forecasting and Social Change, vol. 19 (1981): p. 15-31. Porter, A. L., F. A. Rossini, S. R. Carpenter, and A. T. Roper. A Guidebook for Technology Assessment and Impact Analysis, vol. 4. New York and Oxford: North Holland, 1980. Pulver, G.C. A Theoretical Framework for the Analysis of Community Economic Development Policy Options. In Nonmetropolitan Industrial Growth and Community Change, edited by Summers, G. and A. Selvik, 105-117. Massachusetts and Toronto: Lexington Books, 1979. Ascher, W. Problems of Forecasting and Technology Assessment. Technological Forecasting and Social Change, vol. 13, no. 2 (1979): p. 149-156. Majone, G. Technology Assessment and Policy Analysis. Policy Sciences, vol. 8, no. 2 (1977): p. 173-175. Berg, M., K. Chen, and G. Zissis. A Value-Oriented Policy Generation Methodology for Technology Assessment. Technological Forecasting and Social Change, vol. 4, no. 4 (1976): p. 401-420. Lasswell, Harold D. A Pre-View of Policy Sciences. Policy Sciences Book Series. New York: Elsevier, 1971. <15. Consultation with External Experts> We held a forum to gather experts opinions regarding TA design. An initial list of experts was prepared based on a review of GAO TA reports, literature, and referral by other experts. Experts were selected based on their knowledge and expertise in the subject, including: (1) prior participation on a National Academy of Sciences panel or other similar meeting; (2) leadership position in one or more organizations or sectors relevant to technology research and development implementation or policy; and (3) relevant publications or sponsorship of reports. Care was also taken to ensure a balance of sectors, backgrounds, and specific areas of expertise (e.g., science, technology, policy, information technology, and law). We also asked the experts to suggest literature for our review; these suggestions confirmed the literature list noted above. A list of external experts consulted is included below. <15.1. External Experts Consulted for the Handbook> Dr. Jeffrey M. Alexander, Senior Manager, Innovation Policy, RTI International Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation Mr. David Bancroft, Executive Director, International Association for Impact Assessment Mr. Duane Blackburn, S&T Policy Analyst, Office of the CTO, MITRE Dr. Peter D. Blair, Executive Director, Division of Engineering and Physical Sciences, National Academies of Sciences, Engineering, and Medicine Ms. Marjory Blumenthal, Acting Associate Director, Acquisition and Technology Policy Center; Senior Policy Researcher, RAND Corporation Mr. Chris J. Brantley, Managing Director, Institute of Electrical and Electronics Engineers, Inc., USA Dr. Jonathan P. Caulkins, H. Guyford Stever University Professor of Operations Research and Public Policy, Carnegie Mellon University Mr. Dan Chenok, Executive Director, Center for The Business of Government, IBM Dr. Gerald Epstein, Distinguished Research Fellow, Center for the Study of Weapons of Mass Destruction, National Defense University Dr. Robert M. Friedman, Vice President for Policy and University Relations, J. Craig Venter Institute Mr. Zach Graves, Head of Policy, Lincoln Network Ms. Allison C. Lerner, Inspector General, National Science Foundation Mr. Mike Molnar, Director of Office of Advanced Manufacturing, National Institute of Standards and Technology Dr. Michael H. Moloney, CEO, American Institute of Physics Dr. Ali Nouri, President, Federation of American Scientists Dr. Jon M. Peha, Professor, Engineering and Public Policy; Courtesy Professor, Electrical and Computer Engineering, Carnegie Mellon University Dr. Stephanie S. Shipp, Deputy Director and Professor, University of Virginia, Biocomplexity Institute and Initiative, Social and Decision Analytics Division Dr. Daniel Sarewitz, Co-Director, Consortium for Science, Policy & Outcomes Professor of Science and Society, School for the Future of Innovation in Society, Arizona State University Ms. Rosemarie Truman, Founder and CEO, Center for Advancing Innovation Dr. Chris Tyler, Director of Research and Policy, Department of Science, Technology, Engineering and Public Policy (STEaPP), University College London (UCL) Appendix II: Summary of Steps for GAO s General Engagement Process As part of GAO s Quality Assurance Framework, GAO s general design and project plan templates contain five phases that are followed in sequential order, with modifications or changes as needed. GAO technology assessments (TAs) use these templates, as applicable. Throughout the phases, the status of the work, including decisions, is communicated to stakeholders and congressional committees that requested the work. Provided below is a summary of the activities GAO staff undertake during each of the phases, and is based on a review of GAO documentation related to engagement phases. Phase I: Acceptance Engagement characteristics such as risk level or internal stakeholders are determined at a high-level Engagement Acceptance Meeting. Engagement teams obtain a copy of and review the congressional request letter(s), as applicable. Phase II: Planning and Proposed Design Staff are assigned to the engagement and set up the electronic engagement documentation set folders. Staff enter standard information regarding the engagement in GAO s Engagement Management System (EMS), which is used to monitor the status of the engagement throughout the engagement process and regularly updated. Engagement teams hold an initiation meeting with engagement stakeholders to discuss potential research questions, design options, and stakeholder involvement. Engagement teams clarify engagement objectives and approach through discussions with the congressional requesters, as applicable. Engagement teams obtain background information. For example, to gather information about the topic and any work already performed, teams may conduct a literature review, search prior and ongoing GAO work related to the topic, or consult with external stakeholders, outside experts, and agency officials, including the Congressional Research Service, Congressional Budget Office, and Inspectors General of federal agencies. Engagement teams formally notify agencies of the engagement through a notification letter, and hold an entrance conference, as applicable. Engagement teams prepare a design matrix, project plan, risk assessment tool, data reliability assessment, and all participants on engagements, including stakeholders, affirm their independence. The design matrix is a tool that describes: researchable questions; criteria; information required and sources; scope and methodology; and limitations. The project plan identifies key activities and tasks, dates for completing them, and staff assigned. Engagement teams secure approval to move forward with engagement approach at a high-level Engagement Review Meeting. Phase III: Evidence Gathering, Finalizing Design, and Analysis Engagement teams finalize design: teams work with internal stakeholders to confirm soundness and reach agreement on proposed initial design. If engagement teams and stakeholders conclude that additional work is needed or the design faces significant implementation challenges, design is reviewed and modified, as needed. Engagement teams collect and analyze evidence: teams may collect and analyze evidence using a variety of methodologies including document review, interviews, surveys, focus groups, and various forms of data analysis. For example, engagement teams may meet with agency officials and outside experts, as applicable, to gather evidence. Engagement teams assess evidence and agree on conclusions: teams assess whether the evidence collected is sufficient and appropriate to support findings and conclusions reached for each objective. Once sufficient evidence is collected and analyzed, the team discusses how the evidence supports potential findings and shares these findings with stakeholders, generally in the form of a formal message agreement meeting. Engagement teams update congressional requesters, as applicable, on the engagement status and potential findings. Phase IV: Product Development Engagement teams draft product: after drafting the product, teams send draft to internal stakeholders for review. Teams also send draft to relevant external parties, including relevant agencies, to confirm facts and obtain their views. Teams identify sources of all information in the draft and an independent analyst (not on the team) verifies the sources through a process called indexing and referencing. Engagement teams perform exit conferences with agencies, as applicable, to discuss findings and potential recommendations. Agencies and external parties are given the opportunity to comment on the draft, as applicable. Engagement teams communicate findings and potential recommendations, as well as timeframes for issuing the product, to congressional requesters, as applicable. The draft product is copy-edited, prepared for issuance, and publicly released on GAO s website, as applicable. Phase V: Results Engagement documentation is closed out. Engagement teams conduct follow-up, track the results, and prepare reports on the status of recommendations and financial and non-financial benefits, as applicable, using GAO s results tracking system. Appendix III: Example Methods for Technology Assessment This appendix provides examples of methods and analytical approaches that GAO technology assessment (TA) teams can use to examine different types of evidence. Also included in this appendix are considerations of the strengths, limitations, and synergies among evidence types and methods, which can be useful to consider throughout design to ensure that evidence is sufficient and appropriate to answer the researchable questions. Examples from GAO TAs were used given our familiarity with GAO products, though numerous other (non-GAO) examples of TA methods exist. This appendix included a review of GAO reports and select literature, and is not intended to be comprehensive. This is a simplified presentation of methods, and there is variation in the levels of structure of the example methods. This appendix is divided into several sections, including by evidentiary types: Testimonial, Documentary, and Physical. For each of these types of evidence, example methods are presented with low and high levels of structure, and include examples of considerations (such as general benefits and limitations) that analysts may consider. In general, more highly structured approaches generate increased consistency and comparability of results that allows for stronger quantification. Less structured approaches tend to provide more flexibility and context, and richer illustrative evidence. <16. Examples of Methodologies for Testimonial Evidence> Testimonial evidence is elicited from respondents to understand their experience, opinions, knowledge, and behavior, and it can be obtained through a variety of methods, including inquiries, interviews, focus groups, expert forums, or questionnaires. Testimonial evidence can be gathered from individuals who may be responding personally based on their own experience in an official capacity to represent agencies or other entities, or groups, who may share individual level responses, or may present a single group response. Group testimony enables interactions that can be used to explore similarities and differences among participants, to identify tensions or consensus in a group, or to explore ideas for subsequent research and collaboration. It is important to evaluate the objectivity, credibility, and reliability of testimonial evidence. Analysts may use a combination of approaches to gather testimonial evidence, depending on the relevant population(s) of respondents, intended analytical approach(es), likely respondent burden, and resource considerations. Table 9 provides more examples. <17. Examples of Methodologies for Documentary Evidence> Documentary evidence is existing information, such as letters, contracts, accounting records, invoices, spreadsheets, database extracts, electronically stored information, and management information on performance. It is important to evaluate the objectivity, credibility, and reliability of documentary evidence. Analysts may use a combination of approaches to gather documentary evidence, depending on the relevant sources and types of documents, intended analytical approach(es), and resource considerations. Table 10 provides more examples. <18. Examples of Methodologies for Physical Evidence> Physical evidence is obtained by direct inspection or observation of people, property, or events. The appropriateness of physical evidence depends on when, where, and how the inspection or observation was made and whether it was recorded in a manner that fairly represents the facts observed. Common considerations for physical evidence include the reliability of site selection, intended analytical approaches, and resource considerations. Table 11 provides more examples. GAO may also rely on agency and other secondary data. Considerations for those secondary data are dependent on the type, source, and collection method, and could include all of the considerations above. Use of secondary data is usually more efficient than collecting new data on a topic, and administrative records (a form of documentary evidence) are generally not as prone to self-reporting biases that may be present in testimonial evidence. However, when secondary data are used, more work may be required to assess whether data are reliable and appropriate for a given purpose. For example, analysts will gather all appropriate documentation, including record layout, data element dictionaries, user s guides, and data maintenance procedures. Depending on the database, procedures and analysis can be very complex and it would be important to note assumptions, limitations, and caveats pertaining to the data, which may affect the conclusions that can be drawn based on the analyses. <19. Examples of Analytical Approaches> Examples of analytical approaches found in the literature to analyze data include: Interpretive structural modeling: shows a graphical relationship among all elements to aid in structuring a complex issue area, and may be helpful in delineating scope. Trend extrapolation: is a family of techniques to project time-series data using specific rules, and may be helpful in forecasting technology. Scenarios: is a composite description of possible future states incorporating a number of characteristics, and may be helpful in policy analysis. Scanning methods, such as checklists: is listing factors to consider in a particular area of inquiry, and may be helpful in identifying potential impacts. Tracing methods, such as relevance trees: includes identifying sequential chains of cause and effect or other relationships, and may be helpful in identifying potential impacts. Cross-effect matrices: are two-dimensional matrix representations to show the interaction between two sets of elements, and may be helpful in analyzing consequences of policy options. Simulation models: are a simplified representation of a real system that is used to explain dynamic relationships of the system, and may be helpful in identifying impacts and forecasting technology. Benefit-cost analysis: is a systematic quantitative method of assessing the desirability of government projects or policies when it is important to take a long view of future effects and a broad view of possible side effects. Decision analysis: is an aid to compare alternatives by weighing the probabilities of occurrences and the magnitudes of their impacts, and may be helpful in determining impacts and assessing policy options. Scaling: is an aid that may include developing a matrix that identifies potential impact related to an activity and stakeholder group, and qualitatively or quantitatively assesses the potential impact, and may be helpful analyzing potential impacts, including of policy options. Appendix IV: GAO Contact and Staff Acknowledgments <20. GAO Contact> <21. Staff Acknowledgments> In addition to the contacts named above, key contributors to this report were R. Scott Fletcher (Assistant Director), Diantha Garms (Analyst-in- charge), Nora Adkins, Colleen Candrl, Virginia Chanley, Robert Cramer, David Dornisch, John De Ferrari, Dennis Mayo, Anika McMillon, SaraAnn Moessbauer, Amanda Postiglione, Steven Putansu, Oliver Richard, Meg Tulloch, Ronald Schwenn, Ben Shouse, Amber Sinclair, Ardith Spence, Andrew Stavisky, David C. Trimble, and Edith Yuh. <22. GAO s Mission> 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. <23. Obtaining Copies of GAO Reports and Testimony Order by Phone> The fastest and easiest way to obtain copies of GAO documents at no cost is through our website. Each weekday afternoon, GAO posts on its website newly released reports, testimony, and correspondence. You can also subscribe to GAO s email updates to receive notification of newly posted products. The price of each GAO publication reflects GAO s actual cost of production and distribution and depends on the number of pages in the publication and whether the publication is printed in color or black and white. Pricing and ordering information is posted on GAO s website, https://www.gao.gov/ordering.htm. Place orders by calling (202) 512-6000, toll free (866) 801-7077, or TDD (202) 512-2537. Orders may be paid for using American Express, Discover Card, MasterCard, Visa, check, or money order. Call for additional information. <24. Connect with GAO> Connect with GAO on Facebook, Flickr, Twitter, and YouTube. Subscribe to our RSS Feeds or Email Updates. Listen to our Podcasts. Visit GAO on the web at https://www.gao.gov. <25. To Report Fraud, Waste, and Abuse in Federal Programs> <26. Congressional Relations> <27. Public Affairs> <28. Strategic Planning and External Liaison> James-Christian Blockwood, Managing Director, [email protected], (202) 512-4707 U.S. Government Accountability Office, 441 G Street NW, Room 7814, Washington, DC 20548 Please Print on Recycled Paper.

Why GAO Did This Study In January 2019, at the direction of Congress, GAO formed the Science, Technology Assessment, and Analytics team to expand its work on cutting-edge science and technology issues, and to provide oversight, insight, and foresight for science and technology. TAs can be used to strengthen decision-making, enhance knowledge and awareness, and provide early insights into the potential impacts of technology. TA design can enhance TA quality, credibility, and usefulness; ensure its independence; and ensure effective use of resources. Under the Comptroller General authority, we developed this handbook using the format of the 2012 GAO methodology transfer paper, Designing Evaluations . Below is a summary of the approach we used to affirm and document TA design steps and considerations for this handbook. Reviewed select GAO documents, including Designing Evaluations (GAO-12-208G), published GAO TAs, select GAO products that presented policy options, and other GAO reports Reviewed select Office of Technology Assessment reports Reviewed select Congressional Research Service reports Reviewed select literature on TAs and related to development and analysis of policy options Held an expert forum to gather experts’ input on TA design Considered experiences of GAO teams that have successfully assessed and incorporated policy options into GAO products, as well as GAO teams that are currently incorporating policy options into their TA design Collected input from GAO staff who provided key contributions to GAO TAs, regarding challenges to TA design and implementation and possible solutions What GAO Found The Technology Assessment Design Handbook identifies tools and approaches GAO staff and others can consider in the design of robust and rigorous technology assessments (TAs). The handbook underscores the importance of TA design (Chapter 1), outlines the process of designing TAs (Chapter 2), and describes approaches for mitigating selected TA design and implementation challenges (Chapter 3). While the primary audience of this handbook is GAO staff, we expect that other organizations engaged or interested in TAs will find portions of this handbook useful. We anticipate modifying and refining this handbook, as needed, based on experience and public comments received. We will accept comments on this handbook at [email protected] for approximately 1 year after publication. The handbook identifies three general design phases, as appropriate, as shown in the figure below. T terative nature of TA design, the requester’s interests, resources, independence, stakeholder engagement, potential challenges, and communication. In addition, ormulating initial policy options to consider; gathering evidence, determining relevant dimensions to analyze, and analyzing the policy options; and presenting the results of the policy analysis. Summary of Key Phases of Technology Assessment Design We found that GAO TAs have and can use a variety of design approaches and methods. The handbook provides TA design and methodology examples, including related to objectives commonly found in GAO TAs, such as: describe a technology, assess opportunities and challenges of a technology, and assess policy considerations. One example provided is: some GAO TAs include an objective related to describing the status and feasibility of a technology, which GAO teams have done by using methodologies such as expert panels, interviews, literature and document reviews, site visits, and determining the Technology Readiness Level. Also included in the handbook are examples of TA design and implementation challenges we found, along with possible mitigation strategies. We identified four general categories of challenges, including: (1) ensuring TA products are useful for Congress and others; (2) determining policy goals and measuring impact; (3) researching and communicating complicated issues; and (4) engaging all relevant stakeholders. An example of a potential mitigation strategy to the specific challenge of writing simply and clearly about technical subjects includes: allowing sufficient amount of time for writing, including reviewing and revising writing.

gao_GAO-19-468

gao_GAO-19-468_0

<1. Background> In September 2003, the United States and other nations endorsed IAEA s Code of Conduct, which established basic principles and guidance to promote the safe and secure use of radioactive material. The Code of Conduct applies to category 1, 2, and 3 quantities of radioactive material all of which are potentially dangerous to human health and could, if not properly controlled, cause permanent injuries or death to a person who handled or was otherwise in contact with them. IAEA s system considers radioactive material dangerous when gathered in close proximity to people in sufficient quantity and for a sufficient time to cause direct human health effects. NRC, working with the Department of Energy, developed a list of 16 radionuclides of concern that, if gathered in category 1 or 2 quantities, pose the greatest risk of being used by terrorists to make an RDD. Of these 16 radionuclides of concern, 4 are most prevalent in the U.S. economy: americium-241, cobalt-60, cesium- 137, and iridium-192. Since the terrorist attacks in September 2001, concerns have grown that terrorists could obtain and use radioactive material and build an RDD. The risk of an RDD is determined by the function of three components: threat, vulnerability, and consequence. Threat is generally defined as entities or actions with the potential to cause harm including terrorist attacks. According to NRC officials, there is a general credible threat of malevolent use of radioactive materials. The second component of RDD risk, vulnerability, includes physical features or operational attributes that render an asset open to exploitation, including gaps in security measures such as gates, locks, perimeter fences, and computer networks. Finally, the third component of RDD risk, consequence, includes the effects of terrorist attacks or natural disasters that result in losses to public health and safety and the economy. Taken together, the three components make up a risk triplet, which is shown in figure 1. The consequences of detonating an RDD would depend on the quantity and type of radioactive material used and the size and characteristics of the area in which the material was dispersed. An example of the consequence of an RDD occurred in 1987 when two people in Goi nia, Brazil, found an abandoned medical machine containing 1,400 curies of cesium-137. The individuals, who were unaware of the nature of the radioactive material, extracted it from the machine and distributed the material to several families, causing 20 people to be hospitalized and four deaths. The very high internal and external contamination was caused by the way they handled the cesium-137, including rubbing their skin with the material and eating with contaminated hands. In addition, 112,000 people in the surrounding area were monitored for exposure to radiation, of which 249 were found to be internally or externally contaminated. The accident also contaminated 85 houses and required the demolition of homes and other buildings, generating 3,500 cubic meters of radioactive waste. This example shows the range of consequences from the dispersal of radioactive material, from fatalities to socioeconomic effects. Potential consequences of an RDD are outlined in figure 2. Depending on the size and radioactivity of an RDD, the affected population could be evacuated and possibly relocated. EPA s Protective Action Guide (PAG) presents radiation dose guidelines that are used by federal agencies to protect people from unhealthy levels of radiation. According to the PAG, evacuation is recommended when there is enough radiation to reach 5.0 rem over the first 4 days. The PAG also outlines actions that can be taken in response to projected radiation dose rates, including evacuation, shelter in place, relocation, and avoidance of drinking water or food supplies. The PAG does not consider a specific geographic area, such as a square kilometer, when recommending evacuation. Domestically, the Atomic Energy Act of 1954, as amended, gives NRC primary responsibility for regulating most domestic industrial, medical, and research uses of radioactive material to protect public health and safety, among other things. NRC is composed of five Commissioners (the Commission) appointed by the President and confirmed by the Senate for 5-year terms. One of the Commissioners is designated by the President to be the Chairman and official spokesperson of the Commission. According to NRC s website, the Commission formulates policies, develops regulations governing nuclear reactor and nuclear and radioactive material safety, issues orders to licensees, and adjudicates legal matters. Issues before the Commission are decided by majority vote, and the Commission directs subsequent actions be implemented by NRC staff. <2. NRC Periodically Assesses Risk When Establishing Security Requirements for Radioactive Material> When establishing security requirements for radioactive material, since 2004, NRC has assessed the risks of such material based on the potential of that material to cause prompt fatalities and the deterministic health effects from its radiation; it has not used socioeconomic consequences as a basis for establishing regulations related to the security of radioactive material. Moreover, in response to the recommendations we made in 2016 that NRC should better track category 3 quantities of radioactive material, NRC staff assessed whether they should require additional security measures for category 3 radioactive material and determined that such material did not merit additional security measures. <2.1. NRC Considers Prompt Fatalities and Deterministic Health Effects When Assessing the Risk of an RDD and Does Not Consider Socioeconomic Consequences> Since 2004, NRC has assessed the risks of radioactive material based on the potential of that material to cause prompt fatalities and deterministic health effects from radiation. NRC on several occasions reassessed and repeatedly reaffirmed its use of the occurrence of prompt fatalities and deterministic health effects as its primary criteria for measuring the consequences of an RDD, including when developing its decision-making framework in 2004, reviewing its regulatory framework after the Fukushima nuclear disaster in 2011, and in its 2014 response to recommendations from the Radiation Source Protection and Security Task Force (the Task Force). NRC first considered prompt fatalities from radiation as criteria for measuring consequences in November 2004 when developing its decision-making framework for evaluating vulnerabilities for theft of radioactive material. Specifically, in 2004 NRC staff recommended that the Commission approve a decision-making framework that assessed risk based on prompt fatalities from radiation. In the Commission Paper, NRC staff stated that the framework would employ the consequence criteria of preventing prompt fatalities from radiation exposure, but they also recognized that including additional consequence criteria, such as land contamination, might be warranted. They also pointed out that DHS s Risk Analysis and Management for Criteria Asset Protection framework used criteria including economic, environmental, and loss of output of production capability, among other things. In January 2005, the Commission approved using prompt fatalities from radiation for measuring consequence. In its decision, the Commission also said that NRC staff should not independently develop criteria and standards for other consequences, such as land contamination and economic impacts. After the Fukushima nuclear disaster in 2011, NRC staff again considered broadening the criteria for assessing risk to include socioeconomic impacts. Specifically, in an August 2012 analysis presented to NRC commissioners in response to Fukushima that addressed whether NRC s regulatory framework should be modified to consider economic consequences, NRC staff noted that NRC s existing requirements have the effect of minimizing economic consequences by preventing or mitigating events that could lead to a radioactive release. The analysis prepared by NRC staff recommended improving guidance for estimating offsite economic costs based on up-to-date data. In March 2013, the Commission approved the staff s recommendation to provide enhanced guidance but found that socioeconomic consequences should not be considered. at 2 rem for the first year. socioeconomic consequences to the Commission in January 2014, reiterating the staff s view that Part 37 provides adequate security protection against a significant RDD. The NRC staff also concluded that the current protection and security framework and posture adequately protects against contamination and resulting economic consequences. <2.2. NRC Assessed the Risk Associated with Category 3 Material and Determined That No Additional Security Measures Are Needed> In 2016, NRC established the Category 3 Source Security and Accountability Working Group (the Working Group) in response to our 2016 recommendations to NRC to better track dangerous quantities of radioactive material. This group issued a report in 2017 assessing whether NRC should require additional security measures for category 3 material and determined that such material did not meet the threshold of prompt fatalities and deterministic health effects set by NRC, and therefore, did not require additional security measures. As part of its analysis, the Working Group stated that a category 2 quantity of a certain radioactive material would not be sufficient to achieve an RDD of consequence that would cause deterministic health effects. NRC officials also told us that there is not enough of this same radioactive material in the United States to create an RDD of consequence even if all of it was used in an RDD. The Working Group also concluded that there is no evidence of adversarial interest in acquiring category 3 quantities of material by theft, that security weaknesses at facilities that contain category 3 quantities of radioactive material had not increased since first evaluated by NRC, and the consequences of an RDD using category 3 material are not significant enough to require additional security measures. Based on the findings of the working group s report, NRC staff recommended that the Commission not amend regulations to require license verification of category 3 radioactive material or impose security requirements to prevent the aggregating of category 3 material to a category 2 quantity. The report did recommend that the Commission approve the pursuit of rulemaking to require safety and security equipment be in place before granting a license for an unknown entity and clarify license verification methods for transfers involving quantities of radioactive material below the category 2 threshold. <3. Experts Generally Agreed That NRC s Assessment of Risk Does Not Include All Relevant Criteria for Establishing Security Requirements> The experts we convened with assistance from the National Academies generally agreed that NRC s assessment of risk does not include the all relevant criteria for establishing security requirements. The experts at our meeting generally agreed that prompt fatalities from radiation and deterministic health effects are not the only relevant criteria for determining the consequences of an RDD, which recent studies we reviewed support. These experts and studies generally agreed that socioeconomic effects and fatalities from subsequent evacuations are relevant criteria for assessing the consequences of an RDD. <3.1. Experts Generally Agreed and Studies Support That Prompt Fatalities and Deterministic Health Effects Have Limited Value as Criteria> The experts at our meeting generally agreed that using prompt fatalities and deterministic health effects from radiation as the basis for analyzing consequence have limited value to NRC as criteria for determining the consequences of an RDD, as they are unlikely to occur in the event of an RDD. Experts generally said at our meeting expressed the opinion that NRC is not focusing on all relevant criteria for assessing consequence. For example, one expert from the regulatory community said that prompt fatalities are an unlikely consequence of an RDD. Another expert affiliated with users of radioactive material noted that deterministic health effects from an RDD are limited. Finally, a security expert said that it would be difficult to kill large numbers of people with an RDD, and therefore prompt fatalities are not a good measure of consequence. Another expert pointed out that NRC s current criteria would be unlikely to support regulating category 1 and 2 materials since an RDD with these materials is unlikely to cause prompt fatalities. He added that this creates a disconnect where category 3 material is ignored, but NRC regulates category 1 and 2 material even though category 1 and 2 materials do not meet NRC s criteria of causing prompt fatalities and deterministic health effects. Recent studies from Sandia also show that prompt fatalities and deterministic health effects are unlikely to result from an RDD. Specifically, Sandia completed two studies in 2017 and 2018 that modeled an RDD blast and evaluated the potential consequences in New York City. The 2017 study modeled the potential consequences of a category 1 quantity of radioactive material detonated in an RDD and estimated that there would likely be no prompt fatalities from radiation. The 2018 study undertook the same analysis with a category 3 quantity of radioactive material and estimated that it would also produce no prompt fatalities from radiation. <3.2. Experts Stated and Studies Support That Socioeconomic Effects and Fatalities Resulting From Evacuations Are Relevant Criteria for Determining the Consequences of an RDD> The experts who participated in our meeting discussed what type of consequences should be considered and generally agreed that socioeconomic effects and fatalities from subsequent evacuations, rather than prompt fatalities and deterministic health effects, are relevant criteria for NRC to consider when assessing the consequences of an RDD, which recent studies we reviewed support. For example, one expert said that while deterministic health effects from an RDD are limited, socioeconomic impacts are significant. Another expert said that the main point of a terrorist detonating an RDD is to create economic effects, not deterministic health effects. This expert added that the dispersal of radioactive material would result in low-level radiation scattered across an area, leading to socioeconomic consequences. A participating expert from the regulatory community said that it is difficult to quantify socioeconomic effects. Furthermore, the expert said that any model used to determine regulation by predicting consequence must be reproducible. The federal government has recently taken steps to better understand the socioeconomic costs associated with an RDD. For example, Sandia studies completed in 2017 and 2018 estimated socioeconomic costs for RDDs with category 1 and category 3 quantities of radioactive material. The 2017 study that modeled a category 1 quantity of radioactive material estimated that the socioeconomic impact on the national gross domestic product would be approximately $30 billion. The 2018 study, which substituted a category 3 quantity of radioactive material, estimated the socioeconomic impact on gross domestic product at $24 billion. One expert noted that the estimates may be understated. Specifically, the 2017 Sandia study took into account that the facades of some buildings in New York City could be replaced, which would aid cleanup and reduce socioeconomic costs. However, one expert who attended our meeting said that New York City may be a best-case example of an urban target because the city has solid response plans and modern buildings with facades that can be removed more easily than those in other cities. This expert said these factors likely lead to an optimistic calculation of socioeconomic consequence in the study, due to the preparation and resilience posture of New York City, creating a best-case scenario regarding cleanup that may not accurately quantify costs in other cities. In this expert s view, the federal government may also be underestimating the economic consequences of an RDD by not accounting for the potential that local cleanup standards may be more stringent than the federal government standards assumed in the study. The expert said that locals will always want to clean up to a higher standard than federal government guidance recommends, largely due to a desire to protect economic assets such as trade, brand, and image. In addition to socioeconomic concerns, experts who attended our meeting generally noted that an assessment of the consequence of an RDD should consider fatalities resulting from the evacuation of homes and business. For example, one expert from our meeting said that there were few deaths from radiation during the incident at the Fukushima nuclear complex in 2011, but there were many deaths from the evacuation. Another expert agreed and said that there is evidence from Chernobyl and Fukushima linking health effects to evacuations and that, therefore, fatalities from evacuations should be included on the list of consequences from an RDD. A third expert said that panic cannot be underestimated in the event of an RDD, and the consequences of evacuation and relocation would exceed prompt fatalities and deterministic health effects. Finally, one expert said that many people outside of the evacuation area will also choose to relocate after an RDD rather than wait for direction from the government, which could increase the number of evacuees and lead to additional fatalities. The 2017 and 2018 Sandia studies support these concerns, estimating that these evacuations could cause hundreds to thousands of deaths and that fatalities during evacuations are similar for RDDs using category 1 and category 3 quantities of the same material. Specifically, the 2017 Sandia study examined the number of fatalities that occurred during the evacuation from the disaster at the Fukushima nuclear complex. Using that event as a baseline, the Sandia study estimated that approximately 1,500 people could die from the evacuation associated with the detonation of an RDD containing a category 1 quantity of radioactive material in New York City. The 2018 Sandia study of a detonation of an RDD containing a category 3 quantity of radioactive material estimated that approximately 800 people could die from the evacuation. NRC does not consider socioeconomic consequences or fatalities from evacuations when assessing the consequence of an RDD. Agency officials told us that, under the authority of the Atomic Energy Act, NRC staff has discretion to consider other criteria, including socioeconomic effects, if so directed by the Commission. However, NRC staff told us that they do not currently consider socioeconomic consequences as criteria because they have been specifically directed not to do so by the Commission. In discussions with agency officials, it is unclear why the Commission has directed the NRC staff not to consider other criteria for evaluating the impact of an RDD. NRC s own guidance states that RDDs would cause few deaths from radiation but result in significant socioeconomic impacts. Specifically, NRC guidance issued in May 2014 states: RDDs are considered weapons of mass disruption; few deaths would occur due to the radioactive nature of the event; however, significant social and socioeconomic impacts could result from public panic, decontamination costs, and the denial of access to infrastructure and property for extended periods of time. NRC s decision to not consider other criteria has limited its assessments of risk presented by the use of radioactive material in an RDD. By considering socioeconomic impacts and fatalities resulting from evacuations in its criteria, NRC would have better assurance that it was considering the more likely and more significant consequences of an RDD when establishing its security requirements for this material. <4. NRC s 2016 Report Does Not Fully Reflect the Risks of High-Risk Category 3 Material, Collocation of Americium-241, and Protection against Insider Threats> In 2016, NRC evaluated the effectiveness of Part 37, as required by Public Law 113-235, and concluded that the rule is effective for ensuring category 1 and 2 radioactive materials are secure from theft or diversion. However, experts who attended our meeting stated, and recent studies support, that if category 3 quantities of radioactive materials were used in an RDD, the consequences could be comparable to a category 1 or 2 quantity of the same material, which are protected from theft by additional security measures. In addition, experts who participated in our meeting generally said that NRC s current requirements permit collocation at the same facility of multiple category 3 quantities of americium-241 that in total reach or surpass the threshold for a category 2 quantity without the enhanced security required for category 1 and 2 materials. Furthermore, experts generally agreed that there are security weaknesses in the current trustworthiness and reliability process to protect against an insider threat. <4.1. NRC s 2016 Evaluation of Part 37 Determined That Current Security Requirements are Adequate for Category 1 and 2 Radioactive Materials> In December 2016, NRC issued a report evaluating the effectiveness of Part 37, as required by Public Law 113-235. NRC s evaluation included an analysis of events and inspection findings related to the security of category 1 and 2 materials, including an analysis of 189 violations issued to NRC State licensees from March 2014 through March 2016. The report found that almost all of the violations were related to conducting background investigations, controlling access to radioactive material, and physical security measures. The violations mainly occurred when licensees had not yet implemented Part 37 or failed to fully document how their security program complied with Part 37. The report noted that there were no Severity Level I or Severity Level II violations. The NRC report looked at the theft of six category 2 quantities of radioactive material since the introduction of the Increased Controls security requirements in 2003 and concluded that carelessness or human error, rather than any gaps in the requirements of Part 37, contributed to the thefts. As we reported in 2014, the thefts included industrial radiography cameras with category 2 quantities of iridium-192 sources stolen from radiography trucks parked outside a company facility, in hotel parking lots, and at a gas station. NRC concluded that in all the events, carelessness or human error contributed to the thefts and had the licensees followed existing regulatory requirements, the thefts could have been prevented. NRC s 2016 report concluded that better outreach and communication would help improve compliance with Part 37. NRC s report also documents NRC staff s determination that the requirements in Part 37 are effective in preventing the theft or diversion of category 1 and 2 quantities of radioactive material. NRC determined that potential rule clarifications and guidance initiatives could help to enhance the clarity and effectiveness of the rule, ensure better understanding of security expectations, and allow for more complete and adequate implementation. NRC s overall assessment is that Part 37 provides reasonable assurance for the security of category 1 and 2 quantities of radioactive material by protecting the material from theft or diversion. <4.2. NRC s 2016 Evaluation Did Not Consider the Security of Category 3 Material That Experts Consider High Risk> In conducting its evaluation, NRC examined past security incidents and inspection reports, but its report did not review the security requirements for category 3, 4, or 5 quantities of radioactive material because NRC does not consider these categories to be a significant risk. NRC chose to define high-risk radioactive material as only category 1 and 2. NRC does not further elaborate why it took this approach. NRC s reliance on prompt fatalities and deterministic health effects and its exclusion of socioeconomic consequences and deaths from evacuations as criteria for determining the consequences of an RDD, as discussed earlier, has resulted in security requirements that do not include all high- risk quantities of some radioactive materials. Experts who participated in our meeting generally agreed that some category 3 quantities of radioactive material should be considered high risk based on their potential consequences if used in an RDD. For example, one international expert pointed out that IAEA guidance includes security measures for category 3 quantities of material and expressed surprise that U.S. guidelines do not include additional security measures for category 3 quantities. Another expert suggested that NRC include category 3 quantities of radioactive material in the National Source Tracking System, which would allow for license verification during purchases. In this expert s opinion, the main vulnerability for category 3 quantities of radioactive material is that they can be purchased with a license that has not been verified as legitimate by the NRC or an agreement state. The experts also generally said that some category 3 radioactive material should be considered high risk and should be subject to additional security measures. For example, one expert suggested that some types of category 3 radioactive material may need additional oversight. However, this expert said that NRC should consider a more nuanced approach to increasing the security for some, but not all, quantities of category 3 radioactive material. Another expert agreed and said that the ability to disperse material is a primary factor in determining if something is high risk. For this reason, this expert said, category 3 quantities of some types of radioactive material should be considered high risk, and there may be need for an additional category of materials that falls below category 2 but that includes the most dangerous high-risk materials in category 3 quantities. An expert who attended our meeting stated that certain radioactive materials pose a unique decontamination challenge because those materials bind to materials like asphalt and concrete, making decontamination difficult and expensive. One expert said that the consequences listed in the 2018 Sandia report were enough to justify requiring additional security measures for category 3 quantities of certain radioactive materials. As shown in table 1, the 2018 Sandia study found that a category 3 quantity of radioactive material could result in socioeconomic consequences and fatalities from evacuations similar to an RDD with a category 1 quantity of radioactive material. The experts also generally said that there could be long-term socioeconomic consequences unique to the risk posed by an RDD that used a category 3 quantity of radioactive material, and certain radioactive materials in smaller quantities should be considered high risk. As we described earlier, NRC reported in a 2017 Threat, Consequence, and Vulnerability Assessment that even if several hundred category 3 quantities of a certain radioactive material were used in an RDD, it would not create an RDD of consequence. In our discussions with NRC staff, they expanded on this point and stated that there may not be enough of this material in the United States to build an RDD of consequence. However, new research from Sandia found that a category 3 quantity of the same material could trigger an evacuation and result in significant socioeconomic consequences. According to an expert from the regulatory community, while the Commission has considered requiring additional security measures for category 3 quantities of material, NRC staff recommended against doing so because the costs of providing additional security would outweigh the benefits. For example, one expert who attended our meeting said that the choice is between the difference in costs of absolute security and adequate security, and the cost/benefit analysis does not support including category 3 quantities of radioactive materials in Part 37. The expert pointed out that there have been relatively few thefts of category 3 sources in the United States and suggested that providing additional security should be weighed against the low likelihood that the radioactive materials would be stolen. While there were differing views in our expert meeting between the regulatory community and other experts, the experts generally agreed, and the Sandia studies support, that the consequences of category 3 quantities of certain types of material could be significant. By requiring additional security measures for these high-risk quantities of category 3 material, and assessing whether other category 3 radioactive materials should also be safeguarded with additional security measures, NRC could have better assurance that its requirements are sufficient to help ensure all high-risk radioactive material is protected from theft and use in an RDD. <4.3. NRC s 2016 Report Does Not Fully Address Weaknesses in Part 37 s Regulation of the Collocation of Americium- 241 and How NRC Protects against an Insider Threat> NRC s 2016 report looked at the risks posed by the collocation of category 3 quantities of material and insider threats. NRC concluded that rule clarifications and additional guidance could help enhance clarity and effectives of the rule, but its report does not fully address how these risks should be managed. For example, experts who participated in our meeting generally agreed that weaknesses continue to exist in how Part 37 regulates the collocation of multiple category 3 quantities of americium-241 at a single facility. Specifically, NRC requirements permit collocation of multiple category 3 quantities of material that in total reach a category 1 or 2 quantity of material, without applying Part 37. Experts told us that well logging companies, which use americium-241 to inspect wells for oil and natural gas, are storing multiple category 3 quantities, each just below the threshold for category 2, of americium-241 at the same facility; thus, the total quantity does not trigger additional security requirements under Part 37. Figure 3 shows a well logging storage facility containing multiple category 3 quantities of americium-241. Experts at our meeting generally said that collocation of multiple quantities of category 3 americium-241 at well logging facilities creates specific security weaknesses that should be addressed. For example, one expert who attended our meeting from the regulatory community said that NRC has no formal definition for collocation, but Part 37 considers it acceptable to store multiple category 3 quantities of radioactive material in separate, locked containers that, together, add up to a category 2 quantity. Another expert pointed out that when NNSA evaluates threats to materials, it totals up the quantity of materials located at the same facility to determine the total amount of material at risk. A third expert noted that licensees are required to inventory category 3 quantities of material only twice per year. Furthermore, the experts pointed out that these types of facilities are not subject to stricter security requirements, and therefore, do not undertake trustworthiness and reliability evaluations for their employees with unescorted access to radioactive material. By requiring that all licensees implement additional security measures when they collocate multiple quantities of category 3 americium-241 that in total reach a category 1 or 2 quantity at a single facility, NRC could have better assurance that the material is protected from theft and use in an RDD. Furthermore, experts who participated in our meeting generally agreed that there continue to be security weaknesses in the current trustworthiness and reliability process for securing radioactive material from theft and use in an RDD. For example, one expert from the licensee community who attended our meeting said that NRC s Part 37 does not go far enough in ensuring the trustworthiness and reliability of individuals given unescorted access. Specifically, the expert said that, based on the Part 37 requirements, licensees make all trustworthiness and reliability determinations for granting unescorted access to employees, which leads to inconsistencies across licensees. The experts generally said that NRC should give licensees more guidance on acceptable criteria for granting unescorted access, which is consistent with recommendations included in past GAO reports. NRC is currently in the process of making revisions to its trustworthiness and reliability guidance. Experts who attended our meeting said that licensees face challenges in making trustworthiness and reliability determinations, including the fear of being sued if they deny employment to an individual with a criminal record, difficulty conducting background investigations for foreign nationals, and the potential for individuals to be radicalized more quickly than the current trustworthiness and reliability process protects against. One expert from the regulatory community who attended our meeting said that trustworthiness and reliability decisions are a judgment call, and when an applicant has a criminal record or has committed a felony, a company may not want to give them unescorted access to radioactive material. However, the expert added that denial of unescorted access without backup from NRC guidance may leave the company open to lawsuits. In addition, another expert who attended our meeting said institutions that often employ foreign nationals as researchers, such as hospitals, struggle with verifying limited background information for these individuals. Finally, an expert who attended our meeting said that perception of trustworthiness and reliability has recently changed, and there is now greater concern that people can be radicalized quickly, rendering background investigations insufficient to identify potential issues with an employee s trustworthiness and reliability during their employment. The expert told the group that there is evidence that individuals can be radicalized in a matter of months. The expert said that current trustworthiness and reliability procedures should take into account that people s beliefs can change rapidly. <5. Conclusions> Radioactive material is used in thousands of locations throughout the United States for medical, industrial, and research purposes. On several occasions over the past 20 years, NRC has examined and revised the security requirements for these materials in order to prevent terrorists from acquiring radioactive material and constructing an RDD, or dirty bomb. When assessing the risk posed by an RDD, NRC has repeatedly looked at different criteria for measuring consequences and chose to base its decisions primarily on preventing prompt fatalities and deterministic health effects from radiation. However, the experts who participated in our meeting generally agreed, and Sandia studies support, that socioeconomic effects and fatalities from subsequent evacuations are relevant criteria for assessing the consequences of an RDD. NRC s decision to not consider other criteria to assess the consequence of an RDD has resulted in security requirements that do not address the full risks presented by the danger that category 3 quantities of some radioactive material could be used in an RDD to cause significant socioeconomic consequences comparable to what could be caused by category 2 or category 1 quantities of material. By considering socioeconomic impacts and fatalities resulting from evacuations in its criteria, NRC would have better assurance that it was considering more likely and more significant consequences of an RDD when establishing its security requirements for this material. Furthermore, Part 37 requires enhanced security measures for categories 1 and 2 quantities of radioactive material and does not require additional security for category 3, 4, and 5 quantities of material beyond existing safety requirements. Although NRC chose to limit its 2016 evaluation of Part 37 to only category 1 and 2 quantities of material, experts who participated in our meeting generally said that they consider certain category 3 quantities of radioactive material high risk based on their potential consequences if used in an RDD, and data from recent studies support this determination. By requiring additional security measures for these high-risk quantities of category 3 material, and assessing whether other category 3 radioactive materials should be safeguarded with additional security measures, NRC can have better assurance that its requirements are sufficient to help ensure all high-risk radioactive material are protected from theft and use in an RDD. In addition, NRC s 2016 report looked at the risk posed by the collocation of category 3 quantities of material and concluded that rule clarifications and additional guidance could help enhance the clarity and effectiveness of the rule. However, the report does not fully address how this risk should be resolved. Current NRC security requirements permit the collocation of multiple category 3 quantities of material that in total reach a category 2 quantity of material or higher, without triggering additional security requirements under Part 37. By requiring that all licensees implement additional security measures when they collocate multiple quantities of category 3 americium-241 that in total reach a category 1 or 2 quantity at a single facility, NRC could have better assurance that the material is protected from theft and use in an RDD. <6. Recommendations for Executive Action> We are making the following three recommendations to the Nuclear Regulatory Commission: The Chairman of NRC should direct NRC staff to consider socioeconomic consequences and fatalities from evacuations in the criteria for determining what security measures should be required for radioactive materials that could be used in an RDD. (Recommendation 1) The Chairman of NRC should require additional security measures for high-risk quantities of certain category 3 radioactive material, and assess whether other category 3 materials should also be safeguarded with additional security measures. (Recommendation 2) The Chairman of NRC should require all licensees to implement additional security measures when they have multiple quantities of category 3 americium-241 at a single facility that in total reach a category 1 or 2 quantity of material. (Recommendation 3) <7. Agency Comments> We provided a draft of this report to the Chairman of NRC, the Administrator of NNSA, the Secretary of the Department of Homeland Security, and the Attorney General of the United States. NRC provided written comments on the draft report, which are presented in appendix III. In addition, NRC provided technical comments, which we incorporated as appropriate. NNSA, DHS, and FBI did not provide written comments. NRC disagreed with two of our recommendations and neither agreed nor disagreed with an additional recommendation. Specifically, it disagreed with our recommendations that it (1) consider socioeconomic consequences and fatalities from evacuations when determining security measures for radioactive materials; and (2) require licensees to implement additional security measures when they have multiple quantities of category 3 americium-241 at a single facility that in total reach a category 1 or 2 quantity. NRC stated that it is considering an additional recommendation that it require additional security measures for high-risk quantities of category 3 materials. Regarding the first recommendation with which NRC disagreed, the agency stated that its current regulatory requirements provide for the safe and secure use of radioactive materials, and that we only focused on potential consequences of an RDD without consideration of the two other elements of risk threat and vulnerability. We disagree. NRC agrees that a general threat exists, and this report, in combination with our previous reports, demonstrate that there are vulnerabilities in current NRC security requirements and that the potential consequences of misusing these materials could be significant. Furthermore, the report discusses new evidence related to the consequence of an RDD that NRC has not yet considered. For the second recommendation with which it disagreed, NRC stated that it has already considered the issue of aggregation of radioactive material and has taken or is in the process of taking actions to clarify relevant guidance and procedures. Again, we disagree. We acknowledge that NRC is taking action to better educate licensees on how to comply with requirements related to aggregation. However, these actions do not address the issue of licensees taking advantage of NRC s security requirements which permit the storing of multiple category 3 quantities that are just below the threshold for category 2 at the same facility. Finally, for the NRC recommendation to consider additional security measures for high-risk quantities of category 3 materials, the agency said that it has been considering our recommendation in connection with its response to the recommendations in GAO-16-330. However, after we issued GAO-16-330, NRC staff subsequently recommended that the NRC Commission not implement the recommendations from that report. NRC stated that our report and recommendations lack important context in that we did not consider all aspects of risk threat, vulnerability, and consequences. We disagree. First, as the report states, NRC agrees that a general threat exists for the theft and misuse of radiological materials. Second, the report also states that we have addressed vulnerability in several past GAO reports that provide examples of how the controls that NRC and others have put in place to prevent the theft or misuse of these materials are not always implemented correctly. In fact, we found gaps in these controls each time we reviewed the security of radioactive materials. These gaps in controls create vulnerabilities. Having discussed threat and vulnerability, this report adds important new information concerning the consequences of an RDD. In this regard, both the Sandia studies and the results from our National Academy of Sciences expert meeting show that prompt fatalities from radiation are unlikely to occur if an RDD is detonated, while the same event could result in tens of billions of dollars in economic damage and potentially hundreds to thousands of deaths from evacuations. NRC also stated that our evidence was insufficient for recommending regulatory and policy changes. Specifically, they said that the Sandia studies (1) were based on scenarios that were not probable, (2) did not credit existing protective measures to prevent an RDD, and (3) were not subjected to a formal review and endorsement process. In addition, they said that the views expressed by experts who attended our National Academy of Sciences meeting resulted in conclusions that were not fully supported. We disagree with these characterizations of the studies and our expert meeting. Specifically, the Sandia studies did not attempt to assess existing security measures for radioactive material or the probability or likelihood of an RDD. These Sandia studies examined the consequences of an RDD and represent the most recent research on RDD consequences from an independent and reliable source. In addition, NRC s claim that the Sandia studies were conducted without a formal review and endorsement process is misleading. Specifically, according to NNSA officials, Sandia and NNSA officials met with officials from NRC, DHS, and EPA, among others, to discuss and gather input on the assumptions to be used in the 2017 Sandia study. During this meeting, according to NNSA officials, NRC staff provided input on key assumptions and subsequently provided data to help support the Sandia study. In addition, NNSA and Sandia briefed their interagency partners, including NRC, about the findings in the study before publishing and received generally positive feedback on their results. Furthermore, we partnered with the National Academies to identify and select a broad range of experts in the field of radioactive material security, including federal agency and agreement state officials; academics; representatives of nonprofit organizations, licensees, and industry; international regulators; and national laboratory specialists. For additional information on how we developed, held, and analyzed data from our National Academy of Sciences expert meeting, please refer to appendix 2. NRC s comments also state that GAO does not account for the work of the 2014 Radiation Source Protection and Security Task Force (the Task Force), which considered economic consequences related to an RDD. However, as noted in our report, NRC s response to the Task Force s recommendations said that NRC staff would need additional direction from the Commission to consider examining alternative consequences. In addition, in 2014, NRC staff recommended that NRC not consider changing the policy to include consideration of socioeconomic consequences to the Commission, reiterating the staff s view that Part 37 provides adequate security protection against a significant RDD. Today, NRC staff still does not have direction from the Commission to consider socioeconomic effects when setting security requirements. We think that needs to change in order for NRC to conduct a complete analysis of the consequences of an RDD. Finally, NRC stated that a significant gap related to the security of category 3 sources has not been identified. We disagree. As noted in the report, requirements for the security of category 3 quantities of radioactive materials are significantly less stringent than those required for category 1 and 2 quantities of material. Nevertheless, our report shows that the use of category 3 quantities of certain radioactive materials in an RDD may have comparable socioeconomic consequences. Furthermore, previous GAO reports have repeatedly shown that gaps exist related to the security of category 3 and higher radioactive material. We are sending copies of this report to the appropriate congressional committees, the Chairman of the U.S. Nuclear Regulatory Commission, the Secretary of Energy, the Secretary of Homeland Security, the Administrator of the Environmental Protection Agency, and the Attorney General of the United States, 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) 512-3841 or [email protected]. Contact points for our offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: List of Experts Appendix II: Scope and Methodology We focused our review primarily on the Nuclear Regulatory Commission (NRC) because it is the principal federal agency with responsibility for licensing the commercial use of and regulating the security of radioactive materials in the United States. Additionally, Public Law 113-235 specifically directs us to review NRC s security requirements for radioactive material. We also interviewed officials at various agencies that play a role in radioactive material security, including the National Nuclear Security Administration (NNSA), the Department of Homeland Security (DHS), the Environmental Protection Agency (EPA), and the Federal Bureau of Investigation (FBI). We interviewed officials at NNSA because NNSA s Office of Radiological Security provides upgrades and enhancements to NRC licensees and removes and disposes of disused radioactive material. We also spoke to DHS officials because DHS is the primary federal agency for implementing domestic nuclear detection efforts for a managed and coordinated response to radioactive and nuclear threats. Additionally, we interviewed officials at EPA, because the agency developed the Protective Action Guide (PAG) manual, which contains radiation dose guidelines that would trigger public safety measures. Finally, we interviewed the FBI, which offered us information on the potential threat related to radioactive material security. In addition to federal agencies, we were contacted by and spoke to a working group that represents the commercial radioactive source industry and received a briefing from a company, which is also a member of the working group that utilizes large panoramic irradiators. We received a series of risk briefings from federal agencies to collect information on current risks related to radioactive material security. NRC officials provided us with information about how the agency evaluates risks associated with radioactive material, including the threat, vulnerability, and consequence of an adversary acquiring and using radioactive material in a radioactive dispersal device (RDD). DHS officials provided us with a risk briefing on current threats to radioactive material and potential consequences of an RDD attack. Specifically, those officials briefed us on historical terrorist interest in using radioactive materials in attacks. NNSA officials and Sandia National Laboratory experts in radioactive security and consequence modeling briefed us on potential economic consequences from an RDD, which they based on an economic impact study completed by Sandia in 2018. Finally, FBI officials gave us a threat briefing focused on current radioactive material security threats, including interest by adversaries in conducting an RDD attack. These briefings were held at a classified level. In order to fulfill the Public Law 113-235 requirement to work with an independent group of experts, we partnered with the National Academies of Sciences to convene a group of experts on radioactive material security on July 26 and 27, 2018. We determined that this method offered the best means of gathering a balanced group of leading experts in the field of radioactive security to discuss issues in a moderated setting. In addition, this method allowed us to implement a structured and systematic approach when gathering evidence. Specifically, our methodology for the meeting included selecting a broad range of experts to participate in the meeting, administering a written questionnaire to the experts before the meeting, designing specific scenarios used during the moderated discussion, and performing a thematic analysis upon completion of the meeting. To describe how NRC assesses risk when establishing security requirements for high-risk radioactive materials and how it chose to primarily consider prompt fatalities as criteria for measuring consequences of an RDD, we reviewed NRC documents addressing how NRC evaluates an RDD, NRC s study evaluating the effectiveness of Part 37 in response to Public Law 113-235, and NRC s analysis of the risks posed by high-risk radioactive materials. Specifically, we reviewed NRC Commission Papers and NRC responses to actions taken by the Radiation Source Protection and Security Task Force. We also conducted interviews with agency officials at NRC, NNSA, DHS, EPA, and FBI, as well as academics, agreement state officials, and security managers from industry about the risks associated with different categories of radioactive materials and how NRC regulates these materials. We selected interviewees based on their expertise, but the results of these interviews are not generalizable. To examine the extent to which radioactive security experts agreed that NRC s assessment of risk includes all relevant criteria for establishing security requirements, we partnered with the National Academies to identify and select a broad range of experts in the field of radioactive material security, including federal agency and agreement state officials; academics; representatives of nonprofit organizations, licensees, and industry; international regulators; and national laboratory specialists. In choosing the group of 18 experts, we specifically chose individuals with a diversity of backgrounds on topics. This ensured a balanced range of opinions and specific expertise on given topics but did not represent a generalizable sample of experts on a specific topic. For example, some individuals had specific expertise in certain topics and could provide a more insightful perspective than others in the group. In advance of the meeting, we developed a written questionnaire to obtain the experts views on the key threats, vulnerabilities and consequences of materials regulated under Part 37 and those not regulated under Part 37. We administered the questionnaire to the experts via email and obtained completed questionnaires from all of them. We analyzed their responses to focus the topics we discussed during our two-day meeting. During the meeting, we introduced the threat of malevolent use of radioactive material, and we asked the experts to focus their discussion the potential consequences of an RDD, the vulnerabilities of radiological materials under current security requirements and whether current security requirements were sufficient given these consequences and vulnerabilities. We asked them to discuss the reasons to account for the consequence in the regulation of radioactive material, the reasons not to account for the consequence, and whether the consequence should be accounted for. In addition, we asked the experts the reasons various radionuclides should be considered high risk, the reasons these radionuclides should not be considered high risk, and on balance, whether these radionuclides should be considered high risk. Our meeting agenda and moderator guide also included detailed scenarios designed to probe issues related to radioactive security and provide clear parameters within which the experts could make observations. In particular, we presented the experts with four scenarios of differing quantities of radioactive material used for particular medical and industrial purposes and stored under particular circumstances. The four scenarios presented different types of radioactive materials stored under particular circumstances. For these scenarios, we asked experts about the primary vulnerabilities of these materials in terms of access, monitoring and detection and response, and given the consequences and vulnerabilities, whether the Part 37 security requirements were sufficient. We based these scenarios on situations we observed during our prior work on the security of radioactive material. For each of these scenarios, we asked experts to assess two key elements of the risk triplet vulnerability to being used and consequences if used. For example, we included a presentation on threat associated with radioactive materials. Additionally, for each scenario we moderated discussions on scenarios focused on vulnerabilities of category 1 and category 3 radioactive materials or scenarios focused on the consequences of category 1 and category 3 RDDs. Furthermore, a GAO methodologist and a National Academies of Sciences official guided discussions, following the structured moderator guide to ensure the discussions addressed all topics. The moderators ensured that experts from all sides had the opportunity to voice their opinions, but time constraints and the nature of an expert meeting may have limited some experts from contributing. Because of this structure, we had no expectation of reaching outright consensus on any specific topic. After the expert meeting, we conducted a structured and systematic thematic analysis of the information gathered to better understand the potential vulnerabilities of radioactive materials to theft and the consequences of an RDD using various radioactive materials. We also worked with GAO methodologists to sort the content in the meeting transcript, identify themes from the sorted information for additional analysis, and evaluate the credibility of expert statements. GAO internally reviewed our analysis for completeness and accuracy and it was found to be sufficient for our purposes. The meeting transcript write-up allowed us to focus on strengths and weaknesses in current security requirements, how the federal government evaluates the consequences of an RDD, what materials should be considered high risk, and whether additional security measures are necessary for these materials. Experts did not speak on every topic, did not have the same level of expertise on every topic, and the meeting format was not designed to quantify experts comments. Therefore, we do not report the number of the 18 experts who agreed or disagreed with various statements. Instead, through our thematic analysis, we determined that during the expert meeting experts generally made two types of statements on topics with varying degrees of agreement or corroboration, which we refer to as either strong evidence or evidence of varying viewpoints. GAO, Government Auditing Standards, 2018 Revision, GAO-18-568G (Washington, D.C.: July 2018). According to government auditing standards, testimonial evidence obtained from an individual who is not biased and has direct knowledge about the area is generally more reliable than testimonial evidence obtained from an individual who is biased or has indirect or partial knowledge about the area. Appendix III: Comments from the Nuclear Regulatory Commission Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the individual named above, Ned Woodward (Assistant Director), Jeffrey Barron (Analyst in Charge), Kevin Bray, Mark Braza, Kendall Childers, Tara Congdon, Gabrielle Matuzsan, Amanda Miller, Danny Royer, and Kiki Theodoropoulos made key contributions to this report.

Why GAO Did This Study NRC is responsible for regulating the security of radioactive material in the U.S. Failure to secure this material could result in an RDD causing socioeconomic damage. The Consolidated and Further Continuing Appropriations Act, 2015 (Public Law 113-235) includes a provision for GAO to review NRC's security requirements for high-risk radioactive material. This report examines, among other things, (1) the extent to which radioactive security experts agreed that NRC's assessment of risk includes all relevant criteria, and (2) NRC's 2016 evaluation of its security requirements for high-risk radioactive material. GAO reviewed NRC policies and procedures, worked with the National Academies of Sciences to convene a meeting with 18 experts in radioactive security, and reviewed 3 recent Sandia studies. GAO used the views of security experts to define high risk, and they generally agreed that high risk includes both larger and some smaller quantities of radioactive materials. What GAO Found The 18 experts at a meeting GAO convened with the National Academies of Sciences generally agreed that the Nuclear Regulatory Commission (NRC) assessment of risks of radioactive material does not include all relevant criteria. NRC limits its criteria to prompt fatalities and deterministic health effects from radiation, which, according to the experts and recent studies, are unlikely to result from a radiological dispersal device (RDD). Two studies from Sandia National Laboratories (Sandia) measuring consequences of RDDs, released in 2017 and 2018, found that there would be no immediate fatalities from radiation. The experts at the meeting generally agreed that socioeconomic effects (e.g., relocations and clean-up costs) and fatalities that could result from evacuations are the most relevant criteria for evaluating the risks of radioactive material. The two Sandia studies found that a large RDD could cause about $30 billion in damage and 1,500 fatalities from the evacuation, and a considerably smaller RDD could cause $24 billion in damage and 800 fatalities from the evacuation. By considering socioeconomic impacts and fatalities resulting from evacuations in its criteria, NRC would have better assurance it was considering the more likely and more significant consequences of an RDD. NRC's 2016 report evaluating its security requirements for high-risk radioactive material, required by Public Law 113-235, considered only the security of larger quantities of such material and not smaller quantities. Experts who attended GAO's meeting stated, and two 2018 Sandia studies agree, that if smaller quantities of certain radioactive material were used in an RDD, the impacts would be comparable to an RDD with a considerably larger amount of such material. For example, a 2018 study from Sandia found that malicious use of certain radioactive materials in smaller quantities could cause significant socioeconomic consequences. By requiring additional security measures for these smaller quantities of high-risk material, NRC can have better assurance that its security requirements are sufficient to secure all high-risk radioactive material from theft and use in an RDD. Example of a Radiological Dispersal Device (RDD) What GAO Recommends GAO is making three recommendations to NRC, including that it consider socioeconomic consequences and fatalities from evacuations as criteria for determining security measures and require additional security measures for smaller quantities of high-risk material. NRC generally disagreed with the recommendations, stating that GAO's evidence does not provide a sufficient basis for recommended changes. GAO continues to believe these recommendations are important.

gao_GAO-19-353

gao_GAO-19-353_0

<1. Background> <1.1. Private-Sector Insurance Policies> In a 2006 report, we stated that there was no generally agreed-upon definition of insurance and most definitions in the private sector differed because they were developed for specific purposes or had changed over time. However, the definitions share key elements of risk transfer and risk spreading, and include other elements such as indemnification, which is payment for losses actually incurred; the ability to make reasonable estimates of future losses; the ability to express losses in definite monetary amounts; and the possibility of adverse, random events occurring outside the control of the insured. The Financial Accounting Standards Board establishes generally accepted accounting principles for private-sector entities. The Board defines an insurance contract as a contract under which one party (the issuing entity) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or its designated beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder. Generally, private insurers offer several types of insurance products for individuals, families, or businesses, including health, disability, life, annuity, and property and casualty insurance products. Per the terms of the contracts, insurers generally offer coverage for losses from specified events in exchange for premium payments. Private insurers spread risk over a large enough group of insured parties to reasonably predict total losses, then set risk- based premium rates to make a profit and cover costs, including claim payments for covered losses, administrative expenses, and other expenses associated with selling and servicing policies. <1.2. Federal Insurance and Other Activities That Transfer Risk or Losses to the Federal Government> Similarly, there is no generally agreed-upon definition of insurance as it relates to federal activities. FASAB, which establishes generally accepted accounting principles for federal entities, provides a definition for financial reporting purposes. FASAB defines an insurance program as a general term used to refer to a program that is authorized by law to financially compensate a designated population of beneficiaries by accepting all or part of the risk for losses incurred as a result of an adverse event. In addition to activities that may fall under the FASAB definition of insurance, the federal government undertakes other activities that compensate or provide benefits to individuals or other third parties that suffer losses from an adverse event. Unlike private insurance policies, these federal activities do not necessarily utilize a contract or charge premiums or fees in exchange for goods, services, or benefits. Even when premiums or fees exist, they may not cover all costs, as federal expenditures can be driven more by policy goals or agency missions than a desire to achieve fiscal solvency. For example, by design, premiums collected through the Federal Crop Insurance program do not cover its costs. One of the program s goals is to help farmers manage the risks inherent in farming, such as the risk of poor crop yields and declines in prices, and it does so while subsidizing more than 60 percent of the premiums. In addition, Congress created the National Flood Insurance Program (NFIP) to address the increasing cost of federal disaster assistance by providing flood insurance to property owners in flood-prone areas, where such insurance either was not available or prohibitively expensive through the private sector. Subsidized premium rates, among other things, have precluded NFIP from achieving rates that reflect the full risk of loss, and the program has not had sufficient funds to pay claims. Similarly, the federal government uses the Disaster Relief Fund to provide disaster relief assistance without collecting premiums or other fees from the entities receiving the funds before or after an event occurs and without knowing beforehand who might receive compensation. <1.3. Budgeting and Financial Reporting> The President s Budget and the Financial Report present complementary perspectives on the federal government s financial position and condition. As illustrated later in the report, differences in when costs are recognized for budgetary or financial reporting purposes can provide substantially different measures of cost in a given year for some federal activities, including federal insurance. First, the federal budget process serves as the primary financial plan of the federal government and thus plays a critical role in the decision- making process for all federal expenditures, including those for insurance programs and other activities that transfer risk or losses to the federal government. The President, federal agencies, and Congress use the annual budget process, in part, to plan how federal funds should be spent for federal activities and track budget approval and execution. Besides the President s proposed appropriations for a given fiscal year, the President s Budget also reports actual data for two prior fiscal years and estimated data for the prior fiscal year, such as the budget authority, unpaid obligations, and outlays (liquidated obligations). Generally, receipts are recorded when the federal government receives the cash and spending is recorded when outlays (payments) are made. We refer to the President s Budget as primarily cash-based. The Secretary of the Treasury, in coordination with the Director of OMB, prepares the annual Financial Report, which consolidates and summarizes financial information from federal agencies and departments. The Financial Report provides an overall view of the annual financial results of operations, condition, and position of the federal government. In particular, it provides the net operating cost of the federal government by comparing its revenues and costs. The report follows FASAB accounting standards and generally records transactions on an accrual basis not on a cash basis to recognize and track assets, liabilities, revenues, and expenses. That is, expenses and liabilities are recorded when they are incurred, even if payment is due at a later date, and revenues (other than taxes and other nonexchange revenues) and related assets, such as receivables, are generally recorded when amounts are earned, even if actual receipt occurred at an earlier time. <2. A Wide Range of Federal Activities Transfer Risk or Losses to the Federal Government> Our analysis allowed us to identify 148 federal activities that transfer risk or losses from adverse events to the government (see table 1). We broadly categorize the federal activities that met our criteria as follows: federal insurance programs; federal loan guarantee programs; senior preferred stock purchase agreements with two government-sponsored enterprises (enterprises), Fannie Mae and Freddie Mac; federal employee and veterans benefits (excluding education benefits and burial benefits); and other activities, such as those that provide property damage or financial loss compensation and those that offer life, health, or disability benefits to nonfederal employees. We generally only provide cost and exposure information for activities as available in the Financial Report and agency documents. See appendix I for more information on our scope and methodology. <2.1. Federal Insurance Programs> Through our analysis of the Financial Report, we identified five federal insurance programs. While there is no universally accepted definition of what constitutes a federal insurance program, federal agencies have reported insurance and guarantee liabilities and related note disclosures in the Financial Report for the following programs: Department of Agriculture, Risk Management Agency s (RMA) Federal Crop Insurance Program; Department of Homeland Security, Federal Emergency Management Agency s (FEMA) National Flood Insurance Program (NFIP); Pension Benefit Guaranty Corporation s (PBGC) single-employer and multiemployer pension insurance programs; Federal Deposit Insurance Corporation s (FDIC) deposit insurance program; and National Credit Union Administration s (NCUA) share insurance program. See table 2 for descriptions of the programs as well as related funding and cost or exposure information. All five federal insurance programs collect premiums, assessments, or fees, but the programs differ in the extent to which they are designed to fund their liabilities using only these sources of income. Federal crop insurance premiums are subsidized by the federal government by law. In addition, RMA automatically receives a permanent indefinite appropriation each fiscal year for this premium subsidy and other expenses, and it returns unobligated balances to the U.S. Treasury at the end of the fiscal year. The other programs are generally intended to use premiums or assessments collected and other nonfederal assets and income to pay claims or guarantees. The programs also differ in their authority to borrow funds from the U.S. Treasury to pay claims and other expenses, as well as their use of such authority. As of September 30, 2018, NFIP had about $20.5 billion of outstanding debt with the U.S. Treasury (after Congress granted $16 billion in debt cancellation to NFIP in October 2017). Before 2004, NFIP was able to cover most of its claims and repay occasional loans from the U.S. Treasury with premiums it collected, but it has not been able to do so since, partly due to extraordinary catastrophic loss years resulting from Hurricane Katrina and Superstorm Sandy. According to FEMA, the program as currently designed is unlikely to be able to repay this debt. PBGC is expected to fund itself entirely through premiums, other nonfederal assets and income (such as investment income), and assets from underfunded, terminated single-employer plans it takes over, as it currently does not receive taxpayer funds and does not have authority to borrow funds from the U.S. Treasury. The balance in FDIC s deposit insurance fund (DIF) fell to negative $20.9 billion as a result of bank failures triggered by the 2007 2009 financial crisis. As required by law, FDIC implemented a plan to replenish the DIF and raise the reserve ratio to its designated minimum in the time limits prescribed by the Federal Deposit Insurance Act. Pursuant to the plan, FDIC raised assessment rates and imposed a one-time special assessment to recapitalize the DIF. To meet the projected liquidity needs for failures of FDIC-insured depository institutions during the financial crisis, FDIC required the banking industry to prepay its quarterly risk-based assessments for the fourth quarter of 2009 and for the following 3 years. FDIC did not use its authority to borrow funds from the U.S. Treasury. On the other hand, NCUA s Share Insurance Fund borrowed funds from the U.S. Treasury during the 2007 2009 financial crisis but has since repaid the loans. Lastly, the programs also differ in their expected ability to cover future losses. RMA receives a permanent indefinite appropriation each fiscal year to pay for its commitments, so certainty exists that the program will be able to pay future losses using such appropriations. According to FEMA, as currently designed, NFIP likely will not have enough funds to cover all future program expected losses. NFIP also would not have enough funds to cover a single super-catastrophic year, in which NFIP could experience as much as $40 billion in claims, according to FEMA. While PBGC programs have been able to pay all guaranteed benefits and financial assistance to date, PBGC forecasts a very high likelihood of insolvency for the multiemployer program in the next several years if there are no changes in law. DIF s ability to pay future claims depends on whether the fund has sufficient assets. Congress sets a minimum ratio of assets to insured deposits for the DIF (called the reserve ratio), which by statute must be at least 1.35 percent by September 30, 2020. In addition, FDIC sets a target ratio (called the designated reserve ratio), currently set at 2 percent. FDIC views the designated reserve ratio as a minimum goal that will allow the fund to grow sufficiently large in good times to increase the likelihood of the fund remaining positive during bad times. DIF s reserve ratio was 1.36 percent as of September 30, 2018. To comply with the statutory requirement that large banks those with total assets of $10 billion or more bear the responsibility of increasing the DIF reserve ratio from 1.15 percent to 1.35 percent, FDIC imposed a quarterly surcharge on large banks. According to FDIC officials, the surcharge began in the third quarter of 2016, the quarter after the reserve ratio first reached or exceeded 1.15 percent, and ended in the third quarter of 2018, the quarter in which the reserve ratio first reached or exceeded 1.35 percent. The fund ratio for NCUA s Share Insurance Fund is called the equity ratio, and has a statutory minimum of 1.20 percent. NCUA s target equity ratio is called the normal operating level and was set at 1.38 percent by the NCUA Board of Directors on December 13, 2018. NCUA s equity ratio was 1.46 percent as of December 31, 2017, both above the statutory minimum and the normal operating level. <2.2. Federal Loan Guarantee Programs> We identified 33 federal loan guarantee programs that transfer risk or losses to the federal government (see full list in app. III). The federal government uses loan guarantees as tools to support specific social and public policy objectives, such as those for housing and small businesses. Federal loan guarantees are any guarantees, insurance, or other pledges with respect to the payment of all or a part of the principal or interest on any debt obligation of a nonfederal borrower to a nonfederal lender. Thus, the federal guarantee transfers some or all of the risks of borrower default from private lenders to the federal government. The Federal Credit Reform Act of 1990 requires agencies to estimate the cost to the government of guaranteeing credit in the President s Budget, beginning in fiscal year 1992. This cost, the loan guarantee subsidy cost (referred to in this report as subsidy cost ), equals the net present value of the following cash flows at the time a loan guarantee is disbursed by the lender: (1) the estimated payments by the government to cover defaults, delinquencies, interest subsidies, or other payments; and (2) the estimated payments to the government, including origination and other fees, penalties and recoveries. If the present value of estimated cash outflows exceeds cash inflows, there is a positive subsidy cost. If the present value of estimated cash inflows exceeds cash outflows, there is a negative subsidy cost, referred to as subsidy income. Every fiscal year, subsidy costs are (1) estimated for the loan guarantees obligated during that year and (2) reestimated for loan guarantees obligated in previous fiscal years to update costs for actual loan performance and to incorporate any changes in assumptions about future loan performance. If reestimates increase subsidy costs, an agency would need additional funds. If they decrease subsidy costs, an agency generally would return funds to the general fund of the Treasury. Regardless of whether credit programs are discretionary or mandatory, agencies do not need to request additional appropriations to cover upward reestimates because the Federal Credit Reform Act provides permanent indefinite budget authority for this purpose. In addition, the loan guarantee liability in the Financial Report is the present value of estimated net cash outflows. Thus, this liability is an estimate of the exposure to the federal government because of all outstanding loan guarantees. This liability is based on all loan guarantees obligated in a given fiscal year and previous years that are outstanding as of the end of a fiscal year. It takes into account the subsidy costs of these guarantees estimated as of the time the loan was obligated and subsequent adjustments such as modifications and reestimates. As is the case with federal insurance, federal loan guarantee liabilities are publicly reported in the Financial Report and related note disclosures. Table 3 presents some of the measures reported in the note disclosures as of September 30, 2017. The estimated subsidy cost to the government for loan guarantees, including reestimates, was $12.5 billion during fiscal year 2017, as reported in the Financial Report. This was largely attributable to guarantees under Federal Housing Administration (FHA) loans administered by the Department of Housing and Urban Development, the largest of which is FHA s Mutual Mortgage Insurance (MMI) program. The program provides mortgage insurance to encourage lenders to make credit available to borrowers not adequately served by the conventional market, such as first-time homebuyers, minorities, and lower-income families. Similarly, federal loan guarantee liabilities were approximately $43 billion, with FHA loan guarantees accounting for about 48 percent of all guarantee liabilities. <2.3. Senior Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac> Current senior preferred stock purchase agreements between Treasury and the enterprises, Fannie Mae and Freddie Mac, transfer risk or losses to the federal government. The enterprises purchase mortgage loans that meet certain criteria for size, features, and underwriting standards, known as conforming loans. After purchasing mortgages, the enterprises create mortgage-backed securities and guarantee investors in these securities that they will receive timely payments of principal and interest. In 2008, because of the enterprises poor financial condition, the Federal Housing Finance Agency (FHFA) placed the enterprises into conservatorship and Treasury agreed to provide capital assistance in part to ensure timely payment to investors in exchange for shares of senior preferred stock, thus transferring risk to the federal government. Under the agreements, Treasury has committed to providing up to $445.6 billion in capital support to the enterprises while they are in conservatorship. If Fannie Mae or Freddie Mac has a net worth deficit at the end of a financial quarter, Treasury will provide capital support to eliminate the deficit. Under the most recent agreement, the enterprises must pay Treasury a dividend of all their quarterly positive net worth above a $3 billion capital reserve that each enterprise is allowed to retain. As of December 31, 2018, the enterprises had paid $292.3 billion in cumulative dividends to Treasury. Since the second quarter of 2012 with the exception of the first quarter of 2018 during which the enterprises required Treasury support due to devaluation of certain assets Fannie Mae and Freddie Mac have not required additional support from Treasury. As of August 2018, Treasury had provided the enterprises with $191.4 billion of this amount since they were placed under conservatorship in 2008, leaving $254.1 billion in potential taxpayer exposure should Treasury need to provide any additional support. The latter represents the maximum amount of potential future federal spending under the current agreements. According to Treasury, based on their assessments, there were no probable future funding draws as of September 30, 2018, but it was reasonably possible that market volatility or non-recurring events could cause the enterprises to generate quarterly losses and, therefore, result in future funding draws against Treasury s funding commitment. <2.4. Federal Employee and Veterans Benefits> We identified 13 large federal employee and veterans benefit activities that transfer at least some of the risk or losses to the federal government (see app. IV for more information). The federal government offers its civilian and military employees health and life insurance, defined benefit pension and other retirement benefits (such as post-retirement health insurance and life insurance), and other benefits. Many of these benefit programs exchange current services for a guarantee of lifetime annuity payments or the continuation of health insurance coverage, inherently transferring at least part of the risk of an adverse experience such as people living longer than expected, or health care costs rising faster than expected from the employees to the federal government. For example, the following three pension activities account for more than 80 percent of all federal employee and veterans benefit liabilities: On the civilian side, the Office of Personnel Management (OPM) administers the Civil Service Retirement System and the Federal Employees Retirement System, which are the largest civilian pension plans covering nearly all full-time, permanent civilian federal employees. The Department of Defense and the Department of Veterans Affairs administer the largest military plans. The Department of Defense administers the Military Retirement System, and Veterans Affairs provides for the payment of compensation, pension, and burial benefits to veterans and survivors. Federal employee and veterans benefit liabilities are publicly reported in the Financial Report and related note disclosures. Generally, these liabilities are recorded as employee services are rendered. Table 4 presents liabilities of the government for certain federal employee and veterans benefit activities. Such benefits include deferred compensation that generally commit the federal government to provide cash compensation and health insurance following a term of service and to accept certain risks regarding the ultimate costs of those benefits. These liabilities were approximately $7.6 trillion as of September 30, 2017, and represented about 32 percent of all federal liabilities (which were $23.9 trillion). <2.5. Other Activities That Transfer Risk or Losses to the Federal Government> An analysis of the President s Budget, the Catalog of Federal Domestic Assistance (CFDA), and the U.S. Code yielded 95 additional activities that met our criteria of transferring risks or losses from adverse events to the federal government. These activities can be broadly categorized into those that provide compensation for property or financial losses including losses resulting from adverse environmental or manmade events and those that offer life, health, or disability benefits to nonfederal employees. See appendix V for information on all 95 activities. Some of these federal activities provide compensation to specific third parties if they suffer certain losses from future adverse events, but the federal government may not always charge premiums for accepting this risk of loss. For example, the Department of Agriculture s Price Loss Coverage Program provides payments to farmers of certain crops when the effective price of the commodity is less than a reference price for that commodity. Farmers can apply to receive such assistance and do not pay premiums to receive benefits. We also found other activities in which the beneficiaries who receive government compensation for their losses are known only after an adverse event occurred. This was generally the case for activities that provide compensation for property or financial losses to victims of unforeseen adverse environmental or manmade events, such as activities funded by the Disaster Relief Fund. Lastly, we found activities that offer life, health, or disability benefits. These include federal grants to states for Medicaid, which assists states in providing medical care to generally low-income individuals, and activities that support mental health services, treatment for substance abuse, or child health insurance services. For example, the Department of Health and Human Services administers the Children s Health Insurance Program, which provides funds to states to help them maintain and expand health assistance to uninsured, low-income children and, at a state s option, low-income pregnant women. Table 5 has information on the budget accounts we found with more than $10 billion in total new obligations for fiscal year 2017 that funded activities that transferred risk or losses to the federal government. While obligations are a legal liability for the federal government, they may not necessarily reflect an activity s fiscal exposure if, for example, the activity has dedicated payment streams that reduce the government s fiscal exposure. We found five additional activities authorized in law that have not yet caused financial liabilities to the federal government but may do so if certain adverse events occurred. Such events include acts of terrorism, nuclear power plant incidents, or catastrophic space launch-related incidents. In all five cases, the federal government is generally authorized to help finance third-party liability claims related to the event, if needed, after private-sector insurers have paid a certain level of claims. As seen in table 6, some of these activities could require large, previously unbudgeted expenditures by the federal government if an event occurred. As of December 31, 2018, these activities had not triggered losses to the federal government. As mentioned earlier, we listed federal activities that meet the following criteria: (1) a risk of financial loss or actual financial loss to a third party exists that stems from an adverse event; and (2) through the activity, the federal government accepts some or all of the risk of financial loss or actual financial loss from the adverse event by indemnifying, guaranteeing, or providing benefits to the affected entity or beneficiary. Our categorization of such activities as federal insurance activities, federal loan guarantees, senior preferred stock purchase agreements with Fannie Mae and Freddie Mac, certain federal employee and veterans benefits, or other programs, was driven by the sources we used, in particular the Financial Report. Our results were based solely on the criteria we developed for this report and the sources and methodologies we used. Other criteria, sources, or methodologies might yield lists that differ from ours in number and composition of activities. Expert opinions sometimes differed on which types of activities met our criteria. We acknowledge the different opinions. In updating our 2005 catalog of federal insurance activities, our efforts are aimed at providing Congress with an expanded list that helps convey the wide variety of activities that may not necessarily be considered federal insurance but share important aspects of insurance. We also intended to highlight laws that authorize the federal government to cover third-party liabilities from specific adverse events such as terrorist attacks or nuclear accidents and that have not yet resulted in liabilities to the federal government but could do if the events occurred. Our catalog may not be appropriate for other purposes. <3. Budget Cost Recognition of Certain Federal Activities That Transfer Risk or Losses to the Government Presents Challenges> In our previous work, we found challenges in relation to measuring and reporting fiscal exposures caused by certain federal activities, including federal insurance programs. We previously reported that the primarily cash-based budget may not accurately reflect the costs the government incurs and the payments the government may be expected to make for some activities that transfer risk or losses to the government. In addition, the amount of the exposure to the federal government can be hard to measure for some activities. These challenges still exist, and to illustrate them, we reviewed six activities from among those we identified that transfer risk or losses to the federal government. <3.1. Federal Government s Legal Commitment Varies, and Implicit Exposures for Some Activities May Not Be Evident in the Budget> Federal activities that transfer risk or losses to the federal government have a range of fiscal exposures in which the extent of the government s legal commitment varies (see fig. 1). In 2003, we developed a conceptual framework for fiscal exposures that notes fiscal exposures may be explicit or implicit. Explicit exposures are commitments that the government is legally required to fund, while implicit exposures arise not from a legal commitment, but from current policy, past practices, or other factors that may create the expectation for future spending. Some federal activities have a combination of explicit and implicit exposures. For example, the government is not legally required to cover PBGC insurance claim losses in excess of PBGC s available resources. Therefore, claims up to the statutory limit are explicit exposures, and losses in excess of PBGC s available resources represent an implicit exposure for the federal government to the extent there is an expectation that the government would step in and cover losses beyond the program s reserves. In contrast, loan guarantees under the MMI Fund represent an explicit exposure only, because the government has a legal commitment to pay claims if the borrower defaults on a loan. Implicit exposures may not be evident in the budget, because the primarily cash-based budget records spending only when payments are made. For example, as part of the Commercial Space Launch Insurance Program, the federal government is potentially liable for damages from commercial space launch accidents, subject to appropriation, up to $3.1 billion per licensed space launch in 2017. This program represents an implicit exposure because a new appropriation which would represent the federal government s legal commitment to pay for this program is required to fund damages. Because there has never been such an event or appropriation, this fiscal exposure has not been included in the budget. According to Federal Aviation Administration officials, the agency has not designed internal processes or procedures to address these potential costs, such as estimating the costs, in part because the agency cannot presume the government will provide funds until such an appropriation were made. While implicit exposures do not present a legal commitment to the government, the federal government historically has shown a willingness to fund them in some cases. For example, NFIP has authority to borrow funds from the U.S. Treasury. To the extent there is an expectation that the federal government will cover claims exceeding the amount NFIP has been authorized to borrow from the U.S. Treasury, NFIP represents an implicit exposure. In October 2017 when NFIP was about to exhaust its borrowing authority, Congress demonstrated its willingness to fund NFIP implicit exposures by passing a supplemental appropriation, which the President signed into law, that cancelled $16 billion of NFIP s past borrowing from the U.S. Treasury. This allowed NFIP to borrow an additional $6.1 billion that would have exceeded its borrowing authority without this intervention, while also reducing its overall debt. Additionally, in fiscal years 2005 2018 the federal government designated a total of $138 billion in supplemental appropriations to the Disaster Relief Fund for declared disasters (see fig. 2). These costs indicate that there was an implicit exposure because Congress must pass a supplemental appropriation to cover them. Congress passed at least one supplemental appropriation for a major disaster in 9 of the 14 years during 2005 2018. <3.2. Cash-Based Budgeting May Not Reflect the Government s Cost or Potential Costs from Risk- or Loss-Transferring Activities> As we previously found, the federal budget may not accurately reflect the government s costs or the likely claim on federal resources from activities that transfer risk or losses to the government. Again, except for loan guarantees, the federal government s primarily cash-based budget generally does not record the full cost of commitments incurred in the present until corresponding payments are made in the future. However, for some claims, such as pension and post-retirement life insurance, the federal commitment occurs years before the related cash consequences are reflected in the budget. For example, the cost of pension plan insurance accrued in a given year is not reflected in the budget; rather, premiums are shown as receipts when they are collected and payments are shown as outlays when they are made. In fiscal year 2017, the budget showed PBGC s annual receipts exceeded its outlays by $4.8 billion. But in the same year, the program also had a $76 billion negative net position, which is one measure of the magnitude of the government s fiscal exposure and is not included in the budget (see fig. 3). Similarly, the budget may not indicate the government s long-term exposure from weather-related events. Like PBGC, NFIP reports premiums in the budget as receipts in the year they are collected and payments as outlays in the year they are made. The budget does not currently include information on NFIP s liabilities, assets, or net position. In fiscal year 2017, the budget showed a deficit (outlays exceeded receipts) for NFIP of $2.2 billion, a modest deficit compared to NFIP s net position in the same year, which fell by $11.5 billion to negative $37.4 billion (see fig. 4). NFIP s $30.425 billion in debt to the U.S. Treasury at that time, which was included in its liabilities, contributed to its net negative position. We previously reported that FEMA is required by law to charge many policyholders less than full-risk rates, otherwise known as subsidized rates. We found that FEMA s budget does not recognize the subsidy, making it difficult to analyze the effect of subsidized premium rates on the overall financial stability of NFIP. In 2017, we recommended that Congress consider comprehensive reform to improve NFIP solvency and enhance national resilience to floods. At that time, we developed five policy goals for evaluating options for reforming NFIP that included requiring transparency of the program s federal fiscal exposure. Congress is still considering various reforms related to NFIP. In addition, the budget request for the Disaster Relief Fund, which provides a significant portion of the total federal response to major disasters, traditionally has been intended to cover each fiscal year s costs for previously declared disasters and the predictable cost of noncatastrophic events. It does not pre-fund anticipated needs from disasters that have yet to occur or seek funding for potential catastrophic events. As previously noted and shown in figure 2, extreme weather events have cost the nation more than $100 billion through supplemental appropriations to the Disaster Relief Fund since fiscal year 2005. According to the Analytical Perspectives of the President s 2019 Budget, inflation, urbanization, and other factors are expected to contribute to increasing future disaster response and recovery costs. Additionally, climate change could increase the costs of severe weather events as more frequent and extreme weather and climate-related events are expected to continue to damage infrastructure, ecosystems, and social systems, according to the United States Global Change Research Program. This is one reason we added the federal government s fiscal exposure created by climate change to our 2013 High Risk List. However, the increased fiscal exposures are not reflected in the Disaster Relief Fund s financial measures in the budget. According to FEMA officials, the agency does not forecast costs or exposures for catastrophic disasters, in part because each catastrophe is different and presents its own set of risks that would be very difficult to predict with reasonable certainty. While the primarily cash-based budget may not represent an activity s likely claim on federal resources, members of Congress and the public have access to information on the fiscal health of the activities through other avenues. Many of the activities we reviewed track exposures and other relevant data internally and provide that information to Congress and the public through a variety of reports outside the budget (see table 7). These include actuarial reviews, one-time analyses of various subjects, and annual reports that provide detailed financial information. For example, each year an independent actuarial contractor conducts two separate actuarial reviews of the MMI Fund one for forward mortgages and one for Home Equity Conversion Mortgages (reverse mortgages) to estimate the economic value of the two portfolios. FHA then compiles statutorily required annual reports for Congress based on the results of the actuarial analyses. The annual report includes the calculation of the MMI Fund s overall capital ratio and some additional analyses of the MMI Fund s financial condition. While these reports provide additional financial information, we previously reported that decision-making is best informed if the government includes in the budget the costs of its commitments at the time it makes them. If the full cost of a spending decision is included in the budget when the decision is made, then decision makers can consider the total costs when setting priorities, compare the cost of an activity with its benefits, or assess the cost of one method of reaching a specified goal against another. Decision makers ability to make informed choices would be improved by increased transparency about the impact of policy decisions on the expected path of spending and revenue. We previously recommended that Congress consider expanding the use of accrual-based information to other activities, such as insurance, because accrual measurement would advance the recognition of costs for these commitments, especially those that involve cash flows over many years. We determined that, for many programs, adopting accrual-based information selectively within the current, primarily cash-based budget might improve information while preserving up-front control. PBGC, Federal Employees Group Life Insurance (FEGLI), and NFIP officials stated that adding limited accrual accounting information, such as the balance sheet, to the President s Budget would be relatively easy. NFIP officials agreed that while the financial statements and various reports show the full liability of the program, including this information in the budget would consolidate it in one place. The President s Budget (Appendix) already includes a balance sheet from FHA s MMI Fund, along with information on credit subsidy reestimates in the Federal Credit Supplement of the budget as required by the Federal Credit Reform Act of 1990. According to FHA officials, the main benefit of reporting balance-sheet information in the budget is that the public, OMB, and Department of Housing and Urban Development personnel have more data that can be used to make decisions. FHA officials also noted that creating a crosswalk between the financial reports and the budget has been a challenge because there is not always a one-to-one relationship, which is due to different reporting elements and concepts underlying their measurement. <3.3. While Accrual Budgeting Better Recognizes Long- Term Costs, the Amount of the Exposure Can Be Hard to Measure for Some Activities> Given the variation in fiscal exposures, we previously concluded that while accrual budgeting better recognizes long-term costs, a uniform, across-the-board approach to make fiscal exposures more apparent in the budget may not be appropriate. One of several factors that should be considered is the extent to which the magnitude of the exposure can be reasonably estimated. The complexity and uncertainty surrounding some exposures create significant cost estimation challenges, while other activities are easier to estimate. For example, OPM considers various factors that are fairly stable and easily known or can be reasonably estimated (such as changes in the mortality of federal employees, federal salaries, and interest rates) when calculating FEGLI s liability for current and future life insurance coverage. Because of this, FEGLI officials noted that they did not face significant challenges in estimating the program s fiscal exposure. In contrast, exposures related to natural disasters are especially hard to estimate. According to NFIP officials, the extreme variability of flood losses is the single biggest challenge in estimating the program s exposure. Similarly, officials from the Disaster Relief Fund said it is not possible to forecast catastrophic disasters because each is different. According to FEMA officials, the agency has begun working with catastrophe modeling firms and others in developing better estimates of loss exposures. While several components of the models are still in development, FEMA officials believe they show promise to be useful tools in the future. Agencies developed models to make estimates of fiscal exposures for several of the activities we reviewed, although the agencies noted that generating reasonably reliable estimates is difficult for a variety of reasons, such as the sufficiency of data on potential losses and the nature of the risks insured by the government. For example, PBGC developed the Pension Insurance Modeling System to help the agency better understand and quantify its long-term risk and exposure to loss under different economic conditions and policy alternatives. Agency officials stated that obtaining current, complete, comprehensive, and reliable data on the company pension plans likely to present claims was one of the most significant challenges in these estimates. FHA also uses economic assumptions and historical data to estimate and reestimate the net lifetime costs of the mortgages it insures. Agency officials noted that it is difficult to produce these estimates because risk can vary based on a variety of factors that are uncertain, volatile, or sensitive, such as the economy and housing market. In recognition of this difficulty, the Federal Credit Reform Act of 1990 provides permanent and indefinite budget authority for upward reestimates, so that FHA can receive additional funds when needed if reestimates increase subsidy costs. We previously recommended to Congress in 2007, and reiterated in 2013, that it consider requiring increased reporting of accrual-based cost information where appropriate alongside cash-based budget numbers for both existing and proposed activities where accrual-based cost information includes significant future cash resource requirements not yet reflected in the primarily cash-based budget. From 2009 through 2014, several bills were introduced to budget for certain activities on an accrual basis, but none were signed into law. The Bipartisan Budget Act of 2018 created the Joint Select Committee on Budget and Appropriation Process Reform, but no bills were signed into law as a result. The committee was terminated by statute by December 2018. We continue to support this recommendation to improve budget recognition of these fiscal exposures, because, as shown, challenges remain in identifying and measuring fiscal exposures. The government undertakes a wide range of activities that create fiscal exposures by obligating the government to future spending or creating an expectation for such spending. The federal budget both allocates and controls resources, but does not provide complete information about some significant fiscal exposures. Failure to understand and address these exposures can have significant consequences. These fiscal exposures will require future federal spending and will absorb resources available for other activities. Not capturing the long-term costs of current decisions limits Congress s ability to control federal fiscal exposures at the time decisions are made. Presenting accrual information alongside cash-based budget numbers, particularly in areas where it would enhance up-front control of budgetary resources, would be useful to policymakers when debating current activities and considering new legislation. <4. Agency Comments> We provided a draft of this report to OMB and Treasury. The agencies had no comments on the draft report but provided technical comments that we incorporated as appropriate. We sent relevant portions of the draft to the following agencies: Department of Agriculture s RMA, Department of Homeland Security s FEMA, Department of Housing and Urban Development s FHA, Department of Transportation s Federal Aviation Administration, FDIC, NCUA, OPM, and PBGC. All the agencies (except the Department of Transportation, Department of Housing and Urban Development, and Department of Agriculture) provided technical comments that we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Treasury, and the Director of OMB. This report will also be available at no charge on our website at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. Appendix I: Objectives, Scope, and Methodology In this report, we (1) identify federal insurance and other activities that transfer risk or losses to the federal government and, where possible, identify cost- and exposure-related information on these activities; and (2) use selected activities to illustrate some of the challenges that we identified in past reports with measuring and reporting fiscal exposures in budget documents. <5. Identifying Activities That Transfer Risk or Losses to the Government> For this objective, we updated our 2005 catalog of federal insurance activities and used additional sources of information on federal activities to obtain cost- and exposure-related information and identify additional activities. To compile the 2005 catalog, we developed the following criteria for identifying federal insurance activities: (1) The federal government must accept the risk of financial loss in providing protection against specific types of losses, events, or conditions whose timing, magnitude, or duration, are uncertain or unknown; and (2) by accepting this insurance risk, the federal government must be obligated to pay compensation or provide benefits if the losses, events, or conditions occur. In addition, we verified that the activities we cataloged as federal insurance also were recognized lines of insurance in the private sector. We applied the criteria to the Appendix of the Budget of the United States Government (President s Budget) for Fiscal Year 2005 to identify budget accounts that funded federal insurance activities per our criteria. In this report, we first developed our own criteria for activities that transfer risk or losses to the federal government using definitions of federal insurance from the Federal Accounting Standards Advisory Board s (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) 5: Accounting for Liabilities of the Federal Government and Statement of Federal Financial Accounting Standards SFFAS 51: Insurance Programs. Activities were assessed against the following two criteria: (1) a risk of financial loss or actual financial loss to a third party exists that stems from an adverse event; and (2) through the activity the federal government accepts some or all of the risk of financial loss or actual financial loss from the adverse event by indemnifying, guaranteeing, or providing benefits to the affected entity or beneficiary. We also reviewed our new criteria internally with input from GAO experts, including accountants, actuaries, and budget law experts. We then used the following sources to identify federal activities that met our criteria: (1) 2017 Financial Report of the United States Government (Financial Report) and underlying account-level data from the Government-wide Treasury Account Symbol Adjusted Trial Balance System (GTAS) of the Department of the Treasury (Treasury), (2) the Office of Management and Budget s (OMB) President s Budget; (3) OMB s Catalog of Federal Domestic Assistance (CFDA) administered by the General Services Administration; and (4) the Code of Laws of the United States (U.S. Code). The resulting catalog is based solely on the criteria we developed for this report and the sources and methodology we used. Other criteria, sources, or methodologies might yield a list that differs from ours in both number and composition of activities. Because we use different criteria, sources, and methodologies, our results are not directly comparable to results in our 2005 catalog. First, we identified certain categories of federal activities that met our criteria using the note disclosures of the 2017 Financial Report: We identified the following federal insurance programs by analyzing the note disclosure on federal insurance and guarantee liabilities as well as our internal audit documents on that note disclosure for fiscal years 2014 2017: Federal Crop Insurance Program, National Flood Insurance Program (NFIP), Pension Benefit Guaranty Corporation s (PBGC) single-employer and multiemployer pension insurance programs, Federal Deposit Insurance Corporation s Deposit Insurance Fund, and National Credit Union Administration s Share Insurance Fund. To find information on the programs, the role of the government in the administration of the programs, and cost- and exposure-related information on the programs, we analyzed GAO reports, individual agency annual, financial, or other reports, and reports from the Congressional Budget Office. We also identified the following categories of activities that met our criteria: federal loan guarantee programs, senior preferred stock purchase agreements with two government-sponsored enterprises Fannie Mae and Freddie Mac; federal employee and veterans benefits excluding veterans burial and education benefits; and social insurance. We used GTAS to identify Treasury accounts for the federal loan guarantee and the federal employee and veterans benefit categories. We generally presented liabilities for these activities as available in the Financial Report and GTAS for fiscal year 2017. Second, we conducted searches of key words in the names of budget accounts reported in the Appendix of the President s Budget using OMB s MAX system. We analyzed the results and identified budget accounts that funded additional federal activities that met our criteria and reported budget obligation data for those accounts for fiscal year 2017. We also analyzed more than 2,200 federal activities in CFDA as of September 30, 2017. To do this, at least two analysts verified that a budget account or a CFDA program met or did not meet our criteria (with review from an additional analyst, if needed). We included a budget account or CFDA program in our catalog if all analysts reviewing the program agreed the account or program met our criteria. The additional federal activities we found through the President s Budget and CFDA can be broadly categorized as providing compensation for property or financial losses including losses resulting from adverse environmental or manmade events or providing life, health, or disability benefits to nonfederal employees. We also crosschecked this list of federal activities with those we identified in our 2005 report. Lastly, we conducted a search of key words in the table of contents of the U.S. Code and found additional activities that provided compensation for property damage or financial loss and thus transferred risk or losses to the federal government. We conducted this search to identify potential federal activities that currently only exist in law but met our criteria. According to officials from OMB, activities may not appear in the President s Budget for different reasons, including if the activities ended or expired or if they have no expected expenditures or proposed appropriations. In reviewing the U.S. Code, two analysts verified whether a search result represented a new federal activity that met our criteria. In addition, a senior attorney from our Office of General Counsel verified that the additional activities were accurately stated based on the language of the U.S. Code. We shared our catalog with and obtained expert opinion from officials from Treasury, OMB, the General Services Administration, the Congressional Budget Office, and FASAB, as well as from key GAO staff with relevant expertise (including accountants, actuaries, and experts on budget appropriation and other federal activities). We added an additional federal activity to our catalog that an outside expert brought to our attention and that we had not identified through the methodologies described above. <6. Examples of Challenges in Measuring and Reporting Fiscal Exposures> To illustrate some of the challenges in measuring and reporting fiscal exposures that we identified in past reports, we reviewed prior reports on fiscal exposures, the federal budget, and accrual budgeting to identify key challenges relevant to insurance and other activities. We then selected six activities from those we identified for this report that illustrate these key challenges. We selected the (1) Disaster Relief Fund, (2) Federal Aviation Administration s Commercial Space Launch Insurance Program, (3) Federal Employees Group Life Insurance program, (4) Federal Housing Administration s Mutual Mortgage Insurance Fund, (5) NFIP, and (6) PBGC pension insurance programs. We reviewed the Financial Report and the President s Budget for information and financial measures on these activities, such as receipts, outlays, and net position for NFIP and PBGC. We also reviewed the appropriation and supplemental appropriation laws for the Disaster Relief Fund from fiscal years 2005 through 2018. We analyzed the agencies financial and budget documents and conducted interviews with agency officials. We conducted this performance audit from October 2017 to March 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Selected Information on Federal Insurance Programs <7. Federal Crop Insurance> The Federal Crop Insurance program is administered by the Risk Management Agency (RMA) of the Department of Agriculture. It helps farmers manage the risks inherent in farming by allowing them to insure against losses caused by poor crop yields, declines in prices, or both. Crop insurance premiums are subsidized in part to achieve high participation and coverage levels, which may reduce or eliminate the need for potentially costly disaster assistance payments from congressionally authorized ad hoc disaster programs. RMA partners with private insurers that sell and service policies. The program insures farmers against losses on more than 100 crops, which include corn, soybeans, wheat, cotton, and grain sorghum, as well as nursery crops and certain fruits and vegetables. In crop year 2018, RMA estimated it sold 1.1 million policies for a total of about $109.1 billion in insurance protection. The federal government subsidizes crop insurance policies by charging participating farmers less than the full amount of the policy premium. Congress sets the programs premium subsidy rates the percentage of the premium paid by the government. RMA subsidized approximately 63 percent of total premiums in crop years 2017 and 2018 (or $6.36 billion and $6.27 billion, respectively), while farmers paid the remaining 37 percent. The federal government also reimburses participating private- sector insurance companies for administrative and operating expenses. The reimbursements are based on a percentage of crop insurance premiums and are intended to cover the companies expenses to sell and service policies, such as employee salaries; fees paid to insurance adjusters to verify claims; and sales commissions and other compensation (profit sharing) paid to the insurance agents who sell the crop insurance to farmers. The federal government is also the primary reinsurer for the private insurance companies that take on the risk of covering losses to insured farmers, allowing private insurers and the federal government to share in the risk of loss and opportunity for gain associated with the policies. The insurance companies retain part of the premiums and associated risk, and RMA holds the remaining premiums and risk. In addition, each company cedes to RMA a percentage of its underwriting gains or losses. The Federal Crop Insurance program is funded through mandatory spending authority, so that RMA receives a permanent indefinite appropriation each fiscal year for premium subsidy and other expenses and returns unobligated balances to the U.S. Treasury at the end of the fiscal year. According to RMA, the net cost of operations for the program was $5.5 billion and $6.8 billion for fiscal years 2018 and 2017, respectively (see table 8). Lastly, in April 2018, the Congressional Budget Office projected that federal crop insurance would cost the federal government an average of about $7.9 billion per year in 2018 2028. In 2017, we recommended that RMA and Congress consider improving the calculations related to the payments to and risk-sharing agreements with participating insurance companies to reduce year-to-year fluctuations in the subsidy costs of the program. In 2015, we also reported on the need for RMA to obtain more information on program costs and improve its premium setting calculations. We recommended that Congress consider reducing premium subsidies for the highest-income participants to reduce the cost of the program. As of December 31, 2018, these recommendations remained unaddressed. <8. National Flood Insurance Program> Administered by the Federal Emergency Management Agency (FEMA) of the Department of Homeland Security, the National Flood Insurance Program (NFIP) makes federally backed flood insurance available to residential property owners and businesses. By design, NFIP does not operate for profit. Instead, the program must meet a public policy goal to provide flood insurance in flood-prone areas to property owners who otherwise would not be able to obtain it. Under NFIP, the federal government assumes the liability for the insurance coverage and sets rates and coverage limitations, while the private insurance industry sells the policies and administers the claims. As of September 30, 2018, NFIP provided about $1.3 trillion of insurance coverage on 5.1 million policies. NFIP generally is expected to cover its claim payments and operating expenses with the premiums it collects, but it has had to use its authority to borrow funds from the U.S. Treasury to cover large shortfalls. Since 2004, Congress increased NFIP s initial borrowing limit from $1.5 billion to $30.4 billion, which was passed into law in 2013. Until 2004, NFIP was able to cover most claims with premiums it collected and occasional loans from the U.S. Treasury that it repaid. Cumulative debt increased substantially from 2005 to 2016 due to extraordinary catastrophic loss years resulting primarily from Hurricane Katrina and Superstorm Sandy. By September 2017, NFIP exhausted its borrowing authority following hurricane season, which prompted Congress to grant $16 billion in debt cancellation. NFIP then borrowed $6.1 billion to cover incurred and anticipated expenses for the 2018 hurricane season. As of September 30, 2018, NFIP had $20.5 billion of outstanding debt with the U.S. Treasury. According to FEMA, as currently designed, the program likely will not be able to repay this debt. According to FEMA, from October 1, 2017 through September 30, 2018, NFIP s total expenses were more than $12 billion, which was more than twice its total revenue of $5.6 billion. In that time, NFIP collected $3.51 billion in premium revenues and $1.04 billion in reinsurance collections, but paid $9.21 billion in claims through the National Flood Insurance Fund. For fiscal year 2018, expenses also exceeded revenues by about $6.64 billion for the National Flood Insurance Reserve Fund. FEMA has produced estimates of its ability to pay claims and of annual maximum probable losses. FEMA calculated NFIP s capacity to pay claims, which includes almost $10 billion in remaining borrowing authority from Treasury, at $15.82 billion as of September 30, 2018 (see table 9). Although FEMA entered into a reinsurance contract in 2018 for $1.5 billion, it projects it will not be able to cover potential future fiscal exposure from a single, low-probability, super-catastrophic event, which it estimates could cost as much as $40 billion in claims. In 2017, we again reported that NFIP premiums do not reflect the full risk of loss, which increases the federal fiscal exposure created by the program, obscures that exposure from Congress and taxpayers, contributes to policyholder misperception of flood risk (they may not fully understand the risk of flooding), and discourages private insurers from selling flood insurance (they cannot compete on rates). We concluded that eliminating rate discounts by requiring all rates to reflect the full risk of loss would help address these problems, but also would make policies less affordable and could reduce consumer participation. We stated that the decreases in affordability could be offset by other actions such as providing means-based assistance. We recommended that Congress consider comprehensive reform to improve NFIP's solvency and enhance the nation's resilience to flood risk. As of December 31, 2018, Congress still was considering various reforms as it worked to reauthorize the program. <9. Pension Benefit Guaranty Corporation> The Pension Benefit Guaranty Corporation (PBGC) is a wholly-owned government corporation established to insure the pension benefits of participants in and beneficiaries of private-sector defined benefit plans. The corporation operates a single-employer program and a multiemployer program. The single-employer program covers defined benefit pension plans that generally are sponsored by one employer. When an underfunded single-employer plan terminates, PBGC becomes the trustee and administers the plan. As of September 30, 2018, the single- employer program insured about 26 million people in approximately 23,400 plans and approximately 861,000 people were receiving benefits payments from PBGC. The multiemployer program insures plans arranged through collective bargaining between labor unions and employers, with two or more employers participating in a plan. PBGC provides financial assistance to multiemployer plans when they become insolvent. According to PBGC, as of September 30, 2018, the multiemployer program insured about 10.6 million people in approximately 1,400 plans and about 62,300 people were receiving benefits payments from plans receiving financial assistance from PBGC. Premium rates are set in law by Congress and plan sponsors or plans pay per-participant flat premiums under both programs. In addition, under the single-employer program, a plan sponsor or plan pays a variable-rate premium based on its plan underfunding. PBGC receives no funds from general tax revenue and assets from one program cannot be used to support the other, so both programs must pay claims primarily from nonfederal sources. The single-employer program had positive cash flow during fiscal year 2018 and both programs have been able to maintain enough assets to pay guaranteed benefits and financial assistance to date. But historically, PBGC s statutory premium structure has not reflected significant risks PBGC insures against for example, the risk that a single-employer plan sponsor becomes bankrupt, forcing the termination of an underfunded plan, or the risk that a multiemployer plan s financial condition deteriorates, causing it to become insolvent imposing claims on PBGC programs. As shown in table 10, PBGC s multiemployer program had a negative net position (that is, total liabilities exceeded total assets) at the end of fiscal year 2018. The single-employer program reached a positive net position (for the first time since 2001) by the end of fiscal year 2018. PBGC projects a positive net position in 10 years for the single-employer program, but a negative net position for the multiemployer program (negative $68.9 billion by the end of fiscal year 2027), although there is inherent uncertainty around such a projection. PBGC s forecasts for the following decade and beyond based on current economic conditions project a very high likelihood of insolvency for the multiemployer program before the end of fiscal year 2025 if there are no changes in law. In 2013, PBGC officials told us that once the multiemployer fund s cash balance was depleted, the agency would have to rely solely on annual insurance premium receipts to pay financial assistance to plans. The precise effect that the insolvency of the multiemployer insurance fund would have on retirees receiving the PBGC guaranteed benefit would depend on a number of factors primarily the number of guaranteed benefit recipients and PBGC s annual premium income at that time. However, the impact likely would be severe. In 2012, we recommended that Congress consider redesigning PBGC s premium structure to more fully reflect the risks posed by plans and sponsors to the agency and improve PBGC s access to additional information needed to assess risk and assist in setting premiums. In 2013, we also recommended that Congress consider comprehensive and balanced structural reforms to reinforce and stabilize the multiemployer program. As of December 31, 2018, Congress had yet to authorize a redesign of PBGC's premium structure. However, in December 2014, Congress enacted the Multiemployer Pension Reform Act of 2014, which substantially established in law certain key structural reforms to the multiemployer system, including allowing severely distressed multiemployer plans to reduce accrued pension benefits; expanding PBGC s ability to assist financially distressed plans; and raising multiemployer insurance premiums to provide PBGC with additional resources. <10. Deposit Insurance Fund> The Federal Deposit Insurance Corporation (FDIC) insures the deposits of commercial banks and savings associations up to the statutory limit of $250,000. According to FDIC, as of September 30, 2018, there were 5,486 insured depository institutions with total insured deposits of $7.4 trillion. FDIC administers the federal deposit insurance program through its management of the Deposit Insurance Fund (DIF), which has two primary purposes: (1) to insure the deposits and protect the depositors of insured banks and (2) to resolve failed banks. FDIC manages the DIF by determining the size of the fund and of the DIF reserve ratio (the ratio of the fund balance to estimated insured deposits). The DIF is funded mainly through quarterly risk-based assessments on insured depository institutions, and it also earns interest income on its securities. The DIF is reduced by the amount of losses and expenses associated with failed banks and by FDIC operating expenses. The financial strength of the DIF can be gauged by comparing the fund s actual reserve ratio to the minimum reserve ratio, and by measuring its progress to the designated, or desired, reserve ratio. Section 334 of the Dodd-Frank Wall Street Reform and Consumer Protection Act increased the minimum reserve ratio from 1.15 percent to 1.35 percent and required that the reserve ratio reach that level by September 30, 2020. To meet these requirements, large banks paid temporary surcharges from the third quarter of 2016 through the third quarter of 2018. In addition, under the long-term DIF management plan, the FDIC Board of Directors set the designated reserve ratio at 2.0 percent, with the goal of helping FDIC maintain a stable insurance assessment rate and sustain a positive DIF balance even during a serious economic downturn. In November 2018, FDIC announced that the DIF reserve ratio had reached 1.36 percent (as of September 30, 2018), exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the statutory deadline (September 30, 2020). Obligations of FDIC are backed by the full faith and credit of the U.S. government. In addition, FDIC is authorized to borrow up to $100 billion from the U.S. Treasury and issue and sell up to $100 billion in obligations to the Federal Financing Bank (see table 11). A statutory formula, known as the maximum obligation limitation, limits the amount of obligations the DIF can incur to the sum of its cash, 90 percent of the fair market value of other assets, and the amount authorized to be borrowed from the U.S. Treasury. The maximum obligation limitation for the DIF was $191.5 billion as of December 31, 2017. FDIC did not use its authority to borrow funds from the U.S. Treasury when the DIF was depleted and fell to negative $20.9 billion, its lowest point in history, as a result of the 2007 2009 financial crisis. Instead, FDIC first replenished the DIF through increased assessments and a one- time special assessment. These actions were taken pursuant to a restoration plan established to replenish the DIF and raise the reserve ratio to its designated minimum within the time limits prescribed by the Federal Deposit Insurance Act. Finally, FDIC was able to improve the liquidity of the DIF by requiring the banking industry to prepay its quarterly risk-based assessments for the fourth quarter of 2009 and for the next 3 years. <11. National Credit Union Share Insurance Fund> The National Credit Union Administration (NCUA) administers the National Credit Union Share Insurance Fund and provides up to $250,000 of insurance per depositor. According to NCUA, by the end of calendar year 2017, the Share Insurance Fund insured the deposits of more than 111 million members in 5,573 credit unions with $1.38 trillion in assets, and the fund insured $1.1 trillion of member shares, or dollars deposited. The Share Insurance Fund is primarily funded by contributions of 1 percent of the insured shares or deposits from each member credit union. Other sources of income include premiums, when assessed as explained below, and investment income. The financial performance of the Share Insurance Fund can be measured by comparing the equity ratio to the normal operating level (or desired equity ratio). The equity ratio is the total of credit unions contributions to the fund, less any gain or loss on investments, plus accumulated retained earnings, divided by total insured shares. By law, the equity ratio of the Share Insurance Fund cannot decline below 1.20 percent and may not exceed 1.50 percent. If NCUA expects the equity ratio to fall below this threshold, it must establish and implement a restoration plan to rebuild the equity ratio, which must include a premium assessment to each insured credit union. The reported equity ratio at the end of 2017 was 1.46 percent, which is above the normal operating level, set at 1.39 percent as of 2017. According to NCUA, a normal operating level of 1.39 percent was set with the goal of ensuring that the Share Insurance Fund could withstand a moderate recession without the equity ratio declining below 1.20 percent over a 5- year period. The Share Insurance Fund is backed by the full faith and credit of the U.S. government and, according to NCUA, has $6.0 billion in borrowing authority from the U.S. Treasury, all of which was available as of December 31, 2017. The fund also has the ability to borrow from the NCUA s Central Liquidity Facility up to the amount of the liquidity facility s unused borrowing authority, which was $6.6 billion as of December 31, 2017. As of December 31, 2017, the Share Insurance Fund had $12.6 billion in total available borrowing capacity, which is the combination of the borrowing authority from the U.S. Treasury and the liquidity facility (see table 12). The recent equity ratio contrasts with low points reached during and after the 2007 2009 financial crisis. NCUA had to take a number of steps to stabilize credit unions, stemming primarily from the failure of five large corporate credit unions. NCUA established the Temporary Corporate Credit Union Stabilization Fund, which replaced the Share Insurance Fund as the primary source to absorb the corporates losses. Congress increased NCUA s borrowing authority with the U.S. Treasury up to $6 billion through a revolving loan fund to be shared between the Stabilization Fund and Share Insurance Fund. The Stabilization Fund borrowed and repaid a total of $11.2 billion from the U.S. Treasury from its inception in 2009 through its closure in October 1, 2017. The highest amount of total borrowing outstanding was $5.1 billion in October 2012. However, the Share Insurance Fund s equity ratio fell below 1.20 percent in both 2009 and 2010, and two premiums totaling $1.7 billion were necessary to restore the equity ratio. NCUA stated that without the premiums the equity ratio would have fallen to 1.07 percent. Appendix III: Information on Federal Loan Guarantees Federal loan guarantees are any guarantees, insurance, or other pledges with respect to the payment of all or a part of the principal or interest on any debt obligation of a nonfederal borrower to a nonfederal lender. Thus, the federal guarantee transfers some or all of the risks of borrower default from private lenders to the federal government. Table 13 lists the 33 federal guaranteed loan activities that presented liabilities to the federal government as of September 30, 2017. Appendix IV: Information on Federal Employee and Veterans Benefits Table 14 lists 13 large federal employee and veterans benefit activities such as pension, health, life, and disability benefits that transfer risk or losses to the federal government. Each of the activities listed represented $10 billion or more in benefit liabilities payable for the fiscal year ending September 30, 2017. Combined, the activities accounted for 99 percent of the total federal employee and veterans benefit liabilities of $7.7 trillion. Appendix V: Information on Selected Federal Activities That Transfer Risk or Losses to the Government Tables 15, 16, and 17 list a total of 95 federal activities that met our criteria of transferring risk or losses from adverse events from third parties to the federal government and that we found in the Budget of the United States Government (President s Budget), the Catalog of Federal Domestic Assistance (CFDA), or the Code of Laws of the United States (U.S. Code). These activities can be broadly categorized into activities that, at least in part, provide compensation for property or financial losses including losses resulting from adverse environmental or manmade events and activities that offer life, health, or disability benefits to nonfederal employees. Table 15 has information on 39 budget accounts from the President s Budget, generally organized by amount of obligations for fiscal year 2017. While budget obligations create a legal liability for the federal government, they may not necessarily reflect an activity s fiscal exposure if, for example, the activity has dedicated payment streams. Table 16 has information on an additional 51 activities found through our sources that met our criteria. Table 17 has information on five activities authorized in law that had not triggered losses to the federal government as of December 31, 2018. With the exception of the Terrorism Risk Insurance Program, we identified these programs through an analysis of the U.S. Code, since the programs have not had liabilities or appropriations and could not be found in the Financial Report or the President s Budget. We were able to find some financial and budgetary information on the Terrorism Risk Insurance Program because administrative expenses and potential projected payments under the program are identified in the President s Budget on an annual basis. Appendix VI: Fiscal Exposures from Social Insurance Programs Federal social insurance programs are Social Security, Medicare (Parts A, B, and D), Railroad Retirement, and Black Lung. These programs provide eligible individuals with benefits, such as health insurance, disability, and retirement benefits, thus transferring risk to the federal government. Fiscal exposures from the four programs are discussed annually in the Statement of Social Insurance (SOSI) in the Financial Reports of the United States Government. Specifically, the SOSI details the present value of the estimated future revenues and expenditures for scheduled benefits over the next 75 years. The amounts in the SOSI and presented below are not considered liabilities in an accounting context. Future benefit payments will be recognized in the Financial Report as expenses and liabilities as they are incurred based on the continuation of the social insurance programs' provisions contained in current law. While future social insurance benefit payments that are not due and payable are not treated explicitly as legal liabilities to the federal government, the SOSI s forward-looking projections are intended to help citizens understand the long-term sustainability of these programs and the fiscal exposures they present. The social insurance programs are mainly funded by taxes and premiums. Contributions and dedicated taxes consist of: payroll taxes from employers, employees, and self-employed persons; revenue from federal income taxation of Old-Age Survivors and Disability Insurance (OASDI) and railroad retirement benefits; excise tax on the domestic sale of coal; premiums from, and state transfers on behalf of, participants in Medicare; and reimbursements from the General Fund to the OASDI and Medicare Trust Funds. The social insurance trust funds account for all related program income and expenses, and have automatic funding authority to pay future benefits to the extent that funds are available. Taxes, premiums, and other income are credited to the funds, while benefit payments and program administrative costs are paid from the funds. However, as of January 1, 2017, based on information from the SOSI , the present value of federal expenditures for social insurance programs over 75 years was projected to exceed program revenues by about $19.0 trillion (see table 18). This represents about 1.5 percent of the present value of the gross domestic product over 75 years. To illustrate the sustainability of current benefits, the Social Security and Medicare Part A SOSI projections assume that scheduled social insurance benefit payments would continue after related trust funds are projected to be depleted, contrary to current law. The projections for Medicare Parts B and D for fiscal year 2017 include $30 trillion in transfers of general revenues that, under current law, are used to finance the remainder of the expenditures in excess of revenues. We have reported that there are significant uncertainties related to the achievement of projected reductions in Medicare cost growth assumed in the SOSI projections that have prevented us from expressing an opinion on the sustainability of the financial statements in the Financial Report. We previously reported on the fiscal problems presented by these programs, in particular Social Security and Medicare. The Social Security and Medicare programs are projected to face financial challenges. In June 2018, we noted that fiscal spending increases in 2017 were driven by Social Security, Medicare, Medicaid, and interest on debt held by the public. The spending increases were largely a result of the aging of the population and increasing health care costs rather than legislative changes to these programs. Spending on Social Security and these health programs is expected to continue to increase because of long- standing demographic and economic trends. The 2017 Financial Report of the United States Government, Congressional Budget Office, and our projections all show that, absent policy changes, the federal government s fiscal path is unsustainable and that the ratio of debt to the gross domestic product would surpass its historical high of 106 percent within 14 22 years. All the projections also note that the longer action is delayed, the greater and more drastic changes will have to be. Appendix VII: GAO Contacts and Staff Acknowledgments <12. GAO Contacts> Alicia Puente Cackley, (202) 512-8678 or [email protected]. <13. Staff Acknowledgements> In addition to the contact name above, Patrick Ward (Assistant Director), Silvia Arbelaez-Ellis (Analyst in Charge), Katherine Carter, Robert F. Dacey (Chief Accountant), Rachel DeMarcus (Assistant General Counsel), Jill Lacey, Janice Latimer (Assistant Director, Strategic Issues), Scott McNulty, Marc W. Molino, Angela Pun, Barbara Roesmann, Jessica Sandler, Dawn Simpson (Director, Financial Management and Assurance), and Frank Todisco (Chief Actuary) made significant contributions to this report.

Why GAO Did This Study The federal government conducts many activities that protect parties from the effects of adverse events—for instance, by providing flood insurance, guaranteeing mortgage loans, or making payments to beneficiaries of deceased military personnel. Identifying these activities and understanding the fiscal exposures they create can be a challenge, making it difficult for Congress to oversee them through the budget and appropriation processes. GAO was asked to update information on federal insurance activities it created in 2005 ( GAO-05-265R ) and identify opportunities for improving budgeting for such activities. This report (1) identifies and provides cost- and exposure-related information on federal activities that transfer risk or losses to the government, and (2) illustrates challenges GAO identified in past reports with measuring and reporting fiscal exposures in budget documents. GAO primarily reviewed government-wide financial and budget data, the Catalog of Federal Domestic Assistance, and the U.S. Code. GAO also drew on previous work, conducted interviews with the Office of Management and Budget, Department of the Treasury, and other agencies, and reviewed agency financial and budget documents. What GAO Found Through analysis of sources containing government-wide information on federal activities, GAO identified 148 federal insurance and other activities that transfer risk or losses from adverse events to the government (see fig.). Unlike private insurance, the activities do not necessarily have a contract or charge premiums or fees in exchange for assuming risk. Even when premiums or fees exist they may not cover all costs, as federal expenditures can be driven by policy goals or agency missions rather than the aim of fiscal solvency. GAO generally was able to provide financial or budget information for the activities. Source: GAO . | GAO-19-353 Note: GAO's results are based solely on the criteria GAO developed for this report and the sources and methodology it used. Other criteria, sources, or methodologies might yield lists that differ from GAO's in number and composition of activities. a GAO identified 13 Treasury accounts that accounted for 99 percent of all federal employee and veterans benefits liabilities to the federal government as of September 30, 2017. These include accounts that fund retirement benefits, disability insurance, health insurance, and life insurance programs for civilian and military employees. The government's primarily cash-based budget generally does not record the full cost of commitments incurred until corresponding payments are made in the future. Therefore, the budget may not accurately reflect federal costs or the likely claim on federal resources for such activities. For some claims, such as pension and life insurance, the federal commitment occurs years before payments are reflected in the budget. Additionally, payments the government may be expected to make based on policies or past practices (but is not legally required to make) may not be evident in the budget. For example, the Commercial Space Launch Insurance Program created a potential liability to the government of up to $3.1 billion per licensed space launch in 2017 but never has been included in the budget. GAO previously recommended ( GAO-08-206 , and reiterated in GAO-14-28 ) that Congress consider expanding the use of accrual-based information in the budget documents submitted to Congress. However, this recommendation has not been implemented. Accrual measurement would provide enhanced control over future spending by recognizing long-term costs when decisions are made. What GAO Recommends This analysis provides additional support for GAO's 2007 recommendation that Congress consider improving recognition of fiscal exposures in budget documents such as by expanding use of information on expected future spending arising from present-day commitments.

gao_GAO-20-490T

gao_GAO-20-490T_0

<1. Background> MDA is responsible for developing a number of systems, known as elements, with the purpose of defending against ballistic and hypersonic missile attacks. MDA s mission is to combine these elements into an integrated system-of-systems known as the Ballistic Missile Defense System (BMDS). The goal of the BMDS is to combine the abilities of two or more elements to achieve objectives that would not have been possible for any individual element. These emergent abilities are known as integrated capabilities or BMDS level capabilities. Table 1 provides a brief description of selected BMDS elements. MDA was established in 2002 with exceptional flexibilities to manage the acquisition of the BMDS developed as a single program that allow MDA to expedite the fielding of assets and integrated ballistic missile defense capabilities. These flexibilities allow MDA to diverge from DOD s traditional acquisition life cycle and defer the application of certain acquisition policies and laws designed to facilitate oversight and accountability until a mature capability is ready to be handed over to a military service for production and operation. In addition, MDA has been operating in an environment of tight timeframes for delivering capabilities beginning with a presidential directive in 2002 to field a limited capability by 2004. This was followed by a presidential announcement in 2009 to begin deploying U.S. missile defense in Europe in 2011 finishing in 2020. This schedule required concurrency among technology, testing and other development activities. More recently, MDA has been directed to develop and deploy defenses against hypersonic and cruise missile threats as soon as technologically able. These schedule pressures compound challenges associated with complex technology, design, and integration associated with the missile defense mission that normally require careful planning, disciplined engineering practices, extensive coordination, and effective management and oversight to be successful. <2. MDA Has Taken Steps to Improve Management Practices, Reduce Acquisition Risks, and Deliver Capability> MDA has taken important actions to increase transparency, reduce high- risk approaches in its management of BMDS elements, and test and deliver BMDS capability. Specifically, MDA has improved reporting in its annual progress reports to the Congress and made advances across a broad range of management activities, including the involvement of stakeholders, reducing concurrency, and continued efforts to improve key aspects of testing necessary to demonstrate delivered capability. Increased Transparency: MDA, consistent with several of our recommendations has increased the ability to track progress over time in the BMDS Accountability Report (BAR). This is MDA s annual report that presents the current estimate of the BMDS programs baselines. To increase insight into MDA s management of the BMDS, MDA implemented significant changes to its key acquisition processes and for the first time developed and reported detailed baselines for each element in the BAR in 2010. As we found in March 2011, MDA s prior approach limited the ability for DOD and congressional decision makers to measure MDA s progress on cost, schedule, and testing. While MDA s changes were positive, over the years, we made additional recommendations to further improve MDA s reporting. In response to our recommendations, MDA made improvements to the BAR that include providing details on variances to its test plan from year to year and including information on its use of contract actions known as an Undefinitized Contract Actions (UCA) and Unpriced Change Orders (UCO). Improved Stakeholder Outreach: MDA has increased its outreach to DOD stakeholders over the past few years. Our prior work on defense acquisitions has shown that establishing buy-in from decision makers is a key factor in achieving better acquisition outcomes because DOD components provide varying perspectives due to their unique areas of expertise and experience. For example, as we reported in December 2019, MDA has recently increased its interaction with the defense intelligence community. Specifically, MDA engaged the defense intelligence community on an analysis of alternatives the agency completed in February 2017 that assessed future sensor options for the BMDS. In addition, MDA reached out to the defense intelligence community on another analysis of alternatives pertaining to defense against hypersonic missiles. In fact, officials from several DOD organizations we met with over the past two years observed that MDA s engagement with their organizations was improving. Reducing Concurrency: MDA continues to take steps to reduce concurrency, an issue we have reported on for many years. Concurrency is broadly defined as the overlap of development, testing, and production; coupled with an aggressive testing schedule. MDA s concurrent development has often left the agency committing to production and fielding before development is complete. This approach has resulted in performance shortfalls, cost increases, and schedule delays. MDA has taken steps to mitigate this risk consistent with our recommendations. For example, as we found in May 2017, MDA took steps to reduce concurrency in the Aegis BMD SM-3 Block IB by adding in tests and delaying the full-rate production decision until the tests were completed. Figure 1 represents a highly concurrent acquisition schedule as compared to an approach based on gaining knowledge before proceeding to the next acquisition phase. Improving BMDS Testing: MDA has improved the accuracy of tools it uses to assess integrated BMDS capabilities. The BMDS is a system of systems that cannot be completely assessed using intercept flight tests because of the system s scope and complexity, and because of safety constraints. Consequently, MDA, independent DOD testing organizations, and the warfighter must rely heavily on representations of the integrated BMDS called models and simulations in ground testing. This approach is used, rather than live tests, to test the operational performance of the whole BMDS against attacks with more threats represented. Our preliminary observations for fiscal year 2019 are that the number of accredited models and simulations that are needed to assess the integrated performance of the BMDS has steadily risen over the last 3 years. Over the past several years, we have reported on MDA s progress in delivering assets and capabilities to counter attacks as well as cyber threats. MDA delivered important BMDS capabilities for architectures in the United States as well as those defending U.S. troops and allies in Europe, the Middle East, and the Eastern Pacific. For example: Homeland Defense: In fiscal year 2017 and 2018, MDA delivered a significant integrated capability for defending the United States, including improvements in the ability to discriminate lethal objects in targets, and increased capacity. This was a key achievement in fulfilling a directive from the Secretary of Defense to increase inventory of ground-based interceptors by the end of 2017. Regional BMD: In fiscal year 2016, MDA delivered capabilities for the second phase of its effort in Europe, called European Phased Adaptive Approach (EPAA). This effort required coordinated development of a number of elements and their integration to provide integrated BMDS-level integrated capabilities against short and medium range ballistic missiles. More recently, in fiscal years 2018 and 2019, MDA rapidly delivered capabilities for its effort to meet an urgent regional need. In addition, preliminary observations from our review covering fiscal year 2019 indicate that cybersecurity assessments in fiscal year 2019 informed the network defense posture in U.S. Northern Command and provided data on how to reduce mission risk for these elements operating in a cyber-contested environment. Moreover, the agency is incorporating lessons learned from prior cyber activities, and continues to address issues discovered in prior testing, improving its overall cybersecurity survivability. However, our preliminary observations indicate much remains to be done to ensure cyber resiliency of the BMDS including the completion of cybersecurity testing for capabilities delivered in 2017 and 2018, along with conducting element-level operational cooperative and adversarial assessments. <3. MDA Faces Ongoing Challenges to Improve Transparency and Reduce High-Risk Acquisition Practices> MDA has made efforts to put some programs on a more sound footing and it has taken actions to address the issues I just mentioned. However, MDA can go further to align itself with best practices for acquisitions. Today, I will highlight certain acquisition challenges MDA still faces. Stakeholder involvement: While MDA has increased its outreach to the stakeholders over the past few years, opportunities remain for further engagement on key decisions. For instance, as we found in December 2019, although MDA has been increasing its engagement with the intelligence community, MDA provides the defense intelligence community with limited insight into how the agency uses threat assessments to inform its acquisition decisions. MDA is not required to obtain the defense intelligence community s input; however, the community is uniquely positioned to assist MDA keep pace with rapidly emerging threats. Moreover, this limited insight has, in part, prevented validation of threat models designed to assess BMDS capabilities. Without validation, any flaws or bias in the threat models may go undetected, which can have significant implications for the performance of MDA s weapon systems. MDA and the defense intelligence community recently began discussing a more suitable level of involvement in the agency s acquisition processes and decisions. As we recommended in May 2017 and December 2019, MDA also needs to strengthen its collaboration with other stakeholders, including the warfighting community and independent cost and technical experts. In the early stages of the RKV program, concerns raised about the design which ultimately was a key reason for the cancellation of the RKV went unheeded. For example, preliminary observations for our assessment covering fiscal year 2019 showed that MDA and contractors did not adequately address technical risks despite numerous warnings from stakeholders about the performance issues. However, MDA officials indicate they are working with stakeholders more closely as they plan for the Next Generation Interceptor, a new more advanced interceptor. Concurrency: Although MDA has taken steps to reduce concurrency as we have previously recommended, the agency still turns to this practice when experiencing developmental delays or schedule pressures. For example, we reported in June 2019 that delays to construction resulted in MDA s introduction of increasing levels of concurrency into the delivery schedule for the Aegis Ashore site in Poland. We found that key phases of the delivery process had been shortened from 16.5 months to 6.5 months. While overlapping acquisition activity, in theory, could speed up the construction process, this risky practice ultimately failed to mitigate the effects of problematic construction practices. However, program plans indicate that the site has experienced further delays and will not be ready for operational use until at least 2022 a 4 year delay from the original 2018 delivery date. In addition, the recently canceled Redesigned Kill Vehicle (RKV) program originally sought to avoid concurrency by aligning production decisions with flight testing. However, later in response to the advancement of the North Korean missile threat the program accelerated RKV development by concurrently performing development and production and reducing the number of necessary flight tests. This acceleration altered the schedule for the previously aligned flight tests and production decisions. Contracting: Although MDA has flexibilities in managing its acquisition process, it must follow the same contracting regulations that apply to DOD, including the Federal Acquisition Regulation and the Department of Defense Federal Acquisition Regulation Supplement. These regulations allow MDA to use a particular type of contract action called an undefinitized contract action when the negotiation of a definitive contract is not possible in sufficient time to meet the government s requirements and government interests demand that the contractor be given a binding commitment so that contract performance can begin immediately. These actions authorize contractors to begin work before an agreement on terms, specifications, or price have been agreed upon. In May 2018, we found that the average length of the undefinitized period and the not- to-exceed price of MDA s undefinitized contract actions had increased over the past 5 years. While MDA policy permits use of undefinitized contracts on a limited basis, we and others have found that they can place unnecessary cost risks on the government. As we reported in June 2019, while MDA improved its performance in timely definitization of these contract actions, the total not-to-exceed value of the undefinitized contract actions MDA initiated in 2018 far exceeded previous years we reviewed. Transparency in test cost estimates: As we reported in May 2017, MDA requests more than $1 billion in funding each fiscal year for the tests outlined in its integrated test schedule based on MDA s internally developed test cost estimates. However, our analysis found these estimates were inconsistent and lacked documented traceability. A cost estimate is the summation of individual costs using established methods and valid data. Developing and maintaining reliable cost estimates ensures the appropriate amount of funds are needed when requested and for the expressed purpose. We found, however, in May 2017, MDA s testing budget lacked transparency and could be improved. Specifically, we found that MDA s annual budget submission did not provide insight into the funding for each specific test. MDA regularly makes changes to its test schedule without reporting the impacts to its costs and funding needs. Without a breakout of MDA s costs by test in its annual budget submission and BAR, how many times or how much funding has been requested, received, or used for a specific test will continue to be unclear. Therefore, we recommended that MDA break out funding request by test. DOD did not concur with our recommendation and stated that MDA s current approach for assigning resources prior to the test execution, is adequate. We continue to believe that breaking out funding requests by test will improve transparency into planned versus actual test costs and aid departmental and congressional decision makers as they make difficult choices of where to invest limited resources. <3.1. Changes to MDA s Test Schedule Persist, Reducing Knowledge to Support Asset and Capability Deliveries> MDA also continues to struggle with fully achieving its annual flight testing goals. After MDA revised its approach to developing the annual Integrated Master Test Plan in 2009, in February 2010, we recognized the new test schedule s potential to address prior issues with shifting testing requirements or test dates, and adding or deleting tests. MDA also focused its testing to collect data necessary to support the development of models and simulations. However, MDA s test plan has not stabilized. Since it formalized its approach in 2010, MDA has continued to revise its test schedule frequently by adding new tests, and deleting or delaying tests, in some cases, multiple times and further into future fiscal years. As a result, less testing is being conducted prior to delivery than originally planned, which means less data are available to understand BMDS capabilities and limitations. Specifically, preliminary observations from our fiscal year 2019 review show that from fiscal year 2010 through fiscal year 2019, MDA has conducted only 37% of its planned testing as originally scheduled, while the remainder has been either been delayed, deleted or conducted in a later fiscal year, as shown in figure 2. In addition, we reported in June 2019 that European Phased Adaptive Approach (EPAA) Phase 3 testing against intermediate range ballistic missiles (IRBM) had been reduced by 80 percent and MDA no longer planned to conduct a flight test against a raid a likely tactic in a real- world attack prior to delivery. The lack of raid flight testing prevented the accreditation of Aegis BMD models for assessment under those circumstances in all fiscal year 2019 ground tests that included Aegis BMD. <3.2. Balancing New Efforts with Existing Portfolio Needs will be Challenging> MDA is currently at a pivotal crossroads, needing to balance its ability to pursue new and advanced efforts while also maintaining its existing portfolio of BMDS elements that have not transferred to the military services as originally planned. The new and advanced efforts, such as hypersonic defense and a Next Generation Interceptor (NGI) for GMD, are research and development-intensive tasks, which carry significant technical risks and financial commitments. If MDA s elements are not transferred as originally intended, as they move further into production and operations and sustainment these elements will continue to consume a growing portion of the agency s budget. MDA and military services have taken some actions to prepare for transferring the BMDS elements; however, the actions have not enabled transfer primarily due to a lack of early and frequent coordination, according to officials from the Undersecretary of Defense for Research and Development and Acquisitions and Sustainment. Consequently, there are overarching concerns related to transfer such as who funds the sustainment of the elements which have not been resolved. Congress and the Secretary of Defense have directed multiple reviews to determine how to address these concerns and chart a path forward for MDA. Chairman Cooper, Ranking Member Turner, and members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions you may have at this time. <4. GAO Contact and Acknowledgements:> If you or your staff members have any questions about this testimony, please contact Cristina T. Chaplain, Director, Contracting and National Security Acquisitions, 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 testimony are LaTonya Miller (Assistant Director), Steven Stern (Analyst in Charge), Matthew Ambrose, Pete Anderson, Helena Johnson, Michael Moran, Wiktor Niewiadomski, Miranda Riemer, Brian Tittle, and Alyssa Weir. <5. Related GAO Products:> Missile Defense: Delivery Delays Provide Opportunity for Increased Testing to Better Understand Capability. GAO-19-387. Washington, D.C.: June 2019. Missile Defense: The Warfighter and Decision Makers Would Benefit from Better Communication about the System s Capabilities and Limitations. GAO-18-324. Washington, D.C.: May 2018. Missile Defense: Some Progress Delivering Capabilities, but Challenges with Testing Transparency and Requirements Development Need to Be Addressed. GAO-17-381. Washington, D.C.: May 2017. Missile Defense: Ballistic Missile Defense System Testing Delays Affect Delivery of Capabilities. GAO-16-339R. Washington, D.C.: Apr. 2016. Missile Defense: Opportunities Exist to Reduce Acquisition Risk and Improve Reporting on System Capabilities. GAO-15-345. Washington, D.C.: May 2015. Missile Defense: Mixed Progress in Achieving Acquisition Goals and Improving Accountability. GAO-14-351. Washington, D.C.: Apr. 2014. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management. GAO-13-432. Washington, D.C.: Apr. 2013. Missile Defense: Opportunity Exists to Strengthen Acquisitions by Reducing Concurrency. GAO-12-486. Washington, D.C.: Apr. 2012. Missile Defense: Actions Needed to Improve Transparency and Accountability. GAO-11-372. Washington, D.C.: Mar. 2011. Defense Acquisitions: Missile Defense Transition Provides Opportunity to Strengthen Acquisition Approach. GAO-10-311. Washington, D.C.: Feb. 2010. Defense Acquisitions: Production and Fielding of Missile Defense Components Continue with Less Testing and Validation Than Planned. GAO-09-338. Washington, D.C.: Mar. 2009. Defense Acquisitions: Progress Made in Fielding Missile Defense, but Program is Short of Meeting Goals. GAO-08-448. Washington, D.C.: Mar. 2008. Defense Acquisitions: Missile Defense Acquisition Strategy Generates Results but Delivers Less at a Higher Cost. GAO-07-387. Washington, D.C.: Mar. 2007. Defense Acquisitions: Missile Defense Agency Fields Initial Capability but Falls Short of Original Goals. GAO-06-327. Washington, D.C.: Mar. 2006. Defense Acquisitions: Status of Ballistic Missile Defense Program in 2004. GAO-05-243. Washington, D.C.: Mar. 2005. Missile Defense: Actions Are Needed to Enhance Testing and Accountability. GAO-04-409. Washington, D.C.: Apr. 2004. 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.

Why GAO Did This Study For over half a century, the Department of Defense has funded efforts to defend the United States from ballistic missile attacks. From 2002 to 2020, MDA has received about $174 billion to develop the BMDS and has requested about $9.2 billion for fiscal year 2021. The BMDS consists of diverse and highly complex land-, sea-, and space-based systems and assets located across the globe. This statement summarizes lessons that GAO has identified from its prior reviews of MDA starting in 2004 that can be applied to strengthen the transparency and acquisition practices for developing and fielding missile defense elements. Specifically, this testimony provides information on (1) steps MDA has taken to increase transparency and reduce acquisition risks; and (2) ongoing challenges associated with improving transparency and reducing high risk acquisition practices. In our prior work, GAO reviewed key MDA management documents including annual program reviews, tests plans and budget documents. We also interviewed officials from MDA and from other key DOD offices. What GAO Found The Missile Defense Agency (MDA) has taken important steps in recent years to improve management practices, reduce acquisition risks, and deliver capabilities to defend the United States and its allies from ballistic missile attacks. Specifically, MDA has made advances across a broad range of management activities, such as improving stakeholder outreach, reducing concurrency, (broadly defined as the overlap between product development, testing, and production), improving testing of the Ballistic Missile Defense System (BMDS) and increasing transparency of its progress. MDA has also made progress toward improving homeland and regional defense. However, MDA can go further to align itself with best practices as it faces ongoing challenges associated with improving transparency and reducing high risk acquisition practices. These challenges include: Stakeholder involvement: MDA has improved its outreach to stakeholders, including the intelligence community and other DOD stakeholders, however, opportunities remain, such as obtaining more input from the defense intelligence community. While MDA is not required to do so, the community is uniquely positioned to help keep pace with emerging threats and validate threat models. Concurrency: MDA has taken steps to reduce concurrency, but falls back on this practice when experiencing developmental delays or schedule pressures. The recently canceled Redesigned Kill Vehicle (RKV) initially aligned production decisions with flight testing. However, in response to advancements from North Korea, development and production were performed concurrently and flight testing was reduced, thereby removing the safeguards that had been put into place. Flight test schedule changes: Despite initiating a new approach to developing its flight test schedule in 2009, MDA continues to struggle with execution. Namely, MDA is frequently revising its annual schedule by adding new tests, and deleting or delaying others—sometimes multiple times. Transparency of test cost estimates: MDA regularly makes changes to its test schedule without reporting the impact to its costs and funding needs. We continue to believe that breaking out funding requests by test will improve transparency into planned versus actual test costs and aid departmental and congressional decision makers as they make difficult choices of where to invest limited resources. MDA is at a pivotal crossroads, needing to balance its ability to pursue new and advanced efforts while also maintaining its existing portfolio. Congress and the Secretary of Defense are undertaking multiple reviews to determine how to address these concerns and chart a path forward for MDA. What GAO Recommends GAO is not making any new recommendations in this statement. GAO has previously recommended that MDA take steps to increase transparency and align its acquisition approach to reduce high-risk practices. MDA concurred with certain recommendations and is taking steps to implement them.

gao_GAO-20-371

gao_GAO-20-371_0

<1. Background Organizational Roles and Responsibilities for Managing the MHS> The MHS is a complex organization in which responsibility for health care delivery is shared among the military departments the Army, the Navy, and the Air Force and the Defense Health Agency (DHA), with oversight from the Office of the Secretary of Defense and advice from the Joint Staff. As such, several leaders have responsibility for DOD s medical workforces, their readiness, and the MTFs to which many of them are assigned. Specifically: The Under Secretary of Defense for Personnel and Readiness is the principal staff assistant and advisor to the Secretary and Deputy Secretary of Defense for health-related matters and, in that capacity, develops policies, plans, and programs for health and medical affairs. The Secretaries of each military department are responsible for organizing, training, and equipping military forces as directed by the Secretary of Defense as well as responsibilities related to ensuring the readiness of military personnel, and providing military personnel and other authorized resources in support of the combatant commanders and the DHA. The Surgeon General of each respective military department serves as the principal advisor to the Secretary of the military department concerned on all health and medical matters of the military department. The Assistant Secretary of Defense for Health Affairs (ASD(HA)) serves as the principal advisor for all DOD health-related policies, programs, and activities. He or she has the authority to develop policies, conduct analyses, provide advice, and make recommendations to the Secretary of Defense and others; issue guidance; and provide oversight on matters pertaining to the MHS. Further, the ASD(HA) prepares and submits a DOD unified medical program budget which includes, among other things, the Defense Health Program budget to provide resources for MTFs and the TRICARE Health Program. The Director of the DHA manages, among other things, the execution of policies issued by the ASD(HA) and manages and executes the Defense Health Program appropriation. The Director of the DHA is also responsible for the TRICARE Health Program. In December 2016, Congress expanded the role of the DHA by directing the transfer of responsibility for the administration of each MTF from the military departments to the DHA. By no later than September 30, 2021, the Director of the DHA will be responsible for the administration of each MTF. Specifically, the Director of the DHA will be responsible for budgetary matters, information technology, health care administration and management, administrative policy and procedure, and military medical construction, among other things. As of October 2019, the DHA had assumed administration and management responsibilities for all MTFs within the United States. <2. MHS Workforces and the Role of MTFs in Supporting Military Readiness> In fiscal year 2019, DOD s Defense Health Program-funded workforce numbered over 174,000 personnel, comprising active-duty servicemembers from each military department (the Army, the Navy, and the Air Force), federal civilian employees of DOD, and private-sector contractors. These personnel included health-care providers, such as physicians (both primary and specialty care providers), nurses, and enlisted specialists who assist with medical procedures, and administrative and support personnel. MTFs vary in size and capabilities from small clinics, to ambulatory surgery centers, hospitals, and medical centers. Clinics generally provide primary-care services, which may include pediatrics at some locations. Other health-care services at clinics range from urgent care, women s health, occupational health, and behavioral health, to orthopedics and other specialty services depending on location and population demand, according to MHS officials. Some clinics treat only active-duty servicemembers. Other clinics, along with hospitals and medical centers, also serve other eligible beneficiaries, including military family members, retirees, and some civilian employees of DOD. DOD s hospitals provide emergency medicine, inpatient care and other specialty care services depending on population demand, according to MHS officials. For example, they generally offer surgical capabilities and labor and delivery services. According to DOD Instruction 6000.19, the primary purpose of MTFs is to support the readiness of the military services. In addition, the guidance states that the size, type, and location of MTFs must further this readiness objective. Further, each MTF must spend most of its resources supporting wartime skills development and maintenance for military medical personnel, or the medical evaluation and treatment of servicemembers. To that end, MTFs serve as training and readiness platforms for active-duty medical providers in two respects. First, many MTFs host graduate medical and dental education programs for physicians and dentists, and other training and education programs for medical providers. Graduate medical education (GME) programs train physician specialties through internships, residencies, and fellowships, thereby helping maintain the necessary pipeline of physicians to staff the MTFs and to deploy in support of military operations. The MTFs host non-GME training and education programs for other medical personnel, such as physician assistants, nurses, and enlisted technicians, which help them attain and maintain their skills. Second, day-to-day patient care at MTFs helps maintain the clinical skills and readiness of medical providers. The military departments track clinical readiness for providers using a series of checklists for deployable medical specialties. In addition, since 2018, DOD has piloted a clinical readiness metric for select physician specialties that provide combat casualty care. To meet the metric, a physician must attain a minimum threshold of points that indicate the complexity, diversity, and volume of patient care they provided. Finally, the MTFs also maintain data on physicians clinical workloads to measure their productivity against benchmarks and thereby approximate their clinical readiness. These clinical workload data are recorded as work Relative Value Units (wRVU), a metric of the level of professional time, skill, training, and intensity to provide a given clinical service. <3. TRICARE Networks and Health Plans> Under TRICARE, DOD maintains a purchased-care system of civilian providers to augment MTF capabilities. In each TRICARE region (East and West), DOD contracts with private-sector companies referred to as managed-care support contractors to develop and maintain networks of civilian providers and perform other customer service functions, such as processing claims, enrolling beneficiaries, and assisting beneficiaries with finding providers. The Director of the DHA awards and oversees the managed-care support contracts. TRICARE s non-Medicare-eligible beneficiaries generally obtain coverage through two health plan options TRICARE Prime (a managed-care option) and TRICARE Select (a self-managed, preferred provider option). All active-duty servicemembers are required to enroll in the Prime option, while other TRICARE beneficiaries may choose it. Prime enrollees receive most of their care from MTFs and also may receive purchased care from network civilian providers. Prime has the lowest out- of-pocket costs for beneficiaries, as care provided at MTFs does not have a copayment. TRICARE Prime has five access standards that set requirements for (1) travel time to provider sites, (2) appointment wait time, (3) availability and accessibility of emergency services, (4) composition of network specialists, and (5) office wait time. TRICARE Select beneficiaries are able to obtain health care from network and non-network providers. They can also receive care from MTFs, but they have a lower priority for receiving care than TRICARE Prime beneficiaries and are seen on a space-available basis. <4. MTF Statutory Requirements and MHS Governance to Implement Reforms> Section 703(a) of the NDAA for Fiscal Year 2017 added section 1073d to title 10, United States Code, which set forth various requirements for MTFs. To support the medical readiness of the armed forces and the readiness of medical personnel, the Secretary of Defense is required to maintain three types of MTFs medical centers, hospitals, and ambulatory care centers (or clinics). All of these MTFs are required to provide specific health services required to maintain medical readiness. Hospitals are to be located in areas where civilian health care facilities are unable to support the health care needs of members of the armed forces and covered beneficiaries. Both hospitals and clinics are to provide limited specialty care that is cost-effective or is not available at civilian health care facilities in the area. In 2017, DOD appointed a Reform Leader for Health Care Management. Among other responsibilities, the Reform Leader led a work group to address Section 703 (hereafter, we refer to this as the 703 Work Group). The 703 Work Group included representatives from the Office of the ASD(HA), DHA, Joint Staff, the military services, and the TRICARE Health Plan. Together, the 703 Work Group members led DOD s efforts to address section 703(c) of the NDAA for Fiscal Year 2017 by updating its 2016 Report on Military Health System Modernization ( the Modernization Study ) to address the future restructuring of MTFs pursuant to 10 U.S.C. 1073d; determine the scope of its review of MTFs in the United States (i.e., identify which MTFs to evaluate for the Plan, as opposed to those to evaluate at a later date); develop MTF-specific recommendations for whether to restructure an MTF and in what ways to do so by developing and applying a methodology to assess each MTF in accordance with 10 U.S.C. 1073d; and draft the final section 703(d) Plan to Congress delineating the restructuring actions it determined. In making determinations for selected MTFs, the 703 Work Group drafted a Use Case for each MTF summarizing potential restructuring actions and their analytical basis. The Work Group presented each MTF Use Case for review to a team of senior DOD leaders, including the Under Secretary of Defense for Personnel and Readiness, the ASD(HA), the undersecretaries of the military departments, and military service leaders, among others. When the senior leaders agreed on the restructuring actions for the MTFs, the 703 Work Group presented those determinations to the Secretary of Defense for approval. <5. Other MHS Reforms and Prior GAO Work> In recent years, DOD leaders have taken steps to refocus the MTFs as platforms for sustaining high-quality combat casualty care and the operational readiness of active-duty medical providers while increasing efficiency, in part by responding to congressional mandates. In 2016, for example, DOD submitted the Modernization Study to Congress in response to section 713 of the Carl Levin and Howard P. Buck McKeon National Defense Authorization Act (NDAA) for Fiscal Year 2015. Its main goals were to increase medical force readiness to support military operations and achieve cost savings. The Modernization Study included an MTF analysis of 24 hospitals to determine whether they should maintain inpatient capabilities or birthing centers. It recommended changes for 10 of the 24 hospitals, including closing inpatient services in whole or part at eight of them. In September 2016, we reported that the Modernization Study s recommendations positioned DOD to improve the effectiveness and efficiency of the MHS, but there were shortcomings in its methodology. To strengthen any future assessments of MTF changes, we recommended that DOD describe steps taken to assess the reliability of supporting data. DOD concurred with the recommendation and has taken some steps to implement it. In response to other provisions in the NDAA for Fiscal Year 2017, DOD has made reforms aimed at improving the MHS focus on readiness. Our prior work has made recommendations to address gaps in those reforms. For example, in February 2019 we reported that DOD had not determined the required size and composition of its operational medical and dental forces who support the wartime mission or submitted a complete report to Congress, as required by section 721 of the NDAA. We recommended that DOD establish joint planning assumptions and a method for assessing efficiencies and risk, use them to determine its operational medical and dental requirements, and report the requirements to Congress. DOD concurred but had not implemented the recommendations as of May 2020. We also reported in February 2019 that DOD had begun initiatives to maintain the wartime readiness of medical providers in response to section 725 of the NDAA for Fiscal Year 2017. However, DOD s methodology was limited with respect to a key initiative the use of a metric to assess medical providers clinical readiness. We made three recommendations to improve DOD s application of the metric. DOD concurred but had not implemented them as of May 2020. According to MHS leaders, efforts to identify the required number of operational medical personnel and the level of readiness they must maintain (pursuant to sections 721 and 725) were foundational steps toward section 703 of the NDAA for Fiscal Year 2017. A list of other related products is also included at the end of this report. DOD s Methodology for Determining MTF Restructuring Actions Prioritized Cross- Cutting Statutory Elements, but Included Some Incomplete and Inaccurate Information The DOD 703 Work Group s methodology for determining MTF restructuring actions was thoroughly documented and prioritized cross- cutting statutory elements, including support for military readiness, adequate nearby civilian health care, and cost-effectiveness. However, the group based key parts of its methodology on some incomplete and inaccurate information. <6. The 703 Work Group Evaluated MTFs Support for Military Readiness, Nearby Civilian Health Care, and Cost- Effectiveness, and Documented This Approach and Its Results> In reviewing the 703 Work Group s methodology for determining MTF restructuring actions, we found that the group prioritized cross-cutting elements from 10 U.S.C. 1073d to guide its approach. Its methodology to evaluate each selected MTF consisted of data analyses and interviews with officials from the MTF and its host installation. The 703 Work Group based its MTF evaluation determinations on, by order of priority, the (1) support each MTF provides to servicemembers medical readiness and the readiness of military medical providers, (2) adequacy of civilian health care facilities and providers to support the health care needs of servicemembers and other beneficiaries through purchased care near where each MTF is located, and (3) the cost-effectiveness of direct care services at the MTF relative to purchased care in the area. In addition to thoroughly documenting this methodology for evaluating the MTFs, the 703 Work Group documented the basis for the resulting conclusions. Servicemembers and military medical providers readiness. According to 703 Work Group leaders, as a first step in developing a methodology for evaluating MTFs for restructuring actions, they decided on a strategy they believed would prioritize MTF support to servicemembers medical readiness and the readiness of military medical personnel. To that end, the Work Group established minimum criteria to determine an MTF s level of support to readiness. In most cases, the Work Group determined that MTFs should maintain certain minimum capabilities for servicemembers individual medical readiness, including primary care and, on a case-by-case basis, specialty services such as behavioral health and physical therapy. In addition, through site visits and interviews with MTF and installation personnel, the Work Group determined that certain MTFs should maintain urgent and emergency care services if they support a large training component on an installation. The other element of the 703 Work Group s strategy to prioritize readiness was to evaluate the contribution of each MTF toward the clinical readiness of military medical providers and recommend restructuring actions on the basis of attaining minimum standards therein. In particular, our review of methodology documents revealed the Work Group prioritized MTFs support to the readiness of combat casualty care physicians. In doing so, the Work Group analyzed clinical workloads (e.g., wRVUs) and readiness metrics to identify which MTFs supported the physicians attainment of minimum thresholds. Finally, the Work Group determined that MTFs that host a GME program for training a combat casualty care or other physician specialty, or a graduate dental education program, should preserve the inpatient services required to continue the program. Adequacy of nearby civilian health care. A secondary criterion the 703 Work Group applied in its methodology for evaluating MTFs for restructuring was its determination of whether civilian health care facilities and providers in proximity to a given MTF (i.e., TRICARE network providers as well as non-network providers) were adequate to absorb an increased demand for certain health care services from the MTF that is, whether DOD could use purchased care from civilian providers to replace care divested from a restructured MTF. According to Work Group officials, their strategy in applying this criterion was to reduce or eliminate health care services from MTFs if those capabilities (1) were not needed for readiness purposes and (2) could be adequately replaced with civilian facilities and providers through purchased care. In making this determination, the 703 Work Group conducted two assessments for each evaluated MTF. These assessments applied different criteria and assumptions to determine the adequacy of civilian health care, as shown in table 1. In addition, the Work Group supplemented the assessments by interviewing MTF and installation personnel to gain their perspectives about the availability of civilian care nearby. Cost-effectiveness of direct-care services at MTFs. Last in order of priority was the 703 Work Group s determination of whether the MTF- delivered health care is cost-effective relative to nearby purchased care. Specifically, the Work Group assessed whether the cost per unit of health care delivered at each evaluated MTF was less than, equal to, or greater than the unit cost of purchased care. According to Work Group officials, these assessments supplemented the criteria on readiness and civilian health care adequacy by lending a resource-informed perspective to the overall methodology. A determination that an MTF s unit costs exceeded those of nearby purchased care would confirm to the Work Group that it should consider replacing health care services from that MTF with purchased care, provided that the group had first determined that the corresponding capabilities (1) were not needed to support readiness, and (2) could be adequately replaced with purchased care from civilian health care providers nearby. Table 2 below illustrates an example of the 703 Work Group s calculation of cost-effectiveness at one MTF it evaluated the 2nd Medical Group outpatient clinic at Barksdale Air Force Base in Louisiana. In this case, the MTF s unit cost in fiscal year 2017 was more than two times the cost of purchased care. These results confirmed the Work Group s recommendation that some of the MTF s capabilities should be replaced with purchased care specifically, the health care services that it provided to non-active-duty servicemembers. <7. The 703 Work Group Based Parts of Its Methodology on Incomplete and Inaccurate Information> Notwithstanding the positive aspects of DOD s methodology for evaluating MTFs previously discussed, our review found that information the 703 Work Group considered was sometimes limited in completeness, accuracy, or both. Specifically, the Work Group (1) conducted limited assessments of MTFs readiness support to military primary care and nonphysician medical providers, and did not include, as part of its methodology, (2) complete and accurate data about the quality of and access to purchased care from civilian providers, or (3) alternative assumptions that could affect the perceived cost-effectiveness of MTF- provided direct care. <7.1. Limited Assessments of MTFs Readiness Support for Primary Care and Nonphysician Medical Providers> The 703 Work Group conducted limited assessments of MTFs support for the readiness of military primary care physicians and nonphysician medical providers, including nurses, physician assistants, and enlisted medical and surgical specialists, which constitute a substantial portion of DOD s medical forces. As discussed previously, the Work Group prioritized assessments of MTFs support to combat casualty care physicians readiness. For military primary care providers, the Work Group determined whether a minimum amount of patient care workload (i.e., RVUs) was available at each MTF to support productivity goals. This was due in part to the fact that DOD has not developed a clinical readiness metric for primary care and nonphysician providers as it has for combat casualty care providers, according to Work Group officials. Unlike a clinical readiness metric, a productivity goal does not account for the types of workload needed for readiness. According to MTF medical providers, they could meet their productivity goal as their MTF restructures, but doing so would not ensure that they addressed diverse and complex medical issues needed to maintain their clinical skills. MHS senior leaders and MTF officials, including providers, expressed concern that opportunities to treat diseases and nonbattle injuries will be limited in MTFs that restructure to serve only active-duty servicemembers. We also found that the 703 Work Group did not assess the support that certain training and education programs provide to the readiness of medical personnel at evaluated MTFs. The Work Group surveyed each MTF within its scope to identify any graduate medical and dental education and non-GME training and education programs the facility hosts. The Work Group determined that nonprimary care GME and graduate dental education programs are essential to maintain at MTFs, but did not evaluate the readiness benefits of primary care GME and non- GME training to MTFs. We found that half of the MTFs identified for restructuring as active-duty clinics or for closure host one or more non- GME training program for nurses, nurse practitioners, and enlisted medical personnel, among others. Four MTFs that were deferred or identified for reduction in capabilities or closure either host or support a GME program for primary care physicians. MTF officials we interviewed expressed concerns about the effects on military providers readiness from reducing or displacing the programs. However, DOD s Plan states that any effects on GME and non-GME training programs will be addressed later in a next phase of executing MTF restructuring transitions, as discussed later in this report. <7.2. Incomplete and Inaccurate Information on Quality of and Access to Civilian Health Care Providers near MTFs> Although DOD assessed the availability of civilian health care providers and facilities in proximity to MTFs, as described above, our review of DOD s assessments found that information gathered and applied in the course of its methodology was sometimes incomplete and inaccurate. Specifically, the information we reviewed did not consistently account for the quality of available civilian health care providers in proximity to MTFs and the extent to which those providers meet access-to-care standards, as described in detail below. As a result, DOD s assessments may have included providers of lower quality health care and those who do not meet DOD s access-to-care standards. Including such providers in its assessments means that DOD s conclusions could be overestimated regarding the adequacy of civilian health care providers in proximity to some MTFs. Quality of available care near MTFs. The 703 Work Group s assessments did not consistently account for the quality of available providers located in proximity to each MTF. Although the TRICARE Health Plan assessments documented and considered patient satisfaction scores and quality ratings for hospitals from the Centers for Medicare & Medicaid Services, its assessments of individual providers did not contain information about quality of care. The independent contractor s assessments did not include any information about the quality of available providers it identified. Instead, DOD generally assumed that all identified providers were of sufficient quality. Officials from the 703 Work Group stated that they sometimes discussed the quality of available civilian health care during their site visits and interviews with MTF officials. However, our review found that quality of care was not consistently documented or considered for decision-making purposes. For example, in our review of 11 selected MTFs, we found that the Work Group documented and considered the quality of available civilian health care in proximity to one of the 11 MTFs Bayne-Jones Army Community Hospital at Fort Polk, Louisiana. In this instance, the Work Group s information about the variable quality of civilian health care near Fort Polk led to their determination that available care was not yet adequate to restructure the MTF. Other MTF officials discussed with us concerns they had about the quality of purchased care from some civilian providers. Similarly, a recent study found that TRICARE-insured families were less likely to report accessible or responsive care compared to civilian peers, whether commercially or publicly insured or uninsured. We have previously reported on concerns about DOD s information about the quality of purchased care. In September 2018, we reported that the MHS does not monitor and report on quality measures for individual civilian providers, although it does so for purchased care networks as a whole. In contrast, the MHS maintains numerous measures for its MTFs to track, assess, and report the quality of care and related patient outcomes. Access to an accurate and adequate number of current civilian health care providers in the TRICARE networks. DOD s assessments of available civilian health care surrounding MTFs did not consistently apply complete and accurate information about patients access to care in terms of the number of available TRICARE providers in proximity to MTFs. DOD s assessments relied on the directories of network providers (primary and specialty care) that are maintained by each of the regional TRICARE contractors. In November 2019, we reported on problems with the accuracy of these provider directories. Specifically, we reported that as of June 2019, the TRICARE West region contractor s directory of network providers was 76 percent accurate and the East region s was 64 percent accurate, according to DHA officials. However, we found that the TRICARE Health Plan verified the accuracy of the directory entries of network providers in proximity to only one of 77 MTFs the Army s Farrelly Health Clinic at Fort Riley, Kansas. In this instance, the list of available health care providers in proximity to Farrelly clinic was overstated by 26 percent because of duplicate listings and practices that had closed, among other factors. Likewise, MTF officials we interviewed stated that the TRICARE network directories in their area contained inaccurate information, such as outdated provider listings, and overstated the number of providers who were accepting new TRICARE patients. Access to providers within standards for patients drive time. DOD s independent contractor assessments of available civilian health care providers (both TRICARE network and non-network providers) used some inaccurate information about those providers, especially their locations. For 11 selected MTFs, we found that about 56 percent of primary care providers and 42 percent of specialty care providers that an independent contractor identified in its assessment exceeded DOD s drive-time standards for TRICARE Prime patients by varying degrees, as shown in figure 1. A certain portion of the providers listed for each of the 11 selected MTFs were outside the drive-time standards, based on our analysis. In addition, for each of the 11 selected MTFs, there was one or more inaccuracies in the provider listing, such as providers that were no longer in practice, duplicate providers, or those that were mischaracterized as a medical provider. MTF officials we interviewed also expressed concerns that the assessments did not account for traffic, including bridges and tunnels that create traffic chokepoints. In other words, they believed that even providers that appeared to be within drive- time standards based on mileage could actually exceed the standard depending on their location and time of day. Appendix III illustrates the results of our analysis in detail. DOD guidance states that beneficiaries should have a choice of health care providers that is sufficient to ensure access to appropriate, high- quality health care. In addition, Standards for Internal Control in the Federal Government require the use of quality information that is appropriate, current, complete, accurate, accessible, and timely to inform decisions. Such standards also require that an agency s management define objectives clearly to enable the identification of risk and risk tolerances, to include defining objectives in specific and measurable terms to allow for the assessment of performance toward achieving objectives. Applied to DOD s analysis of civilian health care available in proximity to MTFs, such information would include (1) health care quality and (2) accurate and complete access-to-care data for civilian providers identified in its assessments. DOD s assessments were missing complete and accurate information about the adequacy of purchased care through civilian health care providers because 703 Work Group officials stated that their analyses were detailed enough for the purposes of decision-making about restructuring. Furthermore, they stated that they plan to test the purchased-care networks of civilian providers during the transition of MTFs to their restructured end states. Officials stated they believe such a test will reveal that the supply of providers will increase over time to meet an increased demand for care from DOD beneficiaries. However, recent research has reported concerns about growing nationwide shortages of physicians, including primary care providers a type of civilian health care provider that will be in high demand from DOD beneficiaries as MTFs restructure. For example, a 2019 study projected physician demand will continue to grow faster than supply, leading to a projected nationwide shortfall of between 46,900 and 121,900 physicians by 2032. DOD officials stated they expect to monitor health care quality and patients access during the implementation of MTF transitions. While this will be a positive step, a better understanding of the quality of civilian health care providers and patients access to an adequate supply of such providers within drive-time standards could help DOD in its implementation planning for MTF transitions and its tests of network capabilities by illustrating areas of highest risk. Until DOD consistently captures and assesses information about the quality of available civilian health care and the extent to which such care has met and will continue to meet patients access standards, DOD leaders may not fully understand risks to the achievement of their objectives in restructuring future MTFs. <7.3. Cost-Effectiveness Assessments Based on a Single Set of Assumptions> DOD applied a single set of assumptions in comparing the cost- effectiveness of direct care delivered at MTFs to that of purchased care, as previously discussed. On the basis of our analysis of the assumptions and related data elements, and interviews with DOD officials, we found that the assumptions do not account for uncertainties that could affect conclusions about an MTF s cost-effectiveness. Specifically, DOD made assumptions about the costs of military personnel salaries, the workload performed at MTFs, and the reimbursement rates for TRICARE that individually and collectively likely result in the underestimation of the cost- effectiveness of MTFs, as described in more detail below. Including the full cost of military medical personnel does not account for their value outside of MTFs in support of military operations. DOD included the full cost of active-duty medical personnel salaries when calculating the unit-level cost of MTF health care. This approach assumed that military personnel spend all their time in MTFs. However, military personnel who staff MTFs sometimes spend half or more of their time contributing to other military work activities, according to MHS officials. These personnel are essential for military operations outside the MTFs. Accordingly, DOD referred to its medical personnel as a fixed cost in the Modernization Study. In its interim report to Congress for section 721 of the NDAA for Fiscal Year 2017, DOD determined that about 111,000 active-duty personnel are essential to support its war plans as part of the operational medical force. By including the full cost of military personnel salaries in calculations of the unit-level cost of MTF-provided care, DOD has likely underestimated the cost-effectiveness of MTFs given the dual purpose of active-duty medical personnel who staff MTFs but spend time on other military duties and deploy to support operations. According to MTF officials, some portion of the cost of military personnel salaries could be considered an approximation of the cost of medical force readiness for the wartime mission, though an imperfect one. Units of health care may underreport workload performed at MTFs. DOD calculated the cost of delivering a single unit (e.g., wRVU), of care at its MTFs. Doing so likely underestimates the cost- effectiveness of MTFs given concerns that wRVUs may be underreported. MTF officials at all 11 locations and 703 Work Group members agreed that wRVUs are likely underreported within MTFs for various reasons. For example, some MTF services are not recorded in wRVUs, such as telehealth consultations, which comprise a growing share of patient encounters, according to MTF officials. In addition, in February 2019 we reported that source data for DOD s clinical readiness metric for physicians the same data MTFs use to record wRVUs had not passed DOD audits for at least 3 years. Likewise, in April 2016, we reported concerns that providers workload at MTFs was not being accurately recorded. TRICARE reimbursement rates for purchased care will likely need to increase. In comparing the cost-effectiveness of direct care at MTFs to purchased care from civilian providers in the TRICARE networks, DOD applied current TRICARE reimbursement rates in its calculations. MTF and 703 Work Group officials, along with senior MHS leaders, agreed that DOD may need to pay higher reimbursement rates in the future to attract new, quality network providers as its reliance on purchased care for beneficiaries increases in proportion to the decrease in access to health care services at many MTFs. In addition, MTF officials and MHS leaders stated that utilization of some purchased-care services from civilian providers may be higher than utilization of like services at MTFs because civilian providers are not incentivized to manage health services and costs the way the MHS does. This means that the cost of purchased care could increase by more than expected if utilization rates increase. For example, a research study completed in 2017 found that an estimated 21 percent of purchased medical care in the United States is attributed to unnecessary costs associated with overtreatment. In 2010, the Institute of Medicine reported that unnecessary services are the largest contributor to waste in the U.S. health care system, and could have accounted for about $210 billion in excess spending in 2009. By applying a single set of assumptions as described above, DOD s assessment of the cost-effectiveness of MTFs was not consistent with a key practice in economic analysis. Our assessment methodology for economic analysis states that a sensitivity analysis is an essential element of a high-quality analysis of cost-effectiveness. Likewise, a DOD instruction on economic analysis states that analyses of investment alternatives should include, among other things, a sensitivity analysis, accounting for uncertainties by testing the sensitivity of the economic analysis results against various factors. A sensitivity analysis examines the effects that changes to key assumptions have on the analytic outcome and are helpful to understanding risk. To demonstrate the effect of a single set of assumptions versus an analytical approach that explored other assumptions, we adjusted some of the assumptions for illustrative purposes. Our analysis found that for two of seven MTFs we evaluated in detail, changing DOD s assumptions in only one respect by subtracting military personnel salaries would have materially affected DOD s assessment about whether direct care at the MTF was more cost-effective than purchased care. Further, if military personnel salaries are excluded from the assessments and TRICARE reimbursement rates increase by 5 percent, three of the seven MTFs would be more cost-effective than purchased care. For illustrative purposes, figure 2 shows how alternative assumptions could change both the data (i.e., costs and wRVUs) and the results of the assessments as to whether an MTF is more or less cost effective than purchased care. According to officials from the 703 Work Group, they did not apply alternative assumptions to analyze cost-effectiveness because readiness and the adequacy of civilian health care were more important in their methodology, and they generally assumed that purchased care is less costly. However, DOD could still maintain its prioritization sequence while augmenting its cost-effectiveness analyses with a sensitivity analysis to help provide more complete information for decision-making and, in the future, for executing MTF transitions. Without doing so, DOD leaders may further jeopardize their understanding of risks to the achievement of their objectives in restructuring future MTFs. DOD Is Not Yet Well Positioned to Execute MTF Restructuring Transitions Through its section 703(d) Plan to Congress, DOD has identified actions that will be needed to facilitate MTF restructuring. These actions include 17 recommendations for enterprise-wide changes across MTFs, and various MTF-specific steps to mitigate risks at a local level. However, DOD s Plan also poses challenges for the military departments and the DHA related to medical provider readiness and MTF staffing. DOD does not have a process for monitoring MTF restructuring transitions to address these challenges. <8. DOD Has Identified Collective and Specific Actions to Facilitate MTF Restructuring> Through its Plan, DOD has taken preliminary steps toward transition planning by identifying actions needed to facilitate the restructuring and MTF transitions. Specifically, in the Plan DOD (1) recommended certain actions across the collective enterprise of MTFs to facilitate their restructure to reduced health-care delivery capabilities, and (2) identified risks and potential mitigation strategies specific to each MTF identified for restructuring. According to the Plan and 703 Work Group officials, DOD will begin to plan these transitions in detail after a congressional review period is completed in May 2020. Enterprise-wide actions for transition planning for restructured MTFs. In its plan, DOD recommended 17 enterprise-wide actions to facilitate MTF restructuring transitions. The Plan noted that the actions apply across various installations and MTFs, and were not specific to any certain region, military service, or population size. According to 703 Work Group officials, these actions will be critical to the successful transition of MTFs to their restructured end states. We found that the actions described in the Plan are interdependent and have implications for military readiness, the adequacy of civilian health care in proximity to MTFs, and the cost-effectiveness of MTF health care, which are discussed throughout our report. Moreover, we found that the recommendations require actions and coordination from multiple organizations and stakeholders. For example, the Plan recommends structuring health care operations to support patients from the military s Exceptional Family Member Program in relevant markets. The military departments are responsible for oversight of this Program, and their coordination with the DHA, MTF officials, and with military commands will be needed to ensure those patients medical needs are met. This and the other 16 actions are listed below in table 3, along with the stakeholders who may be needed to implement them. MTF-specific actions for transition planning. A second step the 703 Work Group has taken toward preliminary transition planning is to identify, for each MTF, certain salient risks and potential mitigation strategies. The Work Group documented these risks and mitigations in the Use Case for each MTF, which are included in appendices to the Plan. The Use Cases summarize, among other things, the recommended restructuring actions and the related analytical basis. Specifically, the Use Cases list risks and related mitigation strategies, noting that the lists summarize observations from the Work Group s analyses but are not exhaustive. For some risks, the Use Cases noted that a mitigation strategy should be determined later. For example, a risk associated with patients changes in expectations from getting health care at the MTF to getting care outside the base (from a civilian provider) will need to be monitored and managed. Other risks and mitigation strategies identified in the MTF Use Cases are specific to an MTF s concerns based on local considerations, such as the health care services they deliver, the type of active-duty population they serve, and their knowledge of the nearby civilian health care providers. For example, at Langley Air Force Base, where DOD is recommending that the hospital transition to an ambulatory surgery center (which would not have inpatient care or an emergency room), the Use Case for the MTF notes that the elimination of inpatient capabilities would decrease the MTF s support to readiness. This means that future numbers and types of patients and health care services delivered at Langley s MTF, once it becomes an ambulatory surgery center, may not sustain the clinical readiness requirements of the active-duty medical personnel assigned to work there requirements that they must meet for deployments. Accordingly, the Use Case notes that a related mitigation strategy would create partnerships across area hospitals where Langley s medical personnel may be able to supplement their MTF workload and maintain their readiness. As another example, the Use Case for Fort Polk s MTF in Louisiana where DOD is recommending the MTF maintain inpatient care in the short term but monitor the expansion of local hospitals to determine when inpatient services can be replaced with purchased care noted several specific risks related to patients access to care given the remote, rural location. One risk pertains to labor and deliveries, and the Use Case noted that the two nearest off-base hospitals in the TRICARE network have had problems with fiscal solvency and there is an insufficient number of obstetricians. Accordingly, DOD s mitigation plan is for the MTF to initially maintain pre- and postnatal care services to expectant mothers, while (1) monitoring the TRICARE network hospitals and (2) ensuring the MTF s obstetricians have privileges at those hospitals for labor and delivery until the number of network obstetricians is sufficient. <8.1. DOD Does Not Have a Process for Monitoring Restructuring Transitions to Address Challenges Challenges for Military Departments and DHA Related to Medical Providers Readiness and MTF Staffing> Despite DOD s preliminary steps toward transition planning, including the mitigation strategies for risks previously discussed, its Plan poses other challenges for the military departments and the DHA in executing MTF restructuring. In particular, our review highlighted two interrelated challenges with respect to medical providers clinical readiness and MTF staffing levels. Military departments efforts to maintain the clinical readiness of primary care and nonphysician medical providers. As discussed earlier in this report, MTF officials stated that MTFs that restructure will not likely present the diverse and complex medical conditions needed to sustain the readiness of military primary care and nonphysician providers. A senior enlisted leader at one MTF observed that the staff would have to be creative to find the right mix of opportunities for enlisted personnel to gain the clinical experience they need to be ready to deploy as the clinic transitions to seeing only active-duty patients. MHS leaders we interviewed agreed with these concerns. To address MTF and MHS leaders concerns, 703 Work Group officials stated that the MHS would need to develop better metrics for primary care and nonphysician providers clinical readiness requirements, as the MHS has done for combat casualty care physicians. The officials also stated that another mitigation plan will be to allow MTFs that become active-duty clinics to diversify the patient population available to providers by treating some family members and retirees. MTF officials we spoke with were encouraged that continuing to treat some family members and retirees could help address the provider readiness shortfalls they believe are inherent to becoming an active-duty clinic. However, they and senior MHS leaders were concerned about the prospect of differentiating among such beneficiaries in terms of who may be eligible for MTF care at an active-duty clinic. To that end, officials stated that having the DHA clarify its roles and responsibilities in executing this flexibility will be a helpful step. To address challenges in maintaining the clinical readiness of medical providers assigned to MTFs that restructure, 703 Work Group officials stated that existing MHS partnerships with civilian hospitals and the Department of Veterans Affairs should be sufficient for MTF providers along with other available mechanisms, such as temporary duty at other MTFs. However, MHS leaders stated that existing civilian partnerships, in particular, may not have sufficient capacity to take on additional military medical personnel. As a result, the leaders believe they may need to expand partnerships to accommodate the expected increase in demand from military providers for on-the-job readiness training as MTF capabilities decrease during restructuring transitions. Furthermore, MTF officials we interviewed had mixed opinions about the readiness benefits they derived from their experiences with civilian hospital partnerships and training at other MTFs. DHA and the military departments ability to fully staff the MTFs. According to MTF officials, sending their medical providers to work outside their assigned MTF in support of clinical readiness, though temporary, creates another challenge by reducing providers availability to the MTFs. As more providers require such experience due to MTF capabilities decrease from restructuring, MTF officials we interviewed noted that staffing gaps could complicate their ability to execute the transitions and ensure the continuity of care for patients. Furthermore, MTF officials stated that active-duty medical personnel reductions that occurred in fiscal year 2019 have also created shortfalls in staffing that could pose challenges for them in executing the MTFs transitions. According to these officials, this is because they expect their administrative workload to increase while transitions are ongoing, while clinical workload for patient care would not decrease soon enough to mitigate any shortfalls in providers. DOD s Plan states that the DHA should collaborate with the military departments to establish standard staffing models to facilitate MTF transitions, and transition plans must specify reductions in personnel and resources for the future state of the MTFs. However, the continuation of a phased transfer of MTF administration and management to the DHA from the military departments may present challenges to the DHA s ability to concurrently accomplish new tasks related to restructuring the MTFs and facilitating their transitions. Likewise and more broadly, we reported in November 2018 that the transfer of MTF administration and management to the DHA may present challenges to the management of military personnel given that the military departments are responsible for medical personnel readiness, not the DHA, while DHA assumes responsibility for staffing the MTFs. <8.2. No Process for Monitoring MTF Restructuring Transitions> DOD has not established a process for monitoring MTF restructuring transitions to address the aforementioned challenges. Yet, the MHS plans to move forward with restructuring actions beginning in June 2020. While officials expect that transitions of certain smaller clinics to their restructured end state may be relatively simple, they acknowledged that other MTF transitions could be complex and take several years. According to the ASD(HA) and Work Group officials, DOD will readjust its plans by reversing or slowing an MTF transition, if needed, to address any challenges that arise with ensuring patients ability to access health care one of the restructuring objectives. DOD s Plan does not discuss conditions that would warrant slowing or reversing an MTF s restructure, or how that would be determined. According to senior MHS leaders and MTF officials, the potential need to reverse or slow transitions will make monitoring the transitions important, and they are awaiting such decisions, along with associated roles and responsibilities from the DHA. However, the Plan does not establish a process for monitoring MTF restructuring transitions, as this was not within the scope of efforts, according to 703 Work Group officials. Rather, officials stated that decisions about monitoring should occur in a next phase of execution for MTF transitions after completion of the Plan. Accordingly, after DOD submitted its Plan to Congress in February 2020, the ASD(HA) issued a memorandum tasking the Director of the DHA to implement the changes specified in the Plan (i.e., the MTF restructuring actions) and providing high-level guidance. For example, the memorandum states that: MTF transitions are not authorized to start before May 19, 2020 (i.e., 90 days after the Plan was provided to Congress) but should be completed no later than October 1, 2025; transition planning may begin at the DHA Director s discretion (but not later than the beginning of fiscal year 2021) and should include all impacts from ongoing personnel reductions and realignments; and detailed transition plans should include clear mechanisms for stakeholder tracking of activities and progress, and be arranged in a manner that addresses the needs of multiple stakeholders from the local to the national levels. Regarding the transition plans, the memorandum requested that that the DHA Director provide the ASD(HA) with a point of contact within 5 days, and a timeline, milestones, initial resource requirements, and task organization for the effort within 2 weeks i.e., by February 26 and March 6, 2020, respectively. The DHA missed these milestones, having not yet provided the requested information, although an official from the Office of the ASD(HA) stated that, as of March 2020, the DHA response was being drafted. MHS reform and the DHA s progress in achieving goals are longstanding challenges on which we have previously reported. In April 2012, before the DHA was established, we reported that DOD did not consistently employ key management practices in implementing initiatives to change its MHS governance structure. We recommended that the ASD(HA) and the Surgeons General implement a monitoring process across DOD s portfolio of initiatives for overseeing progress and identify accountable officials and their roles and responsibilities for all of its initiatives. DOD implemented this recommendation by assigning each initiative a working group, an initiative leader, and executive sponsor to help ensure that the initiative remained on schedule, on budget, and achieved performance goals. After DOD established the DHA, we reported in November 2013 and later in September 2015 on its progress. In both reports, we identified deficiencies and made recommendations to provide decision makers with more complete information on the implementation, management, and oversight of the DHA. DOD concurred with the 10 related recommendations and implemented all but one. We reported in March 2004 that a process for monitoring progress is key to successful results-oriented management. However, DOD does not have such a process for the MTF restructuring transitions, in part because MHS officials stated they would first need to establish detailed roles and responsibilities for executing the transitions generally. Beyond the DHA Director s role of transition leader, other roles and responsibilities have not been established, such as what involvement MTF officials will have in monitoring and tracking progress or challenges, and how the military departments will share responsibilities with the DHA. The Senior Military Medical Advisory Council could sufficiently monitor the transitions at a high level, according to the DHA Director. Other MHS leaders we spoke with believed that involvement from additional military department and Office of the Secretary of Defense leaders could also be needed. 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 needed to overcome the many barriers to working across organizational boundaries. Our prior work has also shown that a dedicated team vested with necessary authority and resources to help set priorities, make timely decisions, and move quickly to implement decisions is critical for a successful transformation. DOD also has not defined objectives in a measurable way with related thresholds and goals to enable monitoring of progress and challenges. For example, as previously discussed, DOD s three general priorities, or objectives, for restructuring MTFs include ensuring (1) the medical readiness of servicemembers and readiness of medical providers, (2) that civilian health care facilities and providers adequately support the health care needs of beneficiaries near each MTF, and (3) the cost-effectiveness of MTF and purchased care. However, DOD has not decided how to define and measure any of those objectives. Furthermore, DOD has not established thresholds or goals in relation to the objectives. By first establishing clear roles and responsibilities for executing and monitoring restructuring transitions, DOD can be better positioned to navigate and overcome organizational boundaries between the DHA, which manages the MTFs, and the military departments that provide staff. In doing so, DOD could also be better positioned to address challenges in executing transitions, such as those that arise with mitigating providers clinical readiness challenges and MTF staffing gaps during transitions. Then, by defining measurable objectives, goals, and thresholds for tracking the progress of MTF transitions such as the clinical readiness of providers, quality and accessibility of quality health care, and cost- effectiveness DOD could better ensure its objectives are being met and help facilitate timely adjustments to the transitions, as needed. Conclusions As MHS leaders have acknowledged, correctly aligning MTF infrastructure to the size of the armed forces, the medical forces, and their desired readiness levels is essential to balancing mission requirements within available resources. DOD s substantial work over the past 2 years on its Plan for MTF restructuring is a positive step toward meeting statutory requirements and prioritizing MTF readiness outcomes in a resource-informed manner. Notwithstanding the work DOD has undertaken in making a series of analytically-based determinations for restructuring in its Plan, our review highlighted several gaps in DOD s methodology. Until DOD takes action to address these gaps by using more complete and accurate information about civilian health care quality, access, and cost-effectiveness, DOD leaders may not fully understand risks to the achievement of their objectives in restructuring future MTFs. DOD officials agree that some MTF restructuring actions may be more challenging than others. These challenges could be exacerbated by concurrent MHS reform efforts, including the transition of MTF administration and management to the DHA. However, by establishing clear roles and responsibilities for executing and monitoring the transitions, DOD can be better positioned to overcome the difficulties in navigating organizational boundaries between the DHA and the military departments, and make timely adjustments to their transition plans, as needed. In addition, by defining measurable objectives, thresholds, and goals for restructuring transitions, and applying them to evaluate progress and challenges, DOD can be better positioned to execute the transition of its MTFs and ensure that the objectives are being met. Recommendations for Executive Action We are making the following six recommendations to DOD: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, consistently collect complete and accurate information about the quality of available civilian health care in proximity to its MTFs (such as ratings from the Centers for Medicare and Medicaid Services and perceptions from MTF officials who regularly coordinate with civilian providers, among other means) and assess that information to inform recommendations for future MTF restructuring decisions. (Recommendation 1) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, consistently collect complete and accurate information about the extent to which current health care providers within the TRICARE networks meet access-to-care standards, and assess that information to inform recommendations on future MTF restructuring decisions. (Recommendation 2) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, consistently collect complete and accurate information about the extent to which non-network civilian health care providers that could be incorporated into the TRICARE network meet access-to-care standards in terms of drive time, and assess that information to inform recommendations on future MTF restructuring decisions. (Recommendation 3) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, conducts a sensitivity analysis of the relative cost-effectiveness of MTF-provided care compared to civilian-provided care under varying assumptions, and document that information for decision makers to inform recommendations on future MTF restructuring decisions. Varying conditions could include different types of health care services, reducing the cost of military personnel salaries, and increasing estimated MTF wRVUs and civilian reimbursement rates. (Recommendation 4) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, establishes clear roles and responsibilities for executing and monitoring transitions for MTFs identified for restructuring. (Recommendation 5) The Secretary of Defense should ensure that the Assistant Secretary of Defense for Health Affairs, in coordination with the Surgeons General of the military departments and the Director of the DHA, defines measurable objectives for MTF restructuring transitions, establishes thresholds and goals for each objective, and applies them to evaluate progress and challenges. For example, measurable objectives, thresholds, and goals, should include an evaluation of medical providers clinical readiness, civilian health care provider adequacy, and the cost-effectiveness of MTF and purchased care. (Recommendation 6) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix IV, DOD concurred with two of our recommendations and partially concurred with four recommendations. DOD also provided technical comments on the draft report, which we incorporated as appropriate. DOD concurred with our recommendations to establish roles and responsibilities for executing and monitoring MTF restructuring transitions (recommendation 5), and to define measurable objectives with thresholds and goals and apply them to evaluate progress and challenges for the transitions (recommendation 6). In its response, the department described actions it is taking and plans to take to implement both recommendations. DOD partially concurred with our first recommendation to collect complete and accurate information about the quality of available civilian health care in proximity to its MTFs and assess that information to inform recommendations for future MTF restructuring. DOD stated that complete and accurate information on the quality of available care would require substantial resources to accomplish on a routine basis. To that end, DOD stated that until standardized quality data becomes readily available, it intends to collect this level of information as needed to support actions at a particular MTF. As noted in our report, we have previously reported that standardized information about hospital and outpatient care quality is available through the Centers for Medicare & Medicaid Services and has been widely adopted by major private insurers. As the restructuring of the MTFs continues and DOD relies to a greater extent on civilian-provided care, it will be important for the department to monitor the quality of care it purchases on behalf of beneficiaries. Thus, we continue to believe that DOD should make it a priority to collect and assess such information. DOD partially concurred with our second recommendation to consistently collect complete and accurate information about the extent to which current health care providers within the TRICARE networks meet access-to-care standards, and assess that information to inform recommendations on future MTF restructuring decisions. In its response, DOD stated that each month, TRICARE contractors report, by specialty, average wait times from referral placement to patient appointment. Further, DOD stated that it is piloting centralized booking of MTF and network appointments, which, if successful, will result in more complete, accurate, and timely network access information. In cases where access standards are not being met, DOD explained that it works to mitigate the access shortfall either through MTF or expanded network resources. We agree that TRICARE s monthly reports on patient wait times for appointments are a helpful tool for DOD in monitoring access to care, and that the pilot for centralized appointment booking is also a promising step. As we noted in our report, however, DOD s analyses of the adequacy of civilian health care in proximity to MTFs were based on network provider directories that are of questionable accuracy and can overstate the number of available providers. MTF officials we interviewed stated that TRICARE directories in their area overstated the number of providers accepting new TRICARE patients. Even if the provider directory issues have not led to access-to-care challenges in the past in terms of patients wait times to appointments, such issues could cause challenges in the future with increasing numbers of DOD patients needing TRICARE network care. Accordingly, we continue to believe that it will be important for DOD to collect complete and accurate information about the extent to which current health care providers within the TRICARE networks meet access-to-care standards as DOD moves forward with its restructuring plans. DOD partially concurred with our third recommendation to consistently collect complete and accurate information about the extent to which non- network civilian health care providers that could be incorporated into the TRICARE network meet access-to-care standards in terms of drive time, and assess that information to inform recommendations on future MTF restructuring decisions. DOD stated that drive times for non-network providers were assessed in the development of the recommendations for its Plan. DOD added that the approach used in the Plan included assessing drive times and distances from the beneficiaries homes, rather than the MTF, yielding a more accurate assessment of access, availability, and convenience. However, our review of DOD s methodology workpapers showed that its analyses measured the distance between providers and a single location point that corresponds with the center of the zip code boundary in which a majority of beneficiaries reside. While a perfect methodology and information for projecting actual drive times may not be possible to achieve, the alternative method in our report illustrates that a portion of the providers DOD identified for potential network expansion would exceed access-to-care standards for some of its beneficiaries especially those who live or work near an MTF (such as those who live on a military installation). According to DOD s comments on the report, future restructuring efforts will be informed by the section 703 approach, and DOD will adjust the approach as needed by future analysis and conditions. As DOD moves forward with restructuring efforts in the future, we continue to believe that more accurately measuring the distance between providers locations and beneficiaries residences would improve the quality of DOD s information about access-to-care. Accordingly, we continue to believe that DOD should fully implement our recommendation. DOD partially concurred with our fourth recommendation to conduct a sensitivity analysis of the relative cost-effectiveness of MTF-provided care compared to civilian-provided care under varying assumptions, and to document that information for decision makers to inform recommendations on future MTF restructuring decisions. In response, DOD stated that there is value in the use of sensitivity or scenario analysis to inform decisions where a range of possibilities exist and a clear analytical question can be formed as a guide to both the analysts and decision-makers. However, DOD stated that it does not support the generic use of this analysis suggested by the recommendation. We disagree that our recommendation suggests the generic use of a sensitivity analysis. A sensitivity analysis is appropriate for evaluating restructuring opportunities for MTFs for two reasons. First, the evaluation of each MTF presents decision makers with a range of possibilities from reducing or expanding the capabilities of an MTF, to closing it entirely or maintaining the status quo. Second, a sensitivity analysis would address uncertainties in DOD s analytic assumptions about costs and workload for each MTF, which our report identified. As our own sensitivity analysis conducted using minimal resources and available DOD data demonstrated, changing the assumptions also changes the resulting conclusions about whether MTF or civilian care is less expensive. Therefore, we continue to believe that analyzing the relative cost- effectiveness of MTF-provided care compared to civilian-provided care under varying assumptions would provide more complete information for decision-making and executing MTF transitions. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Assistant Secretary of Defense for Health Affairs, the Director of the Defense Health Agency, and the Secretaries of the Army, the Navy, and the Air Force. 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) 512-3604 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 V. Appendix I: Objectives, Scope, and Methodology In February 2020, the Department of Defense (DOD) submitted its implementation plan ( the Plan ) to Congress in response to section 703(d) of the National Defense Authorization Act (NDAA) for Fiscal Year 2017. This report addresses the extent to which (1) DOD s methodology for determining military medical treatment facility (MTF) restructuring actions in the Plan prioritized cross-cutting elements from 10 U.S.C. 1073d and considered complete information, and (2) DOD has positioned itself to execute transition planning for restructuring its MTFs. For both objectives, we selected a nongeneralizable sample of MTFs and applied a case study approach to review DOD s methodology for determining restructuring actions and actions that may be needed for transition planning. From DOD s initial list of 73 MTFs included in its scope, we selected 11 of them as case studies to represent a variety of characteristics, including a mix of hospitals and clinics from each military department, different recommendations for how they should be restructured, different conclusions about network adequacy, and urban and rural areas located in proximity to one another in terms of driving distance. Appendix II identifies the names and locations of each MTF within the scope of the DOD Plan. The 11 MTFs we selected are listed in table 4. For objective one, we reviewed DOD s draft and final Plan and related documentation of the methodologies used to assess all 77 MTFs within its scope. We compared this information with cross-cutting elements for MTFs from 10 U.S.C. 1073d. These elements include the (1) support an MTF provides to servicemembers medical readiness and the readiness of medical personnel, (2) adequacy of civilian health care facilities and providers in the proximity of the MTF to support the health care needs of servicemembers and other beneficiaries through purchased care, and (3) cost-effectiveness of direct care services at MTFs versus purchased care in the nearby civilian provider networks. We discussed the methodological approaches for assessing MTFs for possible restructuring actions, including assumptions, data sources, and any limitations, with representatives from relevant organizations across DOD, including the Office of the Assistant Secretary of Defense for Health Affairs; DOD s Section 703 Work Group; Defense Health Agency; Office of the Assistant Secretary of the Army for Manpower and Reserve Affairs; U.S. Army Medical Command; Navy Bureau of Medicine; Air Force Medical Readiness Agency; and officials from 11 selected MTFs and from their host installations. Specifically, in analyzing DOD s methodology for assessing MTFs support to readiness, we reviewed information DOD used to estimate MTFs readiness value in terms of support to servicemembers medical readiness and to medical force readiness. We compared this information with findings from our prior work regarding DOD s methodology for assessing clinical readiness. We also reviewed records of interviews that DOD officials held with MTF, installation, and command officials during their visits to MTFs, noting the readiness-related effects and concerns that were documented. For DOD s methodology for assessing available civilian health care services in proximity to each MTF, we reviewed reports on the results of DOD s assessments to identify their findings, recommendations, and assumptions. For the civilian health care providers that DOD identified in proximity to each of 11 MTFs we selected, we verified the address of each listed provider by searching for each provider s website and making phone calls to verify addresses and specialty types, and whether the practice was open or closed. We then used R software and data from openstreetmap.org to calculate to calculate the driving distance between the provider and the MTF, comparing the distance with DOD s access-to- care standards. We evaluated the extent to which the assessment reports considered information about quality of health care services and access-to-care standards, comparing the information with DOD guidance for patients access to quality and timely health care services, and with federal internal control standards on the use of quality information to inform decision-making. Regarding DOD s methodology for evaluating cost-effectiveness, we reviewed DOD s work papers and interviewed officials about the calculations and source data they used. We compared DOD s methodology with our assessment methodology for economic analysis and with DOD guidance for economic analysis. We also obtained the fiscal years 2017 and 2018 data DOD used to calculate the cost- effectiveness of MTF-provided direct care relative to civilian-provided purchased care. Using these data, we performed a sensitivity analysis by recalculating relative cost-effectiveness under different assumptions. Specifically, for seven of our 11 case study MTFs, we recalculated their cost-effectiveness relative to purchased care by (1) omitting military personnel salaries, given that DOD has characterized these as a fixed cost, (2) increasing the work Relative Value Units to adjust for potential underreporting of those data, and (3) increasing the reimbursement rate of purchased care to account for future increases that are likely necessary, according to DOD officials. We also assessed the reliability of each data source for DOD s and our calculations of cost-effectiveness by administering questionnaires about the data to those who have quality control responsibilities, interviewing responsible DOD officials, reviewing the data for outliers and missing values, and reviewing our prior reports about the data. We determined that DOD s data on the costs of MTF care and civilian health care were sufficiently reliable for the purpose of calculating the total costs of health care services. However, DOD s data on units of health care delivered in fiscal year 2018 were of undetermined reliability for the purpose of calculating a unit-level health care cost. To provide additional information on DOD s methodology and supplement our understanding of available data, we conducted a literature review of research articles. We conducted a search of the literature on military health system clinical readiness, trends in physician supply and demand across the United States, and cost analyses of military health care published from 2014 through 2019 to identify articles on key challenges and methodological alternatives. To identify relevant articles, we searched a variety of databases with the assistance of a research librarian, limiting our review to papers that were included in peer-reviewed publications, as well as government reports, trade and industry articles, and publications by associations, nonprofits, or think tanks. We then reviewed the results and excluded any that were technical in nature or did not have wide applicability across MTFs or to health care analyses. For objective two, we reviewed DOD s draft and final Plan, including detailed appendices on the MTFs within the scope of the plan, noting any aspects of transition planning described or recommended, and the agencies and organizations that would be responsible for managing those transition aspects. We also interviewed MTF officials from the selected case study locations regarding steps they had begun taking and actions they believed would be needed to facilitate a restructuring of the facility. In addition, we reviewed our prior, related work on MHS reform and the establishment of the Defense Health Agency to identify related themes and challenges. We corroborated our understanding of transition planning steps described in the Plan by interviewing 703 Work Group officials, the Director of the Defense Health Agency, and the Surgeons General of the Army and the Air Force to better understand what roles and responsibilities and monitoring mechanisms they had considered. We compared this information from the Plan and from our interviews with practices identified in our prior work on results-oriented government. Specifically, our prior work has found that agreement on roles and responsibilities and committed leadership by those involved are key steps to successful collaboration when working across organizational boundaries. A dedicated team vested with necessary authority and resources to help set priorities, make timely decisions, and move quickly to implement decisions, along with a process for monitoring progress, are also key to success. Finally, to assess the extent to which DOD s section 703(d) Plan addressed all requirements of section 703(d), we compared the Plan with the elements from the statute. Examples of those elements included, for each MTF, whether it will be restructured, whether its functions will be expanded or consolidated, and the related costs. Some of the elements required that multiple items be addressed. We considered an element addressed if it included all of the items listed in the NDAA; partially addressed if it included some, but not all, of the items; and not addressed if it did not include any of the items. We conducted this performance audit from February 2019 to May 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. Appendix II: Locations of Military Medical Treatment Facilities within the Scope of DOD's Section 703(d) Plan on Restructuring A work group of representatives from across the Department of Defense (DOD) led efforts to address section 703(d) of the National Defense Authorization Act for Fiscal Year 2017 the restructure or realignment of military medical treatment facilities (MTF). The 703 Work Group developed a methodology to address section 703(d) and determined the scope of its review of MTFs in the United States by identifying which of those to evaluate for the mandated implementation plan (the Plan ). Figures 3 through 5 below identify the name and location of each of the 77 MTFs within the scope of DOD s Plan, which it submitted to Congress in February 2020. Appendix III: Distances from Military Medical Treatment Facilities to Civilian Providers Identified in DOD Assessments The Department of Defense s (DOD) 703 Work Group based its military medical treatment facility (MTF) restructuring determinations for its implementation plan to Congress, in part, on its assessments of the adequacy of civilian health care facilities and providers to support the health care needs of DOD beneficiaries near each MTF. In one component of the assessments, DOD identified civilian health care facilities and providers in proximity to each of its 77 evaluated MTFs. For each provider DOD identified in proximity to 11 MTFs which we selected from the 77 MTFs DOD evaluated we verified the provider s address, specialty type, and whether the practice was open or closed. We then calculated the driving distance between each MTF and the respective listed providers. Figures 6 through 16 below show that a certain portion of the providers listed for each of the 11 selected MTFs were outside DOD s access-to-care standards for travel time to provider sites for TRICARE Prime patients, based on our analysis. In addition, for each of the 11 selected MTFs, there was one or more inaccuracies in the provider listing, such providers that were no longer in practice, duplicate providers, or those that were mischaracterized as a medical provider. Appendix IV: Comments from the Department of Defense Appendix V: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, Lori Atkinson (Assistant Director), Melissa Blanco (Analyst in Charge), John Beauchamp, Timothy Carr, Alexandra Gonzalez, Hannah Hubbard, David Jones, Amie Lesser, John Mingus, Jr., Oliver Richard, Terry Richardson, Guiovany (Geo) Venegas, and Lillian M. Yob made key contributions to this report. Related GAO Products Defense Health Care: Opportunities to Improve Future TRICARE Managed Care Support Contract Transitions. GAO-20-39. Washington, D.C.: November 21, 2019. Defense Health Care: DOD s Proposed Plan for Oversight of Graduate Medical Education Programs. GAO-19-338. Washington, D.C.: March 28, 2019. Defense Health Care: Actions Needed to Determine the Required Size and Readiness of Operational Medical and Dental Forces. GAO-19-206. Washington, D.C.: February 21, 2019 Defense Health Care: Additional Assessments Needed to Better Ensure an Efficient Total Workforce. GAO-19-102. Washington, D.C.: November 27, 2018. Defense Health Care: DOD Should Demonstrate How Its Plan to Transfer the Administration of Military Treatment Facilities Will Improve Efficiency. GAO-19-53. Washington, D.C.: October 30, 2018. Defense Health Care: Expanded Use of Quality Measures Could Enhance Oversight of Provider Performance. GAO-18-574. Washington, D.C.: September 17, 2018. Defense Health Reform: Steps Taken to Plan the Transfer of the Administration of the Military Treatment Facilities to the Defense Health Agency, but Work Remains to Finalize the Plan. GAO-17-791R. Washington, D.C.: September 29, 2017. Defense Health Care Reform: DOD Needs Further Analysis of the Size, Readiness, and Efficiency of the Medical Force. GAO-16-820. Washington, D.C.: September 21, 2016. Defense Health Care Reform: Actions Needed to Help Ensure Defense Health Agency Maintains Implementation Progress. GAO-15-759. Washington, D.C.: September 10, 2015. Military Health System: Sustained Senior Leadership Needed to Fully Develop Plans for Achieving Cost Savings. GAO-14-396T. Washington, D.C.: February 26, 2014. 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 Reform: Applying Key Management Practices Should Help Achieve Efficiencies within the Military Health System. GAO-12-224. Washington, D.C.: April 12, 2012. 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.

Why GAO Did This Study DOD's MTFs are critical to the medical readiness of servicemembers and providing readiness training for about 107,000 active-duty medical providers. About 9.6 million beneficiaries are eligible for DOD health care through MTFs and civilian network providers. To further support readiness, the National Defense Authorization Act (NDAA) for Fiscal Year 2017 required DOD to plan to restructure MTFs. DOD's February 2020 Plan included decreasing capabilities at 43 MTFs and closing five. The NDAA included a provision for GAO to review the Plan. This report addresses the extent to which 1) the Plan's methodology prioritized statutory elements and considered complete information, and 2) DOD is positioned to execute MTF restructuring transitions. GAO reviewed DOD's Plan, MTF workload and cost data, and interviewed DOD leaders and officials at 11 MTFs selected on the basis of military department, restructuring action, and location. What GAO Found The Department of Defense's (DOD) methodology to determine Medical Treatment Facilities' (MTF) restructuring actions in its implementation plan (the Plan) prioritized statutory elements. These included military readiness, adequacy of nearby civilian health care, and cost-effectiveness. However, DOD based part of its methodology on incomplete and inaccurate information. Civilian health care assessments did not consistently account for provider quality. DOD generally assumed that identified providers were of sufficient quality. GAO found that DOD considered the quality of nearby civilian providers for one of 11 selected MTFs. In this instance, information from the MTF about the variable quality of nearby civilian health care led to DOD's determination that such care was not yet adequate to support MTF restructuring. Officials GAO interviewed from other MTFs discussed concerns about quality of care from nearby civilian providers. Civilian health care assessments did not account for access to an accurate and adequate number of providers near MTFs. DOD may have included in its assessments providers who do not meet DOD's access-to-care standards for certain beneficiaries. For 11 selected MTFs, GAO found that about 56 percent of civilian primary care providers and 42 percent of civilian specialty providers that DOD identified as being nearby exceeded DOD's drive-time standards. Including such providers in its assessments means that DOD could have overestimated the adequacy of civilian health care providers in proximity to some MTFs. Cost-effectiveness assessments were based on a single set of assumptions. DOD concluded that civilian health care was more cost-effective than care in its MTFs without considering other assumptions that could affect its conclusions. For example, DOD applied assumptions about the cost of military personnel salaries, MTF workloads, and reimbursement rates for TRICARE that likely underestimated the cost-effectiveness of MTFs. GAO also found that DOD conducted limited assessments of MTFs' support to the readiness of military primary care and nonphysician medical providers—an issue DOD officials stated they will address during MTF transitions. Until DOD resolves methodology gaps by using more complete and accurate information about civilian health care quality, access, and cost-effectiveness, DOD leaders may not fully understand risks to their objectives in restructuring future MTFs. DOD's Plan identified actions needed to facilitate MTF restructuring, but the department is not well positioned to execute the transitions. DOD's Plan poses challenges for the military departments and the Defense Health Agency (DHA) related to MTF providers' readiness. Yet, DOD plans to move forward with restructuring without a process to monitor progress and challenges. By establishing roles and responsibilities for executing and monitoring MTF restructuring transitions, DOD can be better positioned to navigate organizational boundaries between the DHA that manages the MTFs and the military departments that provide staff. Additionally, by defining measurable objectives and progress thresholds, DOD can better ensure it is meeting objectives and facilitating timely adjustments to MTF restructuring transitions, as needed. What GAO Recommends GAO is making six recommendations, including that future MTF assessments use more complete and accurate information about civilian health care quality, access, and cost-effectiveness; and that DOD establish roles, responsibilities, and progress thresholds for MTF transitions. DOD partially concurred with four recommendations and concurred with two. As discussed in the report, GAO continues to believe that all six recommendations are warranted.

gao_GAO-20-140

gao_GAO-20-140_0

<1. Background> <1.1. USPS Employee Characteristics> USPS is one of the largest civilian employers in the United States. In fiscal year 2018, USPS reported that it employed approximately 634,000 people and retirement benefits were paid to over 600,000 retirees and their survivors. According to USPS, it is one of the leading employers of minorities, women, veterans, and disabled veterans; for example, USPS reports on its website that it currently employs about 100,000 military members and veterans, nearly one-sixth of its workforce. Ninety-two percent of the USPS workforce is comprised of employees who are represented by four unions that are roughly organized along occupation type (see table 1 for the unions and member representation). These employees are also divided into career , and non-career employees. Career employees are considered permanent and are entitled to a range of benefits (e.g., health and retirement) and privileges. Non- career employees are generally considered temporary and hired, for example, during times of large mail volume such as holidays. As discussed later, non-career employees receive fewer benefits and lower pay than career employees. <1.2. Legal Requirements Related to USPS Workforce> The Postal Reorganization Act (PRA) established USPS as an independent establishment of the executive branch of the government of the United States. PRA also established a compensation system where career postal employees and officers generally receive the same benefits as federal government employees, but also authorizes employees to collectively bargain over pay. Pay at many federal agencies is not subject to collective bargaining. Instead, pay at those entities is set through the General Schedule, which is developed and updated by the Office of Personnel Management (OPM). Additionally, PRA established that USPS should maintain compensation and benefits on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector of the economy. Reform bills have been introduced in Congress that would amend some of the current compensation requirements, but none have passed. <1.3. USPS Compensation Costs> USPS costs are concentrated in employee compensation, which accounted for approximately 72 percent of total operational costs in fiscal year 2018 (see fig. 1). The majority of compensation costs are payments to current employees, which include an employee s hourly pay and benefits such as contributions to retirement and healthcare plans and USPS s share of payroll taxes for Social Security and Medicare. USPS contributions for retirement benefits are made to OPM administered funds that pay out USPS retiree pension and health benefits, as well as to the Thrift Savings Plan (TSP). USPS negotiates contracts that include terms for the compensation of the 92 percent of employees represented by unions through a collective bargaining process. This process may entail a three-step process for USPS: negotiation, mediation, and interest arbitration (as described below). If USPS and its unions cannot reach agreement during initial negotiations, a federal mediator is appointed, unless both parties waive mediation. If no agreement is reached with the mediator, or if the parties waive mediation, the contract goes to impasse. An impasse then proceeds to final and binding interest arbitration. In interest arbitration, the dispute goes before a three-member panel, which determines factors impacting compensation, such as pay increases. <2. USPS Compensation Costs for Employees in 2018 Were Lower Than in 2009, Though Unfunded Liabilities for Retirement Benefits Have Increased> <2.1. Adjusted for Inflation, Compensation for Current Employees in 2018 Was about $9 Billion Less Than in 2009> The total cost of compensation for current USPS employees was about $9 billion less in fiscal year 2018 than in fiscal year 2009, when adjusted for inflation. However, most costs decreased between fiscal year 2009 and fiscal year 2014, and costs have generally risen since (see fig. 2). Without adjusting for inflation, USPS compensation costs for current employees are still lower by almost $1 billion when compared to 2009, but costs have been rising since 2014, and USPS has reported an anticipated total compensation cost increase for fiscal year 2019. Over the same time period, the number of employees followed a similar pattern of decline from fiscal years 2009 through 2013 and then generally increased. Overall, compared to fiscal year 2009, USPS has reduced its total number of employees as of fiscal year 2018 by over 77,000. One key reason for the decline in USPS compensation costs was the decrease of 90 million work hours over this period. The largest decrease in work hours was from fiscal years 2009 through 2013, when work hours declined about 12 percent. We reported in 2014 that this was accomplished in part through attrition and separation incentives. Recent trends, however, show total work hours are increasing, from a combination of new hiring and increased work hours for current employees. From fiscal years 2014 through 2018, work hours increased by 5.4 percent. Additionally, the number of work hours associated with higher costs overtime and penalty overtime have also been increasing. USPS reported that the recent increase in work hours and overall compensation costs is a result of increases in the number of delivery addresses and increases in more labor intensive package volume. USPS adds about one million new delivery points each year. Although overall mail volume declined from fiscal years 2009 through 2018, package volume increased almost 200 percent during the same period. However, package volume growth has slowed in recent months, largely due to significant competition among delivery providers, according to USPS. Generally, USPS compensation grew more slowly over the last decade than in the private sector and federal government. Based on our review of USPS data for fiscal years 2009 through 2018, USPS employee compensation has increased on average by 1.0 percent per year. According to Bureau of Labor Statistics data, average employee compensation increased by approximately 2.3 percent per year for workers in private industry. In a prior review of federal civilian compensation trends, we found average compensation increased 1.2 percent per year for the federal workforce from 2004 through 2012. Based on a review of publically available Office of Management and Budget data, we found this trend of about a 1.2 percent annual increase continued through 2018. <2.2. While Compensation Costs Have Decreased, USPS s Unfunded Liabilities for Retirement Benefits Have Increased> Although USPS decreased compensation costs paid to current workers, its unfunded liabilities for retirement benefits significantly increased during the same time period. By law, USPS employees are entitled to participate in the federal retirement health benefits and pension programs. USPS is required to make annual payments into the OPM administered pension and retiree health benefits funds that support postal employee retirement benefits; however, USPS has failed to make a significant portion of these payments. Retiree Health Care Liabilities: OPM administers the Postal Service Retiree Health Benefits Fund, which pays USPS s share of premiums for retired postal employee health care coverage. As of September 30, 2018, USPS had contributed $20.9 billion to the fund, and missed payments on an additional $33.9 billion in required payments to the fund for 2012-2016. For fiscal years 2017 and 2018, OPM billed USPS for required payments to the fund of $3.3 billion and $3.7 billion respectively and USPS did not make either payment. As of September 30, 2018, USPS reported the unfunded retiree health benefit liability to be $66.5 billion. Pension Liabilities: OPM also administers federal pension benefits through the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). USPS employees participate in one or the other of these plans. Both plans are funded through the Civil Service Retirement and Disability Fund (CSRDF). In 2018, USPS failed to make required payments to the CSRDF totaling approximately $2.4 billion; $958 million for FERS and $1.4 billion for CSRS. USPS reported the unfunded pension benefit liability, as of September 30, 2018, to be $25.1 billion for CSRS and $18.4 billion for FERS. As the total unfunded liabilities for health care and pension benefits owed to current and future retirees are about $110 billion, we have previously reported on the significant risk posed by these financial liabilities to USPS s long-term sustainability. We have also reported that Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing, and recently provided options for proposed legislative changes related to retiree health costs in particular. For the remainder of this report we will focus mainly on those costs USPS incurs related to current employee services. <3. USPS Efforts Have Decreased Employee Compensation Costs, but USPS Has Not Fully Assessed Savings and Other Costs> <3.1. USPS Estimates That Decreasing Pay Rates for New Employees and Health Insurance Contributions Have Saved Billions> In addition to decreasing the number of employees and work hours, USPS also implemented three major changes to decrease employee compensation: (1) lowering pay for new career employees, (2) increasing use of non-career employees, and (3) reducing USPS contributions to health insurance premiums for active employees. These changes were negotiated with the four unions representing the majority of postal employees and established in CBAs. According to USPS management officials, these actions were intended to decrease compensation costs and increase workforce flexibility, which were necessary responses to declining letter mail volume and revenue, growth in more labor-intensive package volume, and increases in the number of delivery addresses. We report USPS s estimates, and our estimates, of how much these changes saved in employee compensation costs below; we further describe the differences between the two estimates in the next section. For additional technical details about our analysis, see appendix I. 1. Lowering Pay for New Career Employees: Beginning in 2010, USPS implemented a negotiated lower starting pay for new career employees. More specifically, career employees hired after a specified date have lower starting pay than previously hired career employees. For example, a city carrier hired in January 2016 would make about $37,640 a year compared to $48,406 a year if hired before the new starting pay agreement. USPS estimated about $2.3 billion in savings for fiscal years 2016 through 2018 as a result of this effort. We were not able to substantiate the estimated savings because USPS could only provide individual data for fiscal years 2016 through 2018, which were not enough data to develop comparison groups for employees hired before and after the pay rate change. 2. Increasing Use of Non-career Employees: In 2010 and 2011, USPS negotiated the ability to hire up to 20 percent of the workforce as non- career employees; the prior limit had been 10 percent for most employee types. USPS officials told us they also changed some work rules so that USPS could use non-career employees for some tasks previously only allowed for career employees. Non-career employees are less costly because they generally have lower pay rates and are not entitled to the full federal benefits received by career workers. According to USPS officials, non-career employees are also more flexible because there are fewer restrictions on their tasks and schedules. For example, USPS management officials told us that they use non-career employees for much of the Sunday package delivery service and to make extra trips needed to deliver packages to meet service targets. USPS estimated that increased use of non- career employees saved about $8.2 billion in compensation costs since fiscal year 2016, but our analysis found that USPS likely saved about $6.6 billion from fiscal years 2016 through 2018 from this effort. 3. Reducing Contribution for Employee Health Insurance Premiums: USPS decreased its contribution percentage for employee health insurance premiums from 84 and 85 percent in 2008 to 74 percent in 2018. Based on its recent agreement with NRLCA, USPS s contribution will decrease from 73 percent in 2019 to 72 percent in 2020. In past CBAs with the three other unions (APWU, NALC, and NPMHU), negotiations over USPS contributions to health insurance premiums followed those agreed to by NRLCA. USPS officials estimated that USPS s reduced contribution percentage to employee health insurance premiums has saved about $1.6 billion across the types of postal employees from fiscal years 2016 through 2018. However, our analysis found that USPS likely saved about $1.4 billion for the three-year period. Although USPS was able to decrease its share of the health insurance premium to achieve a larger saving in fiscal year 2018 than in fiscal year 2017, overall USPS expenditures for its share of employee health insurance premiums did not decrease due to annual increases in premiums. USPS reported that employee health benefits expenses increased from $5.0 billion in 2016 to $5.2 billion in 2018, even as its share of premium costs decreased from 76 percent to 74 percent for employees covered by the CBAs during the same period. <3.2. Although USPS Saved Billions, Its Estimates Potentially Overstate Savings Because USPS Did Not Account for Various Factors> Across all of its efforts, USPS estimated it saved approximately $12 billion for fiscal years 2016 through 2018. While there are multiple valid approaches for estimating cost savings based on policy changes, we found that USPS did not account for some significant factors and, therefore, potentially overstated the savings achieved. Specifically, USPS did not account for the effects of changes in work hours or tenure of employees. When we accounted for these additional factors, we were able to substantiate $8 billion, of USPS s estimated $9.7 billion, in savings over the last three fiscal years for changes to the number of non-career employees and health insurance contributions. As noted above, we were not able to substantiate the estimated savings of lowering pay for new career employees. We summarize the specific factors below and include additional details about our review of USPS s estimates and the effect of each factor in appendix I. <3.2.1. Mix of Employee Work Hours> As previously discussed, in recent years, USPS employees have worked significantly more overtime and other premium pay hours. According to USPS, use of overtime and premium hours enables it to meet irregular work demands (for example, spikes in volume resulting from holidays) or delivery performance targets, particularly for Sunday package delivery. Also, to incentivize or compensate employees for working extra or traditionally less desirable hours, USPS routinely uses overtime and other premium pay, such as additional pay for work at night and on Sundays. As a result, these types of work hours cost more to compensate than regular work hours (i.e., straight time hours) on a per hour basis. When calculating the savings it achieved from using lower-paid employees, USPS compared what it actually paid in compensation to estimates of what it would have paid in the absence of having non-career or lower-paid workers, using average pay rates and not individual level employee data. USPS s method therefore did not fully account for the mix of types of hours worked in its estimates. As a result, USPS underestimated how much the lower-paid employees are compensated in its cost estimates. Our analysis of the last three years of data found that lower-paid employees work a different mix of hours, and overall they work more hours and more premium hours, factors that USPS does not capture in its estimates. For example, from our analysis of USPS payroll data, we found that, on average: a non-career employee worked 30 more straight hours, 73 more overtime hours, and 23 more night and Sunday hours per year than a career employee, and a lower-paid career employee worked a higher number of straight time hours and, depending on the craft, also may work more overtime, night work, and Sunday hours than a higher-paid career employee. USPS officials said it was not necessary to factor in work hours because the amount of work hours was not changed by introducing lower-paid employees. For example, USPS officials told us that, to meet the increase in packages, more carrier work hours were needed in recent years, to make deliveries on Sundays for instance. USPS officials also noted that to save costs, it is preferable that these hours go to lower-paid employees. However, our analysis suggests that lower-paid employees may work different amounts and mixes of work hours than higher paid employees. For example, newer, lower-paid employees may be more willing to work extra hours, and being newer, their inexperience could mean that they take longer to complete their work on average. USPS management officials said that they do not believe newer employees are less productive than more experienced employees, nor do they lead to increases in overall work hours. USPS management officials also told us that employees cannot opt into working more hours because overtime hours are assigned as necessary by supervisors. Our analysis did not include information that would allow us to determine whether management was pre-approving all overtime hours. However, in June 2019, the USPS OIG reported $136.6 million in unauthorized overtime which occurs when an employee s clock time exceeds eight hours without prior approval for mail processing alone. USPS has saved billions by using a less costly and more flexible workforce. Indeed, based on fiscal year 2018 data, we calculated that USPS could potentially save up to an additional $4.4 billion a year if the current cap on non-career employees was doubled to 40 percent. However, USPS did not fully evaluate the impact of pay rates and work hours by employees. Given the growth in work hours, particularly overtime and premium pay hours, USPS risks overestimating savings and making ill-informed changes to employee compensation by not including information about employee work hours. <3.2.2. Tenure of Employees> USPS employees with longer tenure generally receive higher pay than similar employees with less tenure. Based on our analysis of USPS payroll data for fiscal year 2018, the average pay of career employees is driven in part by the high median tenure of those employees, which was 20 years (with a median age of 54 years old) in fiscal year 2018. However, when calculating its savings estimates for non-career employees, USPS did not factor in the effect of employee tenure. Specifically, USPS s savings estimate for non-career employees compared what it was paying for a newly hired non-career employee against the average pay for a career employee, rather than the starting pay for a career employee. When we accounted for tenure in our analysis, we found that some of the savings from hiring new employees could be explained by the shorter tenure of the lower-paid employees. USPS officials told us that they agreed that tenure should have been taken into account and that they would recalculate these estimates. Without adjusting for mix of hours worked and tenure, we found the difference in pay between career and non-career employees to be, on average, $25 per hour. After adjusting for tenure and mix of workhours, we found the difference in pay to be, on average, $8.27 per hour. There are a variety of acceptable methods for conducting cost savings estimates, but all estimates should include all the relevant factors driving costs and be clearly documented. The GAO Cost Estimating and Assessment Guide a best practices guide for developing and managing program costs states that estimates should include a common set of agreed-upon estimating standards and ensure that assumptions are not arbitrary. USPS officials said that they do not have guidance for how to develop these estimates, including what significant factors should be considered. Given that USPS regularly evaluates and manages employee compensation in its labor negotiation, as well as overall budget planning, without guidance on what factors are necessary to consider when developing employee compensation cost estimates, USPS risks making ill-informed decisions about whether to maintain, or make additional, changes to compensation. <3.3. USPS Did Not Factor Other Costs into Its Savings Estimates> Based on interviews with USPS and postal employee union officials, as well as recent research by the USPS OIG, we identified additional costs that USPS did not factor into its cost savings estimates related to lowering employee pay and benefits. Specifically, USPS did not include the impact of the changes on recruitment and turnover of non-career employees in its cost saving estimates, both of which could have a significant impact on the overall level of savings. <3.3.1. Recruitment Costs> Both USPS management and postal union representatives discussed the impact of lower pay on recruitment of non-career employees. Officials from two unions told us USPS is having a harder time recruiting and retaining some non-career employees, especially minorities and veterans because of the lower pay. In July 2019, USPS OIG reported that a post office in Denver had constant challenges filling letter carrier vacancies due in part to USPS s inability to offer competitive compensation. The report noted that a high number of vacancies affected carriers ability to complete their routes on time, contributing to excess overtime and penalty overtime. USPS officials stated that with very few exceptions USPS has had little trouble attracting applicants to non-career positions. One example of an exception USPS officials provided was that in fiscal year 2018 USPS increased pay for non-career seasonal holiday workers to make it more competitive. USPS and postal union officials also told us that USPS had trouble specifically hiring truck drivers at the non-career pay scale. In addition to lower pay compared to the private sector, a high demand for drivers and low unemployment rates across the industry has made it challenging for USPS to find enough qualified drivers. In addition to the lower wages, USPS and postal union officials stated that the unpredictable non-career employee work schedules, as well as low unemployment rates, have created additional challenges for recruiting qualified non-career employees. In contrast, USPS officials told us that implementing a lower pay rate for new career employees has not affected recruitment because employees are generally recruited from the non- career employee pool, so these employees get an increase in compensation from their current position. <3.3.2. Turnover Costs> USPS and postal stakeholders also raised concerns about the effect of lower pay on retaining non-career employees and the associated costs. USPS officials told us they expected the turnover rate among non-career employees to increase with the reduction in starting pay, but stated that recent turnover was higher than expected. According to USPS, the average monthly turnover rate for non-career employees has decreased from 3.57 percent in fiscal year 2016 to 3.08 percent in fiscal year 2017 and 3.02 percent in fiscal year 2018. USPS officials told us that USPS strives to keep the turnover rate as low as possible and that overall, postal employees voluntarily leave their jobs at a lower rate than in the private sector. According to two postal union estimates, it costs USPS about $4,000 to $7,000 to hire and train new employees. USPS OIG has reported that turnover costs USPS about $95.1 million in fiscal year 2015, with an additional $23.1 million in fiscal year 2016 and could be $29.8 million in fiscal year 2017. According to USPS officials, the lower pay rate for new career employees has not had a significant impact on employee turnover. New career employees were converted from the pool of non-career employees, who had a lower pay rate than the new career employees, thus getting an equivalent of a pay raise and more benefits. However, USPS provided us with its analysis showing that the turnover rate for career employees with a lower pay rate (average of 4.21 percent per month) was higher than for career employees with a higher pay rate (average of 0.36 percent per month) in fiscal year 2018. According to postal union officials and USPS OIG, decreases in pay and lack of work schedule flexibility have resulted in some negative effects on morale that increased turnover of non-career employees. Union officials told us that some managers have abused the flexibility of non-career employees, such as requiring them to work many consecutive days. In addition, non-career employees do not have regular work schedules and can be laid off for lack of work. Officials at one union told us that non- career employees would prefer being hired as career employees, but have to start as non-career employees before being converted to a career position, and getting such a conversion can take from one to seven years. USPS OIG reported that in exit surveys, non-career employees stated that the lack of schedule flexibility, low pay, and lack of benefits are among the most cited reasons for leaving their job. The report also stated that managers realized cost benefits by using non-career employees to provide coverage for vacation days, sick days, and unscheduled leave for career employees because their hourly rates are less than those of their career counterparts. Union officials also told us that some non-career employees do not receive the necessary training but are expected to perform their jobs correctly from the start. They also said that these new employees are less experienced and are more likely to make mistakes. In addition, they said that managers become upset that new employees cannot do their jobs correctly from the start, which leads to morale issues among employees. USPS officials told us that when they implemented the compensation changes discussed above, they expected higher rates of employee turnover, especially among non-career employees. USPS officials told us that they are developing an assessment of the cost of turnover and the preliminary results have not been validated. Specifically, USPS officials also told us that they have not yet determined how to accurately apply the turnover estimates to the population of employees who leave because some turnover is necessary and preferable. For example, there are seasonal needs for increases in labor hours, such as major holidays or in some vacation areas, and when these employees exit, it is often because the season ends and their employment is not needed. In contrast, other employees leave USPS voluntarily for higher paid, or less difficult, work elsewhere. USPS officials told us they recently began to develop estimates of employee turnover costs, estimates that include costs such as training, background checks, and drug screenings for new employees, and the estimates are preliminary. <4. With Additional Authority to Manage Employee Compensation, USPS Could Further Reduce Costs, but Implementation Poses Challenges> <4.1. Reforms Related to Employee Compensation Are Likely Necessary to Address USPS s Long- term Sustainability> We have reported that legislative reform and additional cost-cutting are needed for USPS to achieve sustainable financial viability. As noted above, compensation costs are about three-quarters of USPS s annual expenditures and many aspects of how USPS compensates its employees are defined in law. As a result, changes to the current statutory requirements for employee compensation are one way to alter USPS s operational costs. A variety of reviews of USPS have also recommended legislative action to help address USPS s long-term sustainability. We examined four broad reviews of USPS and found 12 recommendations that could impact employee compensation costs by amending statutes governing three areas: employee work hours, benefits, and pay. The four reviews we analyzed are: (1) Task Force Review of 2018, (2) Presidential Commission Review of 2003, (3) USPS 2010 Comprehensive Statement, and (4) PRC 2016 Analysis. The recommendations in these four reviews are not exhaustive of all possible statutory changes that could impact employee compensation costs. The recommendations we reviewed also do not include changes to the fundamental business model of USPS, such as privatization, or a return to annual appropriations to finance its operations. We are also not recommending or endorsing the adoption of any of these recommendations, in part, because our cost estimates and limitations discussed below are based on broad policy options and do not take into account many of the specific factors that would need to be determined when implementing any of these options. This information is meant to describe the potential for savings from increasing flexibility related to work hours, benefits, and pay, as well as highlight some potential challenges of implementing those changes. <4.2. Changes to Delivery Requirements Could Have Significant Cost Savings, If USPS Can Overcome Implementation Challenges and Decrease Overall Work Hours> A major driver of USPS s operating costs is delivering mail to nearly every mailing address, regardless of volume, six days per week. USPS s mission to serve, as nearly as practicable, the entire population of the United States, requires a significant, continual use of employee work hours. This is particularly true of the mail carriers who visit addresses each delivery day. Based on USPS payroll data, we found mail carrier compensation in fiscal year 2018 was approximately $24.4 billion, or about 50 percent of compensation costs for current employees. Two of the twelve recommendations we reviewed suggest legislative changes to increase USPS s authority to determine delivery frequency, which would enable USPS to manage work hours more closely to volume. Specifically, the 2018 Task Force report recommended that USPS be given more flexibility to determine delivery frequency. USPS recommended in its 2010 Comprehensive Statement that Congress change the current delivery requirement from six days a week to five days a week. <4.2.1. Potential Savings> Changing the frequency of USPS s deliveries could reduce its employee compensation costs significantly by allowing USPS to reduce work hours, particularly for carriers. Reducing delivery by one day could potentially reduce carrier work hours by a maximum of one sixth or 16.7 percent. Our analysis shows that, based on fiscal year 2018 payroll data, if USPS decreased the current mail carrier hours by one sixth, it could save up to $2.6 billion in compensation costs. This estimate assumes that USPS would reduce work hours from both the career and non-career carrier employee pools. If USPS reduced mail carrier hours from only the non- career carrier workforce by 16.7 percent, it could save approximately $1.96 billion. USPS officials agreed that USPS could potentially save work hours and associated costs due to a reduction in delivery frequency. However, they noted that, even if USPS went to 5-day delivery, it would still deliver packages seven days a week. Under that scenario, USPS has reported estimated savings of $1.4 to $1.8 billion a year. The 2018 Task Force report recommended that USPS be given increased delivery flexibility by allowing USPS to determine delivery frequency. Additional flexibility could result in a range of alternatives. For example, USPS could deliver to addresses every other day (three or four days a week) with optional dynamic routing as necessary up to an additional two days a week, and could potentially save more than 16 percent. USPS has begun to introduce technology and other options within its package handling that might alleviate undue burden caused by such a large decrease in service. For example, USPS now offers informed delivery, which is an email that is sent to mail recipients with pictures of their mail that is to be delivered, and enables people to have better insight into what to expect and when. In 2018, we reported that USPS was piloting keyless parcel lockers where customers could independently pick up their packages; it is possible similar types of backups could be provided for letters. Regardless of the delivery frequency, reducing mail carrier hours is more likely to come through a decrease in non-career employee hours. USPS reports that non-career employees are temporary in nature and can be laid off; therefore, it would be easier to implement hour reductions in this pool of employees. In contrast, if USPS were to reduce hours for career employees, savings would accrue more slowly over time, because career employees are usually covered by no lay-off clauses in their CBAs, and with low turnover rates, USPS would need employees to leave voluntarily. A large portion of the career mail carriers, however, are aging, and it is possible that many will leave through retirement in the next five years. Specifically, in analyzing the USPS payroll data, we found that, in fiscal year 2018, approximately 16 percent of career city carriers are currently 60 or older, with an additional 38 percent between the ages of 50 and 59. Approximately 21 percent of career rural carriers are 60 or older and 38 percent are between the ages of 50 and 59. <4.2.2. Implementation Challenges> Based on our analysis of the recommendations, we identified three potential challenges to reducing delivery frequency: (1) management of work hours (2) redistribution of mail volume; and (3) meeting delivery needs. Management of work hours: Realizing cost savings from a decrease in delivery frequency largely depends on USPS being able to reduce work hours accordingly. Prior USPS OIG and GAO reports have found that in two previous efforts USPS has not successfully decreased labor hours commensurate with a decreased level of service. Beginning in January 2015, USPS revised its First-Class Mail service standards, eliminating single-piece overnight service and shifting some mail from a 2-day to a 3-day service standard. According to USPS officials, these revisions were intended to, among other things, allow USPS to process mail on fewer machines and decrease the need for overnight work hours, which are paid at a higher rate than day time hours. USPS OIG, in its review of this service change, found that mail processing overtime costs increased by $68.4 million, or 9 percent, rather than decreasing. USPS OIG conducted a follow-up study that found USPS was not effectively managing mail processing overtime in fiscal year 2018. USPS management s official response partially agreed with the recommended steps USPS OIG outlined to better manage overtime. In 2012, USPS implemented Post Office Structure Plan (POStPlan), which was intended to reduce work hours at some retail facilities, which USPS estimated would result in about $500 million in annual cost savings. In 2016, we found that this effort likely resulted in less savings than USPS had estimated. According to USPS officials, this is, in part, because USPS had to revise its plan after a union grievance and arbitrator award required it to change the way it was staffing post offices. We also reported concerns with USPS s methodology for determining work hour and compensation savings. Overall, while USPS likely achieved an overall reduction in work hours at thousands of post offices, we found the accuracy of the saving may have been limited by errors we identified. For example, among other issues, we found that USPS had not included the increase in workload, and associated costs, from increasing the number of remotely managed post offices. Distribution of volume: Any reduction of delivery frequency would require USPS to re-distribute its mail volume to the remaining delivery days. In 2010, USPS recommended eliminating Saturday delivery and re- distributing the mail volume from Saturday to the delivery days Monday through Friday, though USPS continues to deliver mail on Saturdays. USPS stated that the additional volume in the remaining delivery days would result in higher mail carrier productivity. However, we reported in 2011 that USPS s ability to efficiently absorb the cost of transferred workload from Saturday to weekdays is a key factor in determining potential cost savings. Meeting Delivery Needs: Another challenge to reducing delivery frequency is that it could reduce the demand and value of USPS products if customers are not getting their delivery needs met. Some stakeholders have raised concerns that a reduction in mail delivery frequency will decrease demand from mailers because products may not reach households in a timely manner. Other stakeholders, however, have stated that reducing delivery frequency is worth pursuing as long as it results in significant cost savings. <4.3. Removing Requirement to Offer Federal Retirement Benefits Could Result in Significant Long-term Savings, Depending on the Replacement Benefits> Federal law requires USPS to provide certain benefits to its employees, which cost USPS billions each year to satisfy. Further, as noted above, USPS is mandated to pre-fund its retiree health benefits, which USPS has failed to do in recent years. Four of the twelve recommendations we reviewed suggest legislative changes to the funding mechanism and requirements for USPS retiree health benefits. In addition, in 2018, we issued a report with options for postal retiree health benefits and noted that it is up to Congress to consider the merits of different approaches and determine the most appropriate action to take. Here, we focus on the other three of the twelve recommendations we reviewed that suggest legislative changes to other USPS retiree benefits. USPS s 2010 Comprehensive Statement and the 2003 Presidential Commission Report both have broad recommendations suggesting that USPS should be allowed to make changes to its retirement benefits package. USPS pays toward the following retirement benefits for current employees: contribution to retirement pension (FERS or CSRS) and contributions to the TSP, Medicare, and Social Security. For the purposes of estimating the impact of decreases in retirement contributions, we estimated savings based on decreases to the cost of pensions (CSRS and FERS) and TSP, and assume no changes to Medicare and Social Security costs. <4.3.1. Potential Savings> Decreases to Retirement Contributions: If USPS was able to decrease its cost of retirement payments made on behalf of current employees by 1 percent, 5 percent, and 10 percent, then we estimate based on fiscal year 2018 payroll data, the potential savings would be about $35 million, $175 million, and $350 million respectively. Implementation of such decreases could include USPS offering lower cost benefits by increasing the employee contribution or lowering the promised benefits. The 2018 Task Force report recommended reform for postal employees under FERS to move away from a defined benefit system where the payment received in retirement is a specified amount towards a defined contribution system where the contribution into the system is a specified amount. There are many different ways to implement this kind of change, and we have not outlined potentially restructuring options. However, CBO has calculated potential savings of increasing civilian employees contribution for FERS and estimates it would save about $20 billion over five years. Decreases to Healthcare Contributions: If USPS was able to decrease its cost of health care payments for current employee coverage by 1 percent, 5 percent, and 10 percent, we estimate, based on fiscal year 2018 payroll data, the potential savings would be about $45 million, $224 million, and $449 million, respectively. If USPS no longer had to offer federal health care coverage for current employees, it is possible that USPS could substitute a less costly alternative. In 2013, we conducted a review of a specific USPS proposal for restructuring its health care benefits, and reported that the change could result in cost savings, but that other issues should be considered, such as exposure of health care funding if investments are made outside of Treasury securities. <4.3.2. Implementation Challenges> Based on our analysis of the recommendations, we identified three challenges to achieving cost savings from changes to employee benefits: (1) union agreement; (2) cost savings timeline; and (3) impact on federal benefit programs. Union Agreement: According to USPS officials, if there was a legislative change that allowed for USPS to alter the current retirement benefits, USPS would need to negotiate future benefits offerings with the unions. Savings, therefore, depend on the ability of USPS and the unions to develop alternative options that meet the needs of the current workforce, but also cost less than the current options. Implementation Timeline: Cost savings are not likely to be realized in the short-term because changes likely will not apply to current career employees. In the past, when Congress has made changes to benefits as when Congress increased the required retirement contribution levels for federal employees under FERS, which also applied to USPS employees it only applied to employees hired after the change was implemented. Therefore, savings would only occur as new employees replace current employees. This is also consistent with the lower pay for new career workers that USPS negotiated with the unions we discussed previously it only applied to new career employees. Federal Benefit Impact: The Presidential Commission Review of 2003 stated that USPS should work with the Department of the Treasury and OPM to determine the impact that separating USPS s pension and retiree health care programs would have on the existing federal systems. With over 600,000 USPS employees, the Presidential Commission review stated that it had concerns about the impact of removing USPS employees might have on the OPM administered fund, which also pays out retirement benefits for other federal employees. <4.4. Legislative Changes to Collective Bargaining Rights Could Result in Decreased Employee Pay and Costs, But Implementation would Be Difficult> Two of the twelve recommendations we reviewed suggest legislative changes to collective bargaining rights, which could result in decreased pay rates. The 2018 Task Force report recommended the elimination of the right of USPS employees to bargain over compensation and that employee pay rates be frozen in the short term, which would lead to a slower rate in growth over time. <4.4.1. Potential Savings> If USPS was provided authority to determine pay rates for its employees without going through collective bargaining, it could reduce employee compensation costs through pay cuts. We estimated the potential annual cost savings associated with USPS implementing cuts for all current employee pay by 1 percent, 5 percent, and 10 percent across all current employees based on fiscal year 2018 payroll data. We find the potential savings to be about $321 million, $1.6 billion, and $3.2 billion, respectively. <4.4.2. Implementation Challenges> Based on our analysis of the recommendations, we identified three challenges to obtaining savings through reductions in pay: (1) difficulty of cutting current workers pay; (2) trade-offs of lower wage rates; and (3) history of collectively bargaining pay. Difficult to cut pay: As discussed previously, pay has been the area in which USPS has made progress in reducing employee compensation costs in the recent past. However, as discussed, the savings mostly comes from implementing lower pay rates for new employees. It is difficult to implement changes that decrease the current pay of workers below what they have previously received. In the private sector, a company can restructure and turnover a portion of the workforce as an effort to decrease compensation. USPS cannot easily turnover and restructure its workforce because of the no layoff clauses. Trade-off effects: Pay cuts to current employees could result in a variety of negative consequences for USPS. According to literature on labor economics, workers who face pay cuts may exhibit behavioral responses including adjusting worked hours, adjusting level of effort for each hour of work, or dropping out from the workforce altogether. Workers may adjust the hours of work from changes in pay for two reasons. First, a pay cut may reduce the incentive for employees to work because each hour of work generates less money than it did before, holding income constant. Second, a pay cut that reduces the income of the worker may induce an employee to work more hours because the employee feels poorer. Changes in pay rates may also change workers morale, and consequently the effort workers exert during worked hours. Economic literature has found that wage cuts can impact the effort workers provide, and that productivity may fall. For example, workers may exert less effort in an attempt to punish the employer for the wage cut, or they may be less worried about job loss because the cost of losing a job is lower after a wage cut. These consequences may be of particular concern as USPS has reported that productivity has stagnated in recent years, and USPS is currently not meeting its standards for on-time delivery service. Finally, pay cuts may also induce some individuals to leave the workforce altogether. Studies have found that the share of the population that is working may be influenced by pay rates. As we discussed previously, USPS has already experienced some difficulty in recruitment and retention as a result of the lower pay for new employees. History of Collective Bargaining: Elimination of collective bargaining rights which could facilitate changes to USPS employee pay would be a major change in management-labor relations at USPS, with possible negative effects on employee commitment and productivity. Unions representing USPS employees have been bargaining over pay since the 1970s. Prior to that time, USPS employees had major strikes over low compensation levels. USPS has a high approval rating from the public, which it attributes, in part, to its employees feeling a sense of duty related to their work. All of the union officials we spoke with said that they would not support the removal of collective bargaining rights over pay. One union official stated that both parties are better served through working as a team to meet the needs of postal customers at reasonable cost. <5. Conclusions> USPS has made changes to employee compensation and saved billions through these efforts. USPS, however, has not achieved financial sustainability. USPS overestimated its cost savings from the employee compensation changes because it did not include significant factors such as tenure and mix of work hours when developing its estimates. In addition, USPS did not weigh the costs of tradeoffs, such as an increase in turnover, which likely further limits cost savings. Cost estimates that include the significant factors driving compensation costs would help USPS make better informed decisions about how to use, and potentially change, its workforce. Quality estimates are also important for USPS to make a business case for additional employee compensation changes, which it does regularly as it negotiates employee contracts and will be doing as it develops future strategic plans. Additionally, as Congress considers USPS reform legislation, comprehensive cost estimates will improve policymakers ability to fully assess savings, as well as costs associated with any efforts and associated implications for managing USPS compensation. <6. Recommendation for Executive Action> We are making the following recommendation to USPS: The Postmaster General should direct executive leaders to develop guidance for cost savings estimates related to employee compensation specifying that analysis used to calculate estimates should, to the extent possible, include significant factors, such as work hours, tenure, and turnover. (Recommendation 1) <7. Agency Comments and Our Evaluation> We provided a draft of this report to USPS for review and comment. USPS provided written comments that are summarized below and reprinted in appendix III. In its written comments, USPS agreed that quality decision-making rests upon quantitative analysis using the best available data. In that respect, it stated that it accepts the recommendation to more formally articulate internal guidance for developing cost savings estimates to ensure appropriate factors such as work hours, tenure, and turnover are taken into account when evaluating potential business outcomes. USPS disagreed, however, that the lack of formal guidance adversely affected USPS s ability to develop appropriate cost estimates. As discussed in detail in the report, we found that USPS s analysis potentially overestimates savings because it did not take certain factors into account. Specifically, in its comments, USPS identified issues related to our findings about their cost-estimation analysis. For example, our analysis, which relied on USPS payroll data, showed that non-career employees have generally worked more overtime hours when compared to career employees. Although USPS did not dispute this finding, it said it believed our analysis reflected erroneous assumptions about the source and administration of overtime because we described some possible reasons for the overtime patterns we saw based on our analysis and other research. We did not intend to determine the full cause of overtime hours and how they are distributed among employees, rather, our analysis sought to identify important factors in employee compensation costs, and found that the mix of work hours was important and varied across types of employees. We also found that USPS estimates had not taken differences in the mix of work hours into account and in assuming that career and non-career employees work similar types of hours, USPS potentially overstates the savings from non-career employees. USPS agreed to take work hours into consideration in future cost estimates and this may provide a more accurate assessment of costs, and better opportunity to target future efforts to manage workforce costs. Regarding our analysis related to recruitment and retention issues among non-career employees, USPS stated that it disagreed with our statements regarding wages for non-career workers and their purported impact on recruitment of certain employees. It said that USPS has little trouble attracting applicants to non-career positions, and we made changes to the report to reflect this view. Regarding turnover, USPS acknowledged that turnover among certain groups will be higher and they account for these turnover rates in their analysis. However, we found that USPS did not fully account for costs associated with these turnover rates in the analysis they provided us. With a higher than expected turnover rate among non-career employees, which have become a significantly larger percentage of its workforce, USPS should be accounting for the additional costs of on-boarding of employees, like recruitment and training. USPS stated that, in response to the recommendation, it will incorporate the cost of turnover into future analysis. We are sending copies of this report to the appropriate congressional committees, the Postmaster General, Chairman of PRC, 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) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff making key contributions to this report are listed in appendix IV. Appendix I: GAO Analysis of USPS National Payroll Data, Fiscal Years 2009 through 2018 To support all parts of this review, we requested and received U.S. Postal Service (USPS) national payroll data for fiscal years 2009 through 2018. We specifically requested individual level payroll data for all ten years; however, individual employee level data before fiscal year 2016 were not readily available. For fiscal years 2009 through 2015, we received aggregate data at the post office level, and for fiscal years 2016 through 2018, we received the data at the individual level. For both sets of data, USPS provided point-in-time data at the end of the fiscal year. <8. Data Reliability> We conducted a data reliability assessment and found that, for describing general trends, the fiscal years 2009 through 2015 payroll data provided at the post office level was sufficient for our purposes. However, for evaluating policy changes to employee compensation, only fiscal years 2016 through 2018 payroll data provided at the individual level were appropriate. To assess the reliability of the payroll data for fiscal years 2009 through 2018, we reviewed technical documentation for the dataset, related publications, and information on USPS and Bureau of Labor Statistics websites about employee compensation. We performed several analyses in order to validate that these data were appropriate to use for the purposes of our work. We spoke with USPS payroll data specialists to discuss known limitations and issues with the data. USPS officials informed us that they do not keep a data dictionary for the entire payroll system because it is a conglomerate data system with over 40 sub- databases. However, we were able to obtain documentation on the variables relevant to our analysis to understand the definitions and limitations of those variables. We found the individual level payroll data provided for fiscal years 2016 through 2018 reliable for the purpose of examining policy changes to manage employee compensation, and to determine the effect of potential legislative changes to USPS employee compensation. To describe recent trends in USPS employee compensation, we analyzed high-level trends in the payroll data for fiscal years 2009 through 2018. We compared our analysis of USPS national payroll data with USPS annual reports to Congress and financial forms filed as a result of Securities and Exchange Commission requirements, from fiscal years 2009 through 2018. While we found that the data do not match exactly, we found that our estimates are close to reported USPS numbers for each year, (see table 2). We had several discussions with USPS payroll data specialists to clarify how to use the payroll data and ensure that the payroll data were reliable for reporting on changes in hours and overall compensation. <9. Data Analysis> To examine the results of recent actions taken by USPS to manage employee compensation costs, we identified three major changes implemented through collective bargaining agreements aimed a decreasing the cost of employee compensation. To evaluate the impact of these changes, we analyzed USPS payroll data. Using these data we developed models to determine trends in compensation based on worker characteristics, including pay rate, participation in various benefits, and career or non-career status. We analyzed data to determine the costs savings accrued by USPS from having undertaken changes to compensation in recent years. We also analyzed the data to determine the effect of potential legislative changes to USPS employee compensation. <10. Data Source> We received USPS National Payroll data from fiscal years 2016 through 2018 for individual employees with a detailed summary of a worker s pay, benefits, and hours worked. Pay data include pay for straight time, overtime, and other time with pay differentials (Sundays, nights, holidays, and Christmas), and leave, including annual, sick, holiday, military and other types of leave. See table 3 for a summary description of the types of pay and hours. For each pay category (e.g., straight time, overtime), USPS provided information on the number of hours worked by each worker in a given fiscal year. Benefits include health insurance payments, pension contributions (FERS, CSRS and Dual CSRS with Social Security) and Thrift Savings Plan (TSP), life insurance, Social Security, and Medicare (see table 4). The data contained detailed information on the worker s earnings, benefits, and hours of work and some characteristics, including age, and the worker s start and separation dates, if the worker has separated from the USPS. We examined postal employees classified as career or non-career within each of the four main crafts based on the type of work performed. We separated employees into their respective craft and career or non-career status based on their Designation Activity Code. We used these individual-level data to estimate total compensation costs based on observable characteristics of the workers. <11. GAO Analyses> This section discusses the quantitative analysis methods we used to determine the results of recent actions taken by USPS to manage employee compensation. Table 5 presents the numbers of employees in the postal workforce for fiscal years 2016 through 2018, within four crafts city carriers, rural carriers, mail handlers, and clerks and other employees not in the four crafts. Table 6 presents average pay, average benefits, average compensation, and the median age for postal workers by craft and career status. We examined the mix of straight and premium hours between the higher pay (Tier-1) and new career employees hired at the lower starting pay (Tier-2). We used USPS individual-level payroll data for fiscal years 2016 through 2018. Table 7 summarizes the effective dates for the lower starting pay for new career employees by craft. Table 8 summarizes differences in hours between these two groups among full-time equivalent employees. We examined several types of work hours. Straight time hours include all reported straight time hours in a fiscal year. Overtime hours include overtime work, penalty overtime, holiday work, and Christmas hours. Premium hours include hours worked in night work and Sunday work hours. Our analysis does not adjust for characteristics that can affect hours such as age or tenure. <12. Work Hours for Tier-1 and Tier-2 Career Employees> We found that Tier-2 employees worked a higher number of straight hours. Furthermore, carriers who are Tier-2 employees also worked a larger number of overtime hours. Among mail handlers, Tier-2 employees worked a higher number of night work and Sunday work hours (see table 8). To the extent that Tier-2 employees work more overtime hours, and assuming a similar productivity between the two tiers of employees, USPS may be miscalculating the effect of the lower pay rate on costs. To analyze the results of hiring more non-career employees, we examined differences in hourly compensation (pay and benefits) between career and non-career postal employees, and estimated cost savings from moving to a workforce with more non-career employees. The analysis examined the entire workforce, within the four different crafts (i.e., city carrier, clerk, mail handlers, and rural carriers) and the remainder of the workforce excluding employee from the four crafts (termed as other ). = + 1 + + + + + + (2) Equation (2) predicts work hours, hourly pay, benefits, and compensation as a function of individual characteristics. All models are estimated using Ordinary Least Squares (OLS). <13. Outcome Variables> (1) We examined several types of work hours. Straight hours include all reported straight hours in a fiscal year. Overtime hours include overtime hours, penalty overtime, holiday work hours, and Christmas work hours. Premium hours include hours worked in night shift differential and Sunday premium. Total work hours include straight time, overtime, holiday hours, Christmas work, and penalty overtime. We do not include night shift differentials and Sunday work in the calculations for total worked hours as these hours are already captured under straight hours. We also exclude from work hours any leave. (2) Per hour pay is defined as earnings for worked hours divided by total worked hours. Earnings for worked hours includes payments for straight time, overtime, holiday hours, Christmas work, penalty overtime, and premiums for night and Sunday work. (3) Hourly benefits include USPS contribution to health insurance, life insurance, retirement, TSP, Social Security and Medicare, and dollars associated with leave (see table 4). These variables were calculated by summing over all benefits and dividing by total work hours. (4) We calculated hourly total compensation by summing over hourly wage compensation and benefits that USPS paid to employees. The value of total compensation is divided by total work hours which include total work hours. <14. Control Variables> The NonCareer variable ( ) is a dummy taking the value of describing the employee s position. The parameter 1 identifies how 1 for non-career employees and zero for career employees. We were 1 for non-career employees and zero for career employees. We were able to generate this variable based on designation activity codes different (if at all) non-career employees hours, pay, benefits and compensation are relative to career employees. To account for other variables that could be driving differences in pay, benefits and compensation between career and non-career employees, we included the variables described below in the estimation. Employee craft ( ,) are a series of binary indicators for city carriers, Finance unit binary indicators ( ), control for level difference in clerks, mail handlers, rural carriers, and the other employees category. City carrier is the benchmark category. These indicators were excluded in the results by craft, but were included in results for the entire workforce. demand between finance units (usually post offices), but also implicitly account for level differences in local level unemployment rates during the period of our study. Age, and age squared capture differences in potential labor market year as fiscal year minus the year of birth for the employee. Tenure and tenure squared describe years of experience with USPS began working for the USPS and the fiscal year in the data. To account for time effects that could affect compensation and The error term ( ) captures differences in earnings and experience and were included in ( ). We defined age in each fiscal ( ). We defined tenure as the difference between the year a worker 2018( ). earnings we included year indicators for fiscal years 2016 through compensation that are not observed in our data. We adjusted earnings and compensation by the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W), and present values in 2018 constant dollars. We cluster all errors at the finance unit level to allow for correlation in errors between those within the same finance unit. Indexes i, c, and t designate the individual (i), cohort of hire (c) and time (t). <15. Sample Selection> Many non-career employees work a limited number of hours each year, because employees who work on short contracts may have different preferences about the number of work hours that they are willing to supply. Therefore, comparing the outcomes of those who work a limited number of hours to those who work on a full-time basis does not generate a valid comparison. We do not observe preferences for flexible work- schedules in our data, and as a result, analysis comparing individuals with different work schedules would be subject to omitted variables that could bias our estimates of cost differences between career and non- career employees. To facilitate a closer comparison between career and non-career employees, we restricted the sample to those employees who work more than 1,820 each year (excluding leave) which we computed by assuming a 35 hour work week. Furthermore, we excluded those who worked more than 80 hours a week, or the equivalent of working 4,160 hours each year. We refer to these employees as full-time equivalent employees, because their hours are equal to or exceed the full-time equivalent of 35 hours per week. Our analysis relied on payroll data, and these data have not been collected for research purposes. We limited our analysis to those with positive benefits and compensation per hour. We excluded from the sample those earning wages below the federal minimum wage ($7.25 per hour) in the study period. Our data on hourly wage, benefits, and compensation included values in the thousands of dollars. We considered these values to be aberrations related to adjustments in the payroll system. To address these values, we excluded observations that were above the 99.5 percentile for hourly wages, benefits, and compensation for a particular craft and in a fiscal year. Our final analytical sample included 1,373,717 observations over the three years of data, from fiscal years 2016 through 2018. <16. Limitations> The analysis described adjusted differences in components of compensation, but does not adjust for many characteristic differences among the different categories of employees that may matter in determining outcome variables (e.g., aptitude, gender, and race). The tenure variable is likely mis-measured because non-career employees may have previously been employed by USPS in some other capacity, but given that our individual-level dataset goes back to fiscal year 2016, we do not have previous USPS job experiences for these employees. Because the analysis restricted the data to those working between 1,820 and 4,160 hours a year, we were modeling the USPS workforce that is employed with USPS on what would be considered a full-time basis. While non-career employees on short-term contracts are expected to work a full-time schedule, we do not observe start and separation dates for these non-career employees in our data. As a result, the analysis including these employees cannot be conducted as we would be making assumptions about unobserved preferences of individuals who work on a full-time basis and those who do not. <17. Results> Unadjusted differences in work hours and hourly pay, benefits, and compensation can be found in table 9. We note that these differences compare full-time equivalent employees with non-career and career status. For the entire workforce, differences in work hours existed between career and non-career employees. For example, the average non-career employees worked 115 more straight time hours, 94 more overtime hours, and 6 more night and Sunday premium hours. Regarding differences in the hourly wage, benefits and compensation, we observe a difference of $11 in hourly pay, $14 in benefits per hour, and $25 in overall compensation between career and non-career employees. While these unadjusted differences capture the overall rate differentials between career and non-career employees, they do not account for the differences in characteristics in the career and non-career workforce. The majority of the USPS career workforce is comprised of employees who have been with USPS for a long time. In contrast, the non-career workforce, by its very function, is more flexible and comes and goes based on demand for postal products and services. Consequently, the non-career workforce may have less of an opportunity to accumulate on- the-job experience (tenure) with USPS. Previous literature finds that wages rise with tenure. As such, these large unadjusted differences between career and non-career employees can be attributed in part to the extensive on-the-job experience of career employees. To account for these differences, and other differences in labor market experience, we present adjusted estimates among the career and non-career workforce in table 10. <18. Work Hours for Career and Non-Career Employees> Results from the analysis that controls for differences in employee characteristics are summarized in table 10. Differences in work hours indicate that full-time equivalent non-career employees perform 30 more straight time hours, 73 more overtime hours, and 23 more night and Sunday work hours. We observe variation in these estimated effects by craft. For example, differences in straight time hours are largest for clerks and mail handlers, followed by others, and city carriers. In contrast, the highest differences in overtime hours are observed for city and rural carriers, no differences in hours worked between career and non-career clerks. We also found that non-career mail handlers and other employees work fewer overtime hours relative to their respective career counterparts. The use of night and Sunday differential is higher among non-career city carriers and clerks, while it is lower for non-career mail handlers. While we found a small statistically significant effect for non-career rural carriers, this effect is relatively small given that rural carriers perform a very limited number of hours at night and on Sundays. We found that non-career employees receive $2.10 less in pay per hour, $6.17 less in benefits per hour and $8.27 less in compensation per hour. Examining the differences in pay by different types of work hours reveals that the largest difference in pay exists for overtime hours, where pay is $3.42 less among non-career relative to career workers. The difference in pay is $2.23 per hour, and while differences for night shift and Sunday differential are present, they are smaller at 13 cents per hour. Examining the effect across crafts, we find that clerks have the largest difference in per hour compensation at $8.43, followed by $8.04 for rural carriers, $7.72 for mail handlers, and $7.25 for city carriers. We also describe differences for the category of employees designated as other, which includes all other employees not designated as carriers, clerks and mail handlers. Among these employees, non-career employees receive $10.79 less in hourly compensation relative to career employees. These findings contrast with the findings in table 9, where we do not adjust for differences in characteristics between career and non-career employees. Adjusted differences are approximately 19 percent of the unadjusted difference in hourly pay, 43 percent of the unadjusted difference in benefits, and 33 percent of the difference in hourly compensation, highlighting the importance of controlling for employee characteristics in estimating difference in pay between career and non- career employees. <19. Estimated Savings from Hiring Non-career Employees> We estimated savings USPS generate by hiring non-career employees, by calculating all hours serviced by non-career employees and multiplying this number by the difference in compensation estimate for the entire workforce ($8.27 per hour). Our calculations indicate that USPS was able to save $2.3 billion in fiscal year 2016, $2.1 billion in fiscal year 2017 and $2.2 billion in fiscal year 2018 from using non-career employees. To analyze the result of USPS reducing its contributions to health insurance premium for active employees, we examined the differences in cost of these contributions. We assumed that in the absence of decreases in the contribution percentage each year, USPS would continue to contribute health insurance premiums at the 2008 rate of 85 or 84 percent (see table 11). We examined employees with positive health insurance premiums contributions and generated average contributions per employee. We then calculated health insurance costs in the absence of any contributions by dividing the cost paid by USPS by the percentage contribution in each year (see table 11). We generated per employee savings by comparing the dollar values between what USPS paid each year and what it would have paid under an 85 or 84 percent contribution. We generated total savings by multiplying the number of employees who took up these plans by the savings per employee. We present these results in table 12. Our results indicated that the reduction in USPS health insurance contributions generated savings of $429.45 million in fiscal year 2016, $438.14 million in fiscal year 2017, and $513.77 million in fiscal year 2018, or $1.38 billion for the entire three year period. <20. Limitations> Our analysis does not model changes in health insurance participation arising from workers who drop insurance as a result of having to contribute a higher percentage of their health insurance costs. To understand the potential effects of changes to USPS employee compensation that would require legislative or statutory change, we conducted several analyses to estimate potential costs and savings from these changes. We examined the impact of (1) eliminating one day of delivery, (2) reducing benefits, such as shifting additional costs of health insurance premium to active employees, and (3) cutting employee pay across the board. <20.1. Eliminating One-Sixth of Delivery Hours> Eliminating some of the current mail delivery would have varied effects on employees based on their craft. If all delivery were stopped for one day that USPS currently delivers mail, work hours for carriers may be reduced by a maximum of one-sixth but work hours for clerks, mail handlers, and other employees would not be affected in the same way. We examined two ways to reduce employee compensation costs, by cutting hours (1) across all career and non-career carriers (city and rural) and (2) only for non-career carriers. Cutting work hours for career and non-career carriers by one-sixth: We aggregated over all work hours for career and non-career city and rural carriers for fiscal year 2018. We multiplied the number of hours under a one-sixth hours reduction by the average pay for hours worked for city and rural carriers. We generated yearly savings for rural and city carriers. Our analysis suggests that cutting mail carrier hours by one-sixth, through a reduction in delivery frequency may have saved USPS $2.6 billion in fiscal year 2018. Cutting work hours for non-career carriers by one-sixth: We aggregated over all work hours for career and non-career city and rural carriers. We then reduced this amount of work by one-sixth, to roughly approximate a cut in hours on average equivalent to cutting one day of delivery for all carriers regardless of career status. We multiplied the hours by the pay of non-career carriers (i.e., rural and city carriers) and estimated savings generated if the one-sixth cut was applied only to non-career carriers. We expected the savings to be less than the scenario presented above, since non-career carriers receive a lower per hour wage rate. We also calculated the percent reduction of work hours for non-career workers that would be necessary to eliminate one day of delivery. Our analysis suggest that reducing non-career hours by the equivalent of cutting one-sixth of all carrier hours may have saved USPS $1.96 billion in fiscal year 2018. These cuts would imply a decrease in non-career hours of 49 percent for rural carriers and 69 percent for city carriers. <21. Limitations> This analysis does not account for substitution between hours worked. For example, cutting Saturday delivery may shift workers to work more overtime or premium time pay categories. The analysis assumed carrier productivity per hour does not vary with career status, and is not affected by cuts. Finally, it assumed that benefits do not change, but to the extent that benefits are a function of income they may also be reduced. <21.1. Reducing Benefits for Postal Employees> We examined the overall effect of cutting benefits by 1.0 percent, 5.0 percent, and 10.0 percent for all employees. We considered the entire workforce and examined the total payments USPS contributed to health insurance and retirement accounts (e.g., FERS, CSRS, and TSP). Reducing Health Insurance Premiums: We examined the effect of reducing USPS s contributions toward employee health insurance premiums by 1.0 percent, 5.0 percent, and 10.0 percent, by aggregating all health insurance contributions that USPS made on behalf of all employees in fiscal year 2018 and applying these respective cuts. The analysis does not account for the fact that health insurance participation may fall because the USPS contribution cuts would shift a higher proportion of the cost of insurance to workers. We present the results in table 15. Reducing Retirement Contributions: To examine the effect of cuts of 1.0 percent, 5.0 percent, and 10.0 percent in USPS retirement contributions (FERS normal cost) and USPS TSP contributions, we aggregated over all such USPS contributions for all USPS employees participating in these plans, and applied these respective cuts to contributions for fiscal year 2018. One limitation of this analysis is that it does not account for the change in work hours and, as a result, in compensation from the cut in these benefits. We present results in tables 16 and 17. To examine the effect of cuts of 1.0 percent, 5.0 percent, and 10.0 percent in USPS employee pay, we determined the total work hours (straight, overtime, other hours) and average pay rates for all USPS employees. We performed the following calculations. <21.2. Results for Direct, Indirect and Total Effect of Wage Cuts> 1.0 percent reduction in pay: hours* wage= hours*(wage*0.01) 5.0 percent reduction in pay: hours* wage = hours*(wage*0.05) 10.0 percent reduction in pay: hours* wage= hours*(wage*0.10) We found the cost savings associated with cuts of 1.0 percent, 5.0 percent, and 10.0 percent across all current employees are $322 million, $1.61 billion, and $3.22 billion respectively for fiscal year 2018. <22. Secondary Effects of Wage Cuts> Across the board wage cuts will produce both direct and indirect effects on overall compensation costs for USPS. In the section above, we provided a calculation of the savings that USPS may realize from the direct effect of a policy that cuts worker pay. The direct effect implies that a pay cut reduces the total wages paid. For example, a 10 percent reduction in pay should reduce the total wage paid by 10 percent, other things constant. However, workers who face pay cuts may exhibit responses to wage cuts that include: adjusting hours worked, adjusting their level of effort for each hour of work. These responses may negate or reinforce additional savings from a wage cut and are examples of indirect effects of wage cuts. Workers may adjust the hours of work from changes in wages, as these wage changes produce to both substitution and income effects on hours worked. The Substitution Effect implies that a pay cut reduces the incentive for employees to work because each hour of work generates less money than it did before, decreasing the opportunity cost of leisure (the time spent not working for pay), holding income constant. Thus a reduction in pay could lead to additional reductions in work hours that employees are willing to supply. Consequently, the reduction in pay may lead to additional savings for USPS in its labor costs from the substitution effect. In contrast, the Income Effect implies that a pay cut reduces the income of the worker; this reduction in income induces the employee to work more hours because the employee feels poorer. The income effect would therefore increase the hours worked, and could lead to reductions in savings for USPS. Income and substitution effects generally run in opposite directions, and uncertainty regarding which effect will dominate determines the overall effect on hours worked. A recent review of the literature from the Congressional Budget Office finds that combined hour elasticities that incorporate both income and substitution effects range between 0 and 0.2. These combined hours elasticities would suggest that a 10 percent cut in wages would reduce hours between zero and 2 percent (0.2*10%). While we are aware that the estimates from the general population may not extend to the USPS workforce, we provide the above example for illustrative purposes. While the effect on workhours from a change in wages may appear small, given the overall hours serviced by USPS each year adjustments in hours arising from wage cuts may produce nontrivial changes in USPS compensation costs. Changes in wage rates may change workers morale, and consequently the effort workers exert during work hours. Economic literature finds that wage cuts can impact on the effort workers provide, and that productivity may fall. For example, workers may exert less effort in an attempt to punish the employer for the wage cut, or they may be less worried about job loss because the cost of losing a job is lower after a wage cut. It is important to note that wage cuts may also induce some individuals to leave the USPS workforce altogether. Estimates of participation elasticities in the literature range between zero and 0.2. Participation elasticities capture the percentage change in the share of the population that is working resulting from a 1 percent change in wage rates. These estimate elasticities would imply that a 10 percent wage cut could be met with a reduction in the USPS workforce between 0 and 2 percent. As we previously noted, it is not clear that these population estimates extend to the USPS workforce, thus we believe examining these effects from USPS workforce data may be an important step in understanding the potential changes in workforce that wage cuts may generate. Appendix II: Reports GAO Reviewed and their Recommendations for Legislative Changes to USPS Compensation We reviewed four reports and identified twelve recommendations that proposed legislative changes that relate to USPS employee compensation (see table 19). We categorized these recommendations as having the potential to impact wages, benefits, or required work hours. The reports we reviewed were: 1) 2018 Task Force Report: United States Postal Service: A Sustainable Path Forward. Report from the Task Force on the United States Postal System, U.S. Department of the Treasury. December 2018. 2) 2016 PRC Analysis: Section 701 Report: Analysis of the Postal Accountability and Enhancement Act of 2006, Postal Regulatory Commission, November 2016 3) 2010 USPS Comprehensive Statement: Foundation for the Future: 2010 USPS Comprehensive Statement on Postal Operations United States Postal Service. 4) 2003 Presidential Commission Report: Embracing the Future: Making the Tough Choices to Preserve Universal Mail Service. Report of the President s Commission on the United States Postal Service, July 2003. Appendix III: Comments from the U.S. Postal Service Appendix IV: GAO Contact and Staff Acknowledgments <23. GAO Contact> <24. Staff Acknowledgments> In addition to the individual named above, Kyle Browning (Assistant Director); Jade Winfree (Analyst-in-Charge); Thanh Lu, Silda Nikaj; Josh Ormond; Steven Putansu; Oliver Richard, Frank Todisco, Michelle Weathers; Seyda Wentworth; and Crystal Wesco made key contributions to this report.

Why GAO Did This Study USPS faces major financial challenges. In the last 11 years it has lost over $69 billion; an issue for an organization that is to be self-sufficient. Significant USPS expenses are concentrated in employee compensation—72 percent of its costs in fiscal year 2018—and USPS has taken actions to decrease these costs. GAO was asked to review issues related to USPS's employee compensation. This report examines: (1) recent trends in postal employee compensation, (2) the results of recent USPS efforts to manage compensation and (3) potential effects of proposed changes to employee compensation that would require legislative change. GAO analyzed USPS employee payroll data from fiscal years 2009 through 2018 to determine compensation trends and impacts of management efforts to manage compensation. GAO reviewed relevant legal documents, USPS policy documents and collective bargaining agreements. GAO assessed four broad reviews of USPS including recommendations for legislative change related to pay, benefits and required workhours. GAO also interviewed USPS officials, officials representing USPS employee unions, and industry and mailer stakeholders. What GAO Found Compensation costs for current United States Postal Service (USPS) employees are $9 billion lower than 10 years ago, when adjusted for inflation (see fig). Most of the decline happened in fiscal years 2009 through 2014 as a result of reductions in the number of USPS employees and the hours they worked. While compensation costs have increased in recent years, USPS reports that more work hours were necessary to handle growth in delivery points and labor intensive packages. In recent years, USPS has also failed to make required payments for retiree health and pension benefits—a total unfunded liability of about $110 billion. Compensation Costs for Current USPS Employees for Fiscal Years 2009 through 2018 USPS estimates a savings of about $9.7 billion from fiscal years 2016 through 2018 as a result of paying new employees less, among other efforts. GAO substantiated about $8 billion in savings, and found that USPS's cost savings estimates are likely overstated because they do not fully account for changes in work hours or tenure of employees. Also, USPS did not account for other costs such as increased turnover rates among lower-paid employees. USPS lacks guidance on what factors to consider in its cost savings estimates, and as a result may make future changes to employee compensation based on incomplete information. Changes to employee compensation that would require legislative change could save USPS billions, but the amount saved is dependent on USPS overcoming implementation challenges. If USPS could reduce delivery frequency and associated work hours, GAO estimated USPS could save billions a year. However, other recent USPS reductions in service have not fully achieved planned work hour reductions due to, among other things, issues with management of work hours and lack of union agreement. Changing employee pay and benefit requirements could also achieve significant long-term savings, but saving depends on USPS overcoming challenges, such as potential increases in turnover and reduced productivity resulting from decreases in pay and benefits. What GAO Recommends GAO recommends that USPS develop guidance that specifies that cost estimates include important factors, such as turnover. USPS accepted this recommendation stating it would formally articulate internal guidance to ensure appropriate factors are taken into account when developing cost estimates and evaluating outcomes.

gao_GAO-19-629

gao_GAO-19-629_0

<1. Background> Federal agencies conduct a variety of activities related to animal research. These activities include: funding intramural research conducted by agency personnel at federal facilities; funding extramural research conducted by universities, industrial firms, and other nonfederal entities through contracts, grants, or cooperative agreements; establishing guidelines for regulating products that may have been tested for safety or efficacy using animals; and overseeing the welfare of animals used for research. Table 1 shows key activities related to animal research or use that HHS, USDA and EPA and their component agencies and offices are involved in through their funding of intramural and extramural research and regulation of products. Some agencies within USDA and HHS have roles in overseeing animal welfare at federal and nonfederal research facilities. Under the Animal Welfare Act and its implementing regulations, USDA s APHIS oversees federal and nonfederal research facilities to ensure the humane treatment of covered species of warm-blooded animals when they are used in research, teaching, testing, or experimentation. These species include dogs, cats, nonhuman primates, guinea pigs, hamsters, rabbits, horses used for research purposes, and (with certain exceptions) other warm- blooded animals. Requirements under the act related to consideration of alternatives to animal research include the following: Under the act, research facilities are to appoint an animal care and use committee to, at least semiannually, review the facility s program for humane care and use of covered animals, inspect all facilities, and prepare reports of its evaluation. The committee is responsible for reviewing research proposals to determine whether the proposed activities are in accordance with the act. This includes a review of research proposals to determine whether researchers have (1) considered alternatives to procedures that may cause more than momentary or slight pain or distress to covered animals and (2) have provided a written narrative description of the methods and sources they used to determine that alternatives were not available. The committee can ask a researcher to explain why any alternatives found are not used in the researcher s proposal or withhold approval of the proposal. Facilities that used or intended to use live covered animals in research are to submit a retrospective annual report about those animals to APHIS on or before December 1 of each calendar year. In particular, the annual reports are to include an assurance that each researcher considered alternatives to painful procedures. HHS s NIH is responsible for establishing guidelines implementing certain provisions of the Health Research Extension Act of 1985. NIH s responsibilities under the act include reviewing federal and nonfederal research facilities vertebrate animal care and use programs to determine whether they meet relevant standards and are thereby eligible to receive funding from HHS agencies covered by the act, including NIH. NIH implements the animal care provisions of the act through its Public Health Service Policy. The policy s requirements related to research facilities consideration of alternatives include the following: Consistent with the act, NIH s Public Health Service Policy directs facilities to provide for NIH s approval a document that describes their vertebrate animal care and use program and that provides assurances that the research institution meets applicable standards. Such assurances must include a synopsis of training or instruction in research or testing methods that minimize the number of vertebrate animals required to obtain valid results and minimize animal distress and that the facility offers to scientists, animal technicians, and other personnel involved in animal care, treatment, or use. As a condition of receiving funding for animal research from HHS agencies, facilities must, for the most part, adhere to the eighth edition of the Guide for the Care and Use of Laboratory Animals (Guide). The Guide states that in preparing and reviewing research protocols, researchers and animal care and use committees should consider the availability or appropriateness of using less invasive procedures, other species, isolated organ preparation, cell or tissue culture, or computer simulation. The Guide does not limit this to research that is painful or distressful. NIH conducts site visits at selected research facilities to assess compliance with the act. Whereas the Animal Welfare Act applies to certain warm-blooded animals, the definition of animals used for the purposes of the Health Research Extension Act covers all vertebrates, including the mice, rats, and fish species commonly used in laboratory research. <1.1. Other Relevant Legislation> Other laws relevant to the consideration of alternatives include the following: The National Institutes of Health Revitalization Act of 1993 directs the Director of NIH to prepare a plan to conduct or support research into methods of biomedical research and experimentation that do not require the use of animals, that reduce the number of animals used in such research, and that produce less pain and distress in such animals. The act also directs NIH to prepare a plan for establishing the validity and reliability of the new methods it develops, encouraging the scientific community s acceptance of these methods, and training scientists in using such methods. The act further directs NIH to periodically review this plan and, as appropriate, make revisions and include those revisions in a biennial report. In response to the act, in September 1994 NIH established ICCVAM as an ad hoc committee. The ICCVAM Authorization Act of 2000 directed NIH to establish the ICCVAM as a permanent interagency committee under NIH s National Toxicology Program Interagency Center for the Evaluation of Alternative Toxicological Methods. ICCVAM is administered by the National Institute of Environmental Health Sciences. The act specifies that ICCVAM be composed of the heads (or their designees) of 15 agencies or subagencies, including EPA, agencies within HHS, and USDA. The National Institutes of Standards and Technology joined voluntarily in 2016. The act directed ICCVAM to, among other things, review and evaluate alternative test methods that may be acceptable for specific regulatory uses and to prepare biennial progress reports. Under the act, an alternative test method is one that reduces the number of animals required; refines procedures to lessen or eliminate pain or distress to animals or enhances animal well-being; or replaces animals with non- animal systems or one animal species with a species presumed to have less ability to feel pain, such as replacing a mammal with an invertebrate. In January 2018, ICCVAM published a strategic roadmap articulating its vision to meet its purpose. The Frank R. Lautenberg Chemical Safety for the 21st Century Act amended the Toxic Substance Control Act in 2016 to include language on the use of alternative methods. The act directs the Administrator of EPA to reduce and replace, to the extent practicable, scientifically justified, and consistent with the policies of the Toxic Substances Control Act, the use of vertebrate animals in the testing of chemical substances or mixtures under the Toxic Substances Control Act. The act also directs the Administrator to develop a strategic plan to promote the development and implementation of alternative test methods and strategies to reduce, refine, or replace vertebrate animal testing. <2. HHS, USDA, and EPA Have Used a Variety of Methods to Ensure Researchers Consider Alternatives to Animals> Methods HHS, USDA, and EPA have used to ensure that researchers consider alternatives to animal research include requiring researchers to describe and document their consideration of alternatives. In addition, USDA s APIHS and HHS s NIH help ensure that researchers consider alternatives by overseeing research facilities and these facilities animal care and use committees, including the committees review of animal research protocols. USDA and NIH also provide training to researchers and animal care and use committees to help ensure researchers have considered alternatives. <2.1. HHS, USDA, and EPA Call for Written Descriptions of the Consideration of Alternatives and Recommend a Method for Identifying Alternatives> For research that they conduct or fund, component agencies and offices within HHS, USDA, and EPA call for individual researchers to describe their consideration of alternatives to animal research. USDA s APHIS and HHS s NIH require research facilities to consider alternatives through the agencies implementation of the Animal Welfare Act regulations and Public Health Service Policy, respectively. EPA research is covered by the two laws to the extent that it uses animals covered by the Animal Welfare Act or Health Research Extension Act. Table 3 summarizes the factors that determine whether researchers are required under the acts to consider alternatives. The steps HHS, USDA, and EPA take to help ensure that agency researchers and the researchers that they fund or oversee meet the requirement to consider alternatives include (1) calling for written descriptions of researchers consideration of alternatives and (2) prescribing or recommending that researchers use searches, such as of databases of published scientific literature, to identify alternatives. Call for written descriptions. As specified in the Animal Welfare Act regulations and Public Health Service Policy, HHS, USDA, and EPA call for researchers to send written descriptions of research projects involving animals to animal care and use committees for their review and approval. In particular, the Animal Welfare Act regulations require these committees to determine that researchers have provided a written narrative description of the methods and sources they used to determine that alternatives were not available. The Public Health Service Policy requires that researchers institutions submit written descriptions of research projects to the committees and for the committees to determine that researchers procedures avoid or minimize discomfort, distress, and pain to animals, consistent with sound research design, among other things, and that researchers follow the U.S. Government Principles for the Utilization and Care of Vertebrate Animals Used in Testing, Research, and Training. The principles require the consideration of alternatives. In our review of protocol forms from our sample of 12 research facilities (including HHS, USDA, and EPA facilities), we found that all of the forms requested information on researchers consideration of alternatives, though the forms varied in the particular information they requested. The types of information requested included a rationale for involving animals and for the number of animals to be used, assurance that research activities do not unnecessarily duplicate previous experiments, and a description of the methods and sources used to determine that alternatives were not available. Several of the protocol forms required researchers to identify alternatives considered but not adopted. Recommended method for identifying alternatives. In their implementation of the Animal Welfare Act and Health Research Extension Act, respectively, USDA and NIH consider database searches as a best practice for researchers using animals covered by the acts to identify and consider alternatives to animal testing. A database search involves a researcher using keywords related to the planned use of animals to query citations in databases of published scientific literature. From April 1997 through July 2018, USDA maintained a policy, known as Animal Care Policy #12, in its animal care policy manual. In Policy #12, the agency recommended a database search as the most effective and efficient method for demonstrating compliance with the requirement to consider alternatives to painful or distressful procedures. According to USDA s Deputy Administrator responsible for implementation of the Animal Welfare Act regulations, in July 2018, USDA placed the policy in inoperative status after determining that some research facilities and agency inspectors had misinterpreted the policy as a requirement. Moreover, in response to the 21st Century Cures Act, USDA is reviewing its animal care policy manual, including Policy #12, to ensure the policies in the manual conform with the Animal Welfare Act and its implementing regulations, harmonize with NIH guidance, and reduce researcher burden where possible. According to the Deputy Administrator, as of June 2019, USDA had not decided what, if anything, it would do to revise or replace Policy #12. According to a draft interagency report in response to the 21st Century Cures Act, USDA will make any revised and future policies involving the use of animals available for public comment using regulations.gov or a similar service. However, according to the Deputy Administrator, even though Policy #12 is inoperative, USDA continues to advocate for database searches, particularly through the USDA Animal Welfare Information Center s provision of information to the scientific community about how to search for alternatives. According to a senior NIH official, NIH requires that agency researchers conduct database searches. Also, in a sample animal study proposal form NIH has provided to animal care and use committees, NIH recommends that researchers at other facilities conduct database searches. Furthermore, 11 of the 12 research facilities we reviewed (including HHS, USDA, and EPA facilities) used research protocol forms that required or recommended that their researchers conduct a database search for alternatives to animal research. Agencies may apply additional requirements to individual researchers at their own facilities or through grants they fund, in addition to applying the requirements of the Animal Welfare Act and Health Research Extension Act. For example, CDC s Fort Collins, Colorado, facility requires researchers to provide assurance on their protocol forms that the facility s animal care and use committee s statistician reviewed the form to determine whether the research would use an appropriate number of animals or explain why a review of the number of animals did not occur. Similarly, the Chairman of APHIS s National Wildlife Research Center committee told us that its animal care and use committee includes a biostatistician who conducts an analysis to ensure that the numbers of animals to be used will produce statistically significant results. USDA s National Institute for Food and Agriculture requires applicants for funding from the agency s Agriculture and Food Research Initiative Competitive Grants Program to use statistical power analysis, when appropriate, to determine the sample sizes of animals to be used in research. USDA officials told us that this type of analysis provides a justification for the number of animals needed to provide valid results and helps prevent the unnecessary use of animals. Agencies may also require information on animal use in proposals submitted by extramural researchers. For example, NIH instructs researchers to describe the use of animals in their work in a section of grant applications, contract proposals, and cooperative agreements. Specifically, when submitting a proposal, researchers must justify to agency officials and other reviewers that the species used is appropriate for the proposed research and explain why research goals cannot be accomplished using an alternative model, such as computational, human, invertebrate, or in vitro models. <2.2. APHIS and NIH Oversee the Review and Approval of Animal Research Protocols by Animal Care and Use Committees> APHIS and NIH help ensure that researchers consider alternatives through the agencies oversight of research facilities and these facilities animal care and use committees, including the committees review of animal research protocols. In particular, APHIS collects and reviews annual reports from federal and nonfederal research facilities in which the facilities are required to provide an assurance that researchers considered alternatives. The Animal Welfare Act requires APHIS to annually inspect nonfederal research facilities to determine whether the facilities are in compliance with the act. As part of a facility inspection, APHIS inspectors are to examine whether researchers have met the requirement to consider alternatives to any procedure likely to produce pain in or distress to species of animals covered by the act. According to APHIS officials, inspectors examine a sample of approved animal research protocols to check whether the protocol forms include a written narrative on the consideration of alternatives and to ensure that the facility s animal care and use committee approved the protocol forms. The inspectors may issue citations of noncompliance if they find inadequate documentation that researchers associated with one or more protocols considered alternatives to procedures that may cause more than momentary or slight pain or distress to animals. APHIS provided us with inspection reports for fiscal years 2015 through 2018 in which inspectors issued 57 citations to research facilities for noncompliance with the Animal Welfare Act regulations that require researchers to consider alternatives to animals or issued teachable moments. The inspection reports included some citations that, according to APHIS officials, were incorrectly issued because inspectors interpreted the Policy #12 recommendations on database searches as requirements. In addition, NIH s Office of Laboratory Animal Welfare is responsible for the general administration and coordination of the Public Health Service Policy and provides specific guidance, instruction, and materials to research facilities that receive funding from agencies covered by the act. For all such facilities, NIH is to review the facilities assurance documents describing their animal care and use programs. In particular, the Animal Welfare Assurance document is to describe the procedures including review of animal research protocols that the animal care and use committees follow to fulfill the directives of the NIH Public Health Service Policy. Further, NIH conducts site visits at a small number of facilities. The Public Health Service Policy states that each awardee institution is subject to review at any time by agency staff and advisors to assess the adequacy and accuracy of the institution s compliance or expressed compliance with the policy, and this review may include a site visit. According to NIH officials, when agency staff conduct site visits, they examine the facility s protocol form to confirm that its animal care and use committee requests information from researchers about their consideration of alternatives. NIH officials may also examine a sample of approved protocol forms during a site visit. According to NIH officials, the Office of Laboratory Animal Welfare conducted 38 site visits in fiscal years 2015 through 2018 and found one deficiency related to the consideration of alternatives. <2.3. USDA and NIH Provide Training to Researchers and Facilities Animal Care and Use Committees to Help Ensure Alternatives Are Considered> USDA and NIH have provided training to researchers and animal care and use committee members on the requirements of the Animal Welfare Act and the Health Research Extension Act. The training has addressed, among other things, the requirement to consider alternatives and has included advice on how to search for alternatives. Through its Animal Welfare Information Center, USDA provides training on how to conduct database searches for alternatives to animal research and assists individual researchers with their literature searches. According to USDA staff, the information center provides three workshops per year on meeting the requirements of the Animal Welfare Act, each lasting a day and a half. The workshops are open to anyone working with animals in research, including scientists, veterinarians, librarians, and animal care and use committee members. The center also gives workshops upon request at specific facilities. Additionally, the center s website contains resources for conducting literature searches, and, according to a senior information center official, the center plans to put workshops into an online format that will be available upon demand. According to the official, the center conducted 137 database searches upon request in fiscal years 2014 through 2018. NIH has also provided training on the consideration of alternatives to help researchers meet their requirements under the Health Research Extension Act. For example, in 2014 NIH presented a webinar on searches for alternatives. The webinar, titled Meeting Requirements for Alternatives Searches and available on NIH s website, provides advice on how to conduct database searches. For example, the webinar provided advice on the timing of the search, the search strategy, and particular databases to use. In September 2015, NIH presented a webinar demonstrating how to use NIH s database of research projects to find researchers, projects, and publications that may help replace, reduce, and refine the use of animals in research. The NIH Office of Laboratory Animal Welfare provides on its website a sample animal study protocol form that emphasizes database searches for any procedures that cause more than momentary or slight pain or distress to the animals. In addition, according to a senior official from the NIH office overseeing the agencies intramural research using animals, researchers at NIH must complete an online course regarding animal use every 3 years. The course includes a section on replacing, reducing, and refining animal use and outlines how researchers are to report literature searches in order to show they considered alternatives. <3. HHS, USDA, and EPA Have Facilitated the Development and Use of Alternatives to Animals in Research but Have Not Consistently Assessed the Effect of Their Efforts> EPA, HHS, and USDA have facilitated the development, use, and promotion of alternative research methods through individual and collaborative efforts, including strategies for promoting the use of alternative methods and development of policies and guidance on alternative methods. The three agencies have also developed alternative research methods that rely on non-animal models and procedures to test how various products would affect humans. Additionally, the agencies have worked collaboratively with each other and with nonfederal stakeholders to promote alternative methods, in particular through ICCVAM, which is required to report to the public on its progress. However, ICCVAM and its member agencies have not routinely developed or reported metrics for assessing the effect that their efforts are having on animal use. <3.1. EPA and Agencies within HHS and USDA Have Issued Strategies, Policies, and Guidance on Alternative Research Methods> EPA has issued a strategic plan and FDA has issued a roadmap for the use of methods that may reduce animal use in assessments of the safety and efficacy of various products. Both agencies and others within HHS and USDA have also issued guidance on using alternatives to animal research in particular contexts, such as vaccine testing. <3.1.1. Strategic Plan and Guidance for Reducing Animal Testing for EPA-Regulated Toxic Chemicals and Pesticides> In June 2018, EPA s Office of Chemical Safety and Pollution Prevention issued a strategic plan for the reduction of vertebrate animal testing for toxic chemicals regulated under the Toxic Substances Control Act. The office developed and issued this strategic plan to implement a provision in the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Lautenberg Act) calling for such a plan. The strategic plan describes a multi-year process with incremental steps for adopting and integrating methods that do not use vertebrate animals in evaluating chemicals regulated by the Toxic Substances Control Act for their effect on human health and the environment. The strategic plan states that the agency s long-term goal is to reduce and eventually eliminate vertebrate animal testing for chemicals regulated under the act. Pursuant to the strategic plan, in June 2018 EPA published a list of methods the agency had identified that require no vertebrate testing and that are capable of providing information of equivalent or better scientific reliability and quality than that which would be obtained from vertebrate animal testing. According to EPA, the agency plans to update the list at least once a year. EPA s strategic plan calls for other near-term activities such as retrospectively identifying and evaluating the studies that it has requested and received for both new and existing chemicals. The plan states that EPA will complete this analysis in 2019 and use the results to support the future development of alternative methods to fit the agency s needs. In May 2011, EPA s Office of Chemical Safety and Pollution Prevention issued a strategic plan in response to a 2007 National Academies report calling for a more efficient and informative risk assessment process to predict and characterize potential human health and environmental hazards from exposures to pesticides. The office s strategic plan envisions using a combination of computational and predictive modeling approaches, in vitro techniques, and targeted in vivo testing to supplement or replace the existing toxicity tests required in federal regulations for pesticide registration under the Federal Insecticide, Fungicide, and Rodenticide Act. Pursuant to this strategic plan, EPA s Office of Chemical Safety and Pollution Prevention has issued guidance on data requirements for assessing pesticide safety that may reduce animal use. For example, EPA issued guidance in May 2013 on the data that the agency needs in order to adequately assess pesticide risks. The guidance also provided information to manufacturers on how to request waivers from the data requirements, which would enable the manufacturers to reduce animal use. EPA also issued guidance in November 2016 that allows pesticide manufacturers to request a waiver from the requirement to provide data on acute toxicity tests and that contains a policy statement waiving all acute lethality dermal studies for formulated pesticide products; such waivers can reduce the need for pesticide manufacturers to conduct tests using animals. For example, EPA reported granting a total of 223 waivers in fiscal years 2016 and 2017, pursuant to the agency s May 2013 guidance for toxicity studies, which the agency estimated avoided the use of 85,000 animals and saved pesticide manufacturers $26.4 million in conducting toxicity studies. In February 2016, EPA announced an effort to evaluate and implement alternative methods for tests involving acute oral, dermal, and inhalation toxicity; skin and eye irritation; and skin sensitization. As part of this effort, in April 2018, EPA issued a draft policy to reduce the use of animals in testing chemicals to evaluate whether they cause an allergic reaction, inflammation, or sensitization of the skin. EPA s policy describes conditions under which the Office of Chemical Safety and Pollution Prevention will accept alternative approaches to laboratory animal studies for identifying skin sensitization hazards. <3.1.2. Roadmap for Developing and Evaluating Tools for Assessing FDA-Regulated Products and Guidance for Industry> In December 2017, in response to direction from the FDA Commissioner, FDA developed a roadmap to foster the development and evaluation of emerging tools and methods that can improve toxicology methods for assessing the safety of FDA-regulated products. The roadmap does not have an explicit goal to replace, reduce, or refine animal testing but states that new methods may have the potential to do so. In that regard, the roadmap states that FDA will encourage medical product sponsors to submit a scientifically valid approach for using a new method early in the regulatory process and to engage in frequent communication with the agency about the suitability of that method. In addition, the roadmap recommended that FDA establish an organizing committee; conduct training; foster communication and collaboration with stakeholders, such as industry and academia; engage in research; and track and report annually on its progress. In June 2019, FDA posted its first annual report on its progress in implementing the roadmap. Previously, FDA had taken steps to reduce animal use by issuing guidance to members of industry seeking approval for FDA-regulated products. In general, FDA guidance states that industry may choose to use an approach such as a non-animal testing method other than one set forth in guidance as long as it complies with relevant statutes and regulations. FDA has also taken more specific steps to modify guidance to promote the use of alternative methods. For example, in 2012, FDA issued guidance to industry that states that firms may use non-animal alternative methods to test the toxicological safety of pharmaceutical drugs if the methods are appropriate or scientifically justified. In 2013, FDA issued guidance that, among other things, allowed industry to use in vitro assays rather than mice to detect toxins in shellfish meant for human consumption; this guidance subsequently played a role in the adoption of additional methods that do not employ animal use. <3.1.3. Other HHS and USDA Agencies Guidance on the Use of Alternatives to Animal Research> Other HHS and USDA agencies within our scope do not have strategic plans or roadmaps that promote a comprehensive strategy for alternative research methods, but some of the agencies have issued guidance to their own researchers or to regulated entities that may reduce animal use. For example, in 2017, APHIS updated its guidance to allow manufacturers of animal vaccines, inactivated bacterial products, and antibody products to request an exemption to animal safety testing if the products have a documented history of acceptable safety results and controlled manufacturing processes that ensure batch consistency and sterility. APHIS also issued a notice in 2017 of a testing option that can reduce by up to 50 percent the number of hamsters required for potency testing of vaccines for the bacterial disease leptospirosis, according to the notice. In addition, APHIS issued memorandums in 2013 and 2015 that provide guidance on in vitro techniques that researchers may use instead of animals to test the potency of vaccines. Some agencies have also adopted alternative methods for their researchers without issuing specific guidance to do so. For example, in September 2018, CDC began routine use of an in vitro procedure developed by the agency that allows its laboratories to test for botulism in human serum specimens without using mice. CDC officials stated that this method is fast and inexpensive and would reduce the need for hundreds of mice. CDC officials told us that their researchers plan to expand use of the in vitro procedure to test other types of specimens, further reducing the use of animals. <3.2. HHS, USDA and EPA Have Developed Alternative Research Methods> HHS, USDA, and EPA have made multiple efforts to develop alternative research methods that, according to the agencies, have reduced animal use or have the potential to do so. Some of these efforts target reducing the use of animals in a particular research context while others have broader applications in toxicology and computer modeling. In some cases, agency officials provided estimates of how their targeted efforts have reduced or may reduce animal use. Examples of targeted efforts include the following: CDC researchers told us they have evaluated a method that reduces the number of animals and time needed to produce kits that are distributed worldwide to identify influenza virus subtypes and thereby aid in strain selection for the influenza vaccine each season. Under the original method, antibodies for the kits were generated from blood samples in sheep that were later euthanized. The CDC researchers concluded that an alternative automated method that draws antibody-rich plasma from goats instead of blood from sheep could reduce the time needed to produce the kits and require fewer animals. According to FDA officials, FDA is collaborating with others on the development of an in vitro assay that will be used to test the potency of human rabies vaccines that manufacturers submit to FDA for approval. This new method will replace the animal-based assay that is part of the current license to manufacture rabies vaccine. The officials said that the animal-based assay uses 600 mice, on average, for each batch of vaccine submitted by a manufacturer. According to an ARS research paper, ARS worked with academic researchers to develop an in vitro method for feeding blood to ticks. According to ARS officials, the method allows researchers to reduce the number of animals used when studying disease transmission in animals via tick-borne pathogens. APHIS currently holds federal pesticide registrations with EPA for active ingredients formulated into end-use products, such as rodenticides, that APHIS uses to prevent damage to agriculture, endangered species, or critical habitats. According to APHIS officials, the agency uses an EPA- approved method for testing the risks to human health from new pesticide products that substantially reduces animal use. The method generally involves progressively increasing the pesticide dose on a relatively small number of animals compared to the previous method and waiting to observe whether the dose causes mortality before deciding whether to increase the dose in further testing. APHIS officials said the new method reduces animal use by 50 percent or more per test. EPA s Endocrine Disruptor Screening Program Uses Alternatives to Animals Led by its Office of Science Coordination and Policy, EPA established the Endocrine Disruptor Screening Program in 1998 to fulfill a congressional mandate in the 1996 Food Quality Protection Act to develop a program to screen for certain chemicals (e.g., pesticides) that affect human hormones. EPA expanded the scope of the program to include screening the effects of chemicals on the human thyroid system and wildlife. The program began using automated, large-scale screening methods and computational models to evaluate and screen chemicals and, according to EPA, allows EPA to screen more chemicals in less time, use fewer animals, and reduce cost. Agencies broader efforts include the integration of advances in biology, chemistry, and computer science into areas of research, such as toxicology, that currently rely heavily on animal use. For example, EPA launched the Toxicity Forecaster in 2007 as an effort to use automated technologies to expose living cells or isolated proteins to chemicals and screen the cells or proteins when exposed to chemicals for changes in biological activity that suggest potential toxic effects. According to EPA documents, these methods could limit the number of required laboratory animal-based toxicity tests while quickly and efficiently screening large numbers of chemicals. According to EPA documents, in the first phase of this effort, which the agency completed in 2009, EPA evaluated more than 300 well-studied chemicals (primarily pesticides) that had extensive data from traditional animal-based toxicity testing; the agency then compared results from automated screening technologies with the results from the traditional animal tests. As of 2018, EPA had developed and made publicly available a library of toxicity data on more than 4,500 chemicals. The availability of the Toxicity Forecaster data has enabled EPA to reduce the need for animal testing in its Endocrine Disruptor Screening Program for identifying chemicals that may affect human hormone systems (see sidebar). Similarly, FDA has initiated a broad effort to incorporate greater use of computer modeling and simulation into its decision-making on FDA- regulated products. For example, FDA formed an agency working group on modeling and simulation in 2017. According to the Chair of the working group, it does not have an explicit objective to reduce animal testing, but such reduction is a potential benefit of the testing approaches the group is advancing. For example, the Chair said that modeling and simulation can help refine questions about products submitted for FDA approval and therefore could reduce the number of animal studies needed before clinical trials. EPA and NIH have provided funding to extramural researchers to develop alternative research methods. For example, from 2013 through 2018, EPA provided $24 million in funding for research on 3-D models containing human cells (these devices are also known as tissue chips) that can be used for tests that otherwise might be conducted using animals. In 2018, EPA also announced $4.25 million in funding for research to promote the development and use of alternative methods that reduce, refine, or replace vertebrate animal use for toxicity testing. Similarly, in 2017, NIH awarded a $962,000 grant to a research facility to conduct studies of an in vitro human bronchial tissue model for predicting the toxicity of inhaled chemicals. Additionally, while USDA s National Institute for Food and Agriculture did not set aside a specific amount of funding, in May 2019 the agency made clear to applicants for its Welfare and Well-being of Agricultural Animals grant program that proposals that study ways to reduce the need for animals in research are eligible for funding in fiscal years 2019 and 2020. <3.3. HHS, USDA, and EPA Have Collaborated with Each Other and with Other Federal and Nonfederal Stakeholders to Promote Alternative Methods> HHS, USDA, and EPA have joined partnerships to develop, use, and promote alternative testing methods. For example, the agencies participate in ICCVAM, which states that its mission is to facilitate the development, validation, and regulatory acceptance of test methods that replace, reduce, or refine the use of animals. ICCVAM itself does not conduct research or validation studies on alternative methods. Instead, it relies on stakeholders including federal agencies that generate, require, or use toxicological data; companies that develop toxicological tests; and animal welfare organizations. According to committee guidelines, stakeholders can submit the results of their research to ICCVAM, and the committee then conducts evaluations and makes recommendations on submissions for regulatory uses that align with the needs and priorities of member agencies. Zebrafish Are Used as Alternatives to Other Animals in Research A zebrafish is a freshwater, tropical vertebrate fish that is widely used in pharmaceutical development and medical and scientific research due to certain qualities of its morphology and development as well as its inexpensive cost to use and maintain. Some of these qualities include genetic and structural similarities to other vertebrates that mimic human responses to certain genes involved in human diseases and its transparent embryonic development that enables researchers to use it as an alternative model for toxicity screening of drugs and chemicals. These qualities have led to the use of zebrafish embryonic models for automated, large-scale screening programs by the National Toxicology Program and the Environmental Protection Agency, among others. ICCVAM s website contains information on current ICCVAM- recommended protocols for specific test methods, such as methods to test for eye corrosion and irritation and skin sensitization, and on events organized by NIH and others that are relevant to the replacement, reduction, or refinement of animal use in research. For example, the website has a link to a page on NIH s website that has the slide presentations given at six webinars from 2017 through 2018 on the use of zebrafish in toxicology testing. Researchers may use zebrafish and their embryos in particular as a replacement for other animals, such as mice (see sidebar). ICCVAM maintains on its website a list of 108 alternative methods that, as of June 2019, had been accepted by one or more federal agencies. These include methods that ICCVAM and its member agencies contributed to developing or validating. However, according to ICCVAM s strategic roadmap issued in January 2018, the committee concluded that its evaluations of new methods during its first 15 years were lengthy, inefficient, and resource intensive. ICCVAM concluded that researchers and test method developers often initiated the development of alternative methods with little input from federal agencies or regulated industries and, therefore, these methods did not always meet the needs of federal agencies. Consequently, these methods were either not accepted by federal agencies or were accepted by the agencies but not used by the regulated community. Recognizing these limitations, ICCVAM initiated a strategic shift in 2013 aimed at adjusting the validation of new test methods to be more responsive to the needs of federal agencies and other stakeholders. Accordingly, ICCVAM s 2018 strategic roadmap set new objectives for reducing animal use, including the following: Connect the developers of alternative methods with the regulatory agencies and the regulated industries that would ultimately use the new technologies to increase the likelihood of the methods being successfully developed and implemented. Foster the use of efficient and flexible practices, such as public-private partnerships to promote communication and cooperation, to establish confidence in new methods. Encourage the adoption and use of new methods and approaches by federal agencies and regulated industries, such as through training programs on the use of new methods. ICCVAM has established workgroups to develop detailed implementation plans to address roadmap goals. According to the strategic roadmap, the implementation plans will include four key elements: (1) definition of testing needs; (2) identification of any available alternative tests and computer models; (3) a plan to develop integrated approaches to testing and assessment and defined approaches for interpreting data; and (4) a plan to address both scientific and nonscientific challenges, including regulatory challenges, such as international harmonization. As of June 2019, workgroups on acute systemic toxicity, eye and skin irritation, and skin sensitization had posted information concerning these elements on ICCVAM s website. For example, each workgroup authored an article published in a peer-reviewed journal and posted on the ICCVAM website about the testing needs of regulatory agencies and information about available alternatives. Another interagency effort that has a goal of promoting the use of alternative methods is the Toxicology in the 21st Century (Tox21) Program. Formed in 2008, the program is a collaborative effort among NIH, FDA, and EPA to characterize the potential toxicity of chemicals by using cells and isolated molecular targets instead of laboratory animals. A central component of the program is its focus on developing and evaluating automated in vitro screening methods to assess the hazards of chemical substances. As of February 2018, the program had used this method to assess approximately 10,000 chemicals for their potential impacts on biological systems. According to NIH s Tox21 website, these automated methods have yielded high-quality toxicity data on environmental substances in a fraction of the time that would have been required with traditional animal testing. To address key challenges in toxicology testing, the program s federal partners developed a strategic and operational plan in March 2018 that expanded the focus of Tox21 s research activities to include developing alternative test systems that predict chemical toxicity in humans and addressing the technical limitations of and strengthening scientific confidence in current in vitro test systems. According to NIH, activities under the plan will lead to better predicting chemical toxicity to humans through using non-animal alternatives such as stem cells and computational models. Since 2011, federal agencies have also collaborated to develop devices containing human cells that can be used for tests that otherwise might be conducted using animals. See figure 1 for an example of such devices, known as tissue chips or human microphysiological systems. According to NIH officials, this evolving technology may reduce animal testing and produce results more relevant to human health. The interagency effort was initiated in September 2011 when the President announced the formation of a collaborative project between NIH, the Defense Advanced Research Projects Agency, and FDA to develop tissue chips loaded with living human cells to screen the efficacy, safety, and toxicity of drugs, vaccines, or biological products for humans. Subsequently, in July 2012, NIH launched the Tissue Chip for Drug Screening program, which provided 19 grants to research facilities to develop tissue chips that accurately model the structure and function of the human lung, liver, heart, and more. In September 2014, NIH announced a second phase of the program in which researchers would refine existing tissue chips and combine them into an integrated system that can mimic the complex functions of the human body. In one example of this collaboration, two project teams funded by the Defense Advanced Research Projects Agency the Massachusetts Institute of Technology and the Wyss Institute at Harvard University are working with NIH-funded researchers to develop platforms that integrate 10 tissue chips that each represent a separate human organ. Federal agencies have also collaborated with nongovernmental organizations on training to promote the use of alternative methods. For example, NIH and the People for the Ethical Treatment of Animals (PETA) International Science Consortium offered a webinar series from March through September 2016 on alternative approaches for assessing acute inhalation toxicity. Webinar presenters described alternative approaches for identifying substances likely to cause acute systemic toxicity through inhalation. Similarly, EPA collaborated with the PETA International Science Consortium and the Physicians Committee for Responsible Medicine on webinars in November 2018, February 2019, and April 2019 that addressed alternative methods for testing the effect of chemicals on skin, for predicting the effect of inhaled substances, and for identifying substances that cause irritation or inflammation in human respiratory systems. <3.4. ICCVAM and Its Member Agencies Have Not Established a Workgroup to Develop Metrics on the Effect of Their Efforts on Animal Use> ICCVAM s strategic roadmap calls for its members to identify appropriate metrics for prioritizing activities, monitoring progress, and measuring success toward the goals described in the roadmap. However, ICCVAM and its member agencies have not routinely developed metrics that they could report to the public to demonstrate how their individual or collective efforts to encourage the use of alternative methods have affected or will affect animal use. HHS, USDA, and EPA officials, as well as ICCVAM s roadmap, have cited challenges to measuring the results of ICCVAM and its member agencies efforts. For example, according to agency officials, differences in the regulatory contexts in which agencies use data generated through animal research for example, in regulation of pesticides versus human or animal drugs limit agencies ability to develop metrics that can be applied across multiple agencies. Furthermore, the ICCVAM roadmap states that measuring the actual impact of encouraging the adoption and use of new methods is difficult in the United States due to the limited ability to quantify animals used for toxicity testing. In particular, the Animal Welfare Act does not cover several species commonly used in research, including mice, rats, and birds bred for research and cold-blooded species such as fish. Therefore, research facilities are not required under the act to report their use of those species to APHIS, and the data APHIS receives from research facilities can only be used to track a subset of the total number of animals used for research in the United States. Although ICCVAM and its member agencies face challenges in developing metrics, the roadmap also states that agency-specific mechanisms to measure progress may exist, such as tracking the number of waivers granted for a particular animal test. For example, as discussed above, EPA has estimated the extent to which its granting of data waivers to pesticide manufacturers has reduced animal use and research costs. Additionally, some agencies have estimated the effect that a new alternative method could have on animal use. Moreover, officials from FDA and EPA said that their agencies are able to accept non-animal test data in lieu of animal test data if the data meet their regulatory needs. Measuring the frequency with which the agencies receive non-animal test data instead of animal data could be another mechanism for estimating changes in animal use. In addition, the ICCVAM Authorization Act of 2000 requires ICCVAM to prepare biennial public reports on its progress under the act including its efforts to ensure that new and revised test methods are validated to meet the needs of federal agencies and to reduce, refine, or replace the use of animals in testing, among other things. ICCVAM, with support from NIH s National Institute of Environmental Health Sciences, has issued the required biennial progress reports since 2001, including the most recent report issued in July 2018 that covers 2016 and 2017. However, the committee s biennial progress reports, including the July 2018 report, provide few quantitative or qualitative assessments of the progress the member agencies have made, individually or collectively, toward reducing, refining, or replacing animal use in testing. ICCVAM s strategic roadmap states that it envisions that workgroups will play a key role in implementing the goals of the strategic roadmap, but ICCVAM has not designated a workgroup to address the challenges related to metrics, similar to other workgroups that the committee has established to address the roadmap s goals. According to officials from NIH s National Institute of Environmental Health Sciences, which manages the committee, the strategic roadmap is a work in progress and developing metrics is the third of three roadmap goals. The ICCVAM Authorization Act of 2000 does not provide the National Institute of Environmental Health Sciences with authority to direct agencies to develop and report metrics. However, agency officials agreed that ICCVAM could facilitate the establishment or designation of a workgroup of member agencies to identify a range of potential quantitative and qualitative metrics that member agencies could use to assess their progress toward reducing, refining, or replacing animal use. By establishing or designating such a workgroup to develop metrics that the agencies could use to assess their individual or collective progress toward reducing, refining, or replacing animal use in testing and by incorporating those metrics in ICCVAM s biennial progress reports, ICCVAM and its member agencies could better monitor progress across the range of the committee s efforts and report the members progress to the public. <4. Conclusions> HHS, USDA, and EPA use a variety of methods to ensure that researchers whether employed by or receiving research funding from these agencies consider alternative methods to animal research. The agencies also have engaged in multiple efforts to expand the range of available alternatives. Under one of these efforts, ICCVAM s strategic roadmap calls for its members to identify appropriate metrics for prioritizing activities, monitoring progress, and measuring success. The roadmap envisions that workgroups will play a key role in implementing the goals of the strategic roadmap. However, ICCVAM has not designated a workgroup to address the challenges related to developing and reporting metrics. In addition, ICCVAM has issued the required biennial progress reports since 2001, but the reports provide few quantitative or qualitative assessments of the progress member agencies have made, individually or collectively, toward reducing, refining, or replacing animal use in testing. By establishing or designating a workgroup to develop metrics to assess the progress member agencies have made, individually or collectively, toward reducing, refining, or replacing animal use in testing and by incorporating those metrics in ICCVAM s biennial progress reports, ICCVAM and its member agencies could better monitor progress across the range of the committee s efforts and report the members progress to the public. <5. Recommendation for Executive Action> The Director of the NIH s National Institute of Environmental Health Sciences should (1) facilitate the establishment or designation of a workgroup of representatives of ICCVAM member agencies to develop metrics that the agencies could use to assess the progress they have individually or collectively made toward reducing, refining, or replacing animal use in testing and (2) incorporate those metrics into the committee s biennial progress reports. (Recommendation 1) <6. Agency Comments and Our Evaluation> We provided a draft of this report to HHS, USDA, and EPA. HHS provided written comments on the draft, which are presented in appendix I. In its written comments, HHS stated that NIH concurred with our recommendation. NIH further commented that ICCVAM s activities in support of promoting alternatives for animal use in testing do not extend to animal use in any other context, such as research or training. NIH explained that our use of the terms research and researcher to refer more generally to research, testing, teaching, or experimentation could cause misunderstanding. We understand that ICCVAM s activities are focused on animal use in product testing. In addition, we intended our recommendation that the Director of the National Institute of Environmental Health Sciences facilitate the establishment or designation of an ICCVAM workgroup to be focused on product testing rather than on other types of animal research. However, for editorial reasons, we did not modify our report s use of the terms research or researcher. HHS and EPA also provided technical comments, which we incorporated as appropriate. Among those comments, HHS s FDA officials stated that the agency encourages the use of alternatives to animal testing and supports the principles of replacement, reduction, and refinement, but if no alternative exists, animal testing may be the most appropriate way to meet certain regulatory requirements to ensure the safety and efficacy of medical products. In its technical comments, EPA cited a September 2019, memorandum EPA s Administrator issued after we sent our draft report to the agencies for comment. The memorandum commits the agency to take several steps to reduce, replace, and refine animal testing requirements. For example, the Administrator committed EPA to reducing its requests for, and funding of, whole and live mammal studies by 30 percent by 2025 and eliminating all mammal study requests by 2035. We acknowledge EPA s announcement but did not assess it in our review of federal efforts to facilitate the use of alternative research methods. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, the Secretary of Health and Human Services, the Administrator of the Environmental Protection Agency, 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 us at (202) 512-3841 or [email protected] 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: Comments from the Department of Health and Human Services Appendix II: GAO Contact and Staff Acknowledgments <7. GAO Contacts> <8. Staff acknowledgments> In addition to the individuals named above, Joseph Cook (Assistant Director), Rodney Bacigalupo, Kevin Bray, Ross Campbell (Analyst-in- Charge), Tara Congdon, Hayden Huang, Amber Sinclair, and Kari Terrio made key contributions to this report.

Why GAO Did This Study methods and computer modeling. HHS, USDA, and EPA conduct and fund animal research and regulate products tested on animals. HHS and USDA also oversee federal and nonfederal research facilities including researchers' consideration of alternatives to animal use. GAO was asked to review issues related to alternatives to animal research. This report (1) describes how HHS, USDA, and EPA ensure researchers consider the use of alternatives to animals and (2) examines the steps the agencies have taken to facilitate the use of alternative research methods and to assess the effect of their efforts on animal use. GAO reviewed documents, such as agency policies and practices relevant to the consideration of alternatives and interviewed agency officials. GAO also interviewed representatives of a nongeneralizable sample of 12 federal and nonfederal research facilities randomly selected across agencies and facilities. What GAO Found The Department of Health and Human Services (HHS), U.S. Department of Agriculture (USDA), and Environmental Protection Agency (EPA) use a variety of methods to ensure researchers consider alternatives to animal use in research (see figure). Two of these methods are (1) requiring researchers to obtain approval of their research protocols, including their consideration of alternatives, from their institutions, and (2) calling for or recommending researchers to use database searches to identify alternatives. HHS and USDA also help ensure that researchers consider alternatives through the agencies' oversight of research facilities. For example, USDA is to conduct annual inspections of nonfederal research facilities. Futhermore, the agencies have provided training to researchers on the consideration of alternatives. HHS, USDA, and EPA have facilitated the development and use of alternatives to animal use in research through individual and collaborative efforts. These efforts include agency strategies and policies for promoting the use of alternative methods and the development of testing methods that rely on non-animal models. Additionally, the agencies are members of the Interagency Coordinating Committee on the Validation of Alternative Methods, which is managed by HHS's National Institute of Environmental Health Sciences. The committee promotes testing methods that protect human health and the environment while reducing animal use. The interagency committee's 2018 strategic roadmap calls for it to identify appropriate metrics for monitoring progress and measuring success in adopting alternatives. However, the committee and its member agencies have not routinely developed or reported metrics that demonstrate how their efforts to encourage the use of alternative methods affect animal use. They have also not designated an interagency workgroup to address the challenges related to developing and reporting such metrics. Facilitating the establishment of such a workgroup would help the committee and its member agencies better monitor their progress across the range of their efforts to reduce animal use and report members' progress to the public. What GAO Recommends GAO recommends that HHS's National Institute of Environmental Health Sciences facilitate the establishment of an interagency workgroup to develop metrics for assessing progress on the development and promotion of alternatives to animal use and incorporate those metrics into public reports. HHS agreed with our recommendation.

gao_GAO-20-171T

gao_GAO-20-171T_0

<1. Available Data Show a Range of Threats and Assaults against Land Management Agency Employees, but Not All Incidents are Captured in the Data> Available federal law enforcement data show a range of threats and assaults against the four federal land management agencies employees in fiscal years 2013 through 2017. The severity of these incidents ranged from threats conveyed over the telephone to attempted murder and included an incident in which an employee was stabbed outside a federal building. The number of incidents of threats and assaults varied by agency. For example, for fiscal years 2013 through 2017 BLM data included 88 incidents of threats and assaults against BLM FWS data included 66 incidents of threats and assaults against FWS Forest Service data included 177 incidents of threats and assaults against Forest Service employees; and Park Service data included 29 incidents of threats and assaults against Park Service employees. Further, FBI data for fiscal years 2013 through 2017 show that the FBI initiated under 100 domestic terrorism investigations into potential threats to federal land management agencies. Our analysis of the FBI data showed that the majority of the domestic terrorism investigations involved BLM. Additionally, the majority involved individuals motivated by anti- government ideologies. For example, the FBI investigated one case in which a BLM law enforcement officer received more than 500 harassing phone calls and several death threats after a subject posted personal information about the officer on the social media platform Twitter. However, the number of actual threats and assaults against federal land management employees is unclear and may be higher than what is represented in available data, because not all incidents of threats and assaults against land management agency employees are captured in the agencies databases. There are several reasons why this may be the case. Specifically, some incidents of threats and assaults are investigated by local or state law enforcement and may be recorded in their data systems rather than in the land management agencies systems. Additionally, officials from two agencies we interviewed said that when a single incident involved multiple offenses, the less serious offenses are unlikely to be recorded in the data system and, therefore, the entirety of what occurred may not be captured. Further, land management agency employees do not always report all incidents of threats. For example, some field unit employees said that in certain circumstances, they consider receiving threats as a normal part of their job. Some officials also described being threatened while off duty, such as being harassed in local stores or being monitored at their home, and they said that in some cases they did not report the incident because it was a common occurrence. However, even in more high-profile incidents, agency officials told us that employees may not always report threats to agency law enforcement. For example, agency officials we interviewed cited specific incidents around the time of the 2016 armed occupation of FWS s Malheur National Wildlife Refuge that they did not necessarily report to their agency s law enforcement. These incidents included individuals holding anti-government beliefs who followed a teenage girl wearing a BLM shirt around the local grocery store and threatened to burn her house down, and agency employees who had shots fired over their heads while working in the field. According to officials at two agencies, many employees were traumatized by the Malheur occupation and some did not return to work, including some who transferred to other agency field units. <2. Land Management Agencies Use Various Approaches to Protect Employees, but Several Factors May Affect Their Ability to Do So> Federal land management agencies use various approaches to protect their employees from threats and assaults, including deploying agency law enforcement officers to protect employees and resources and building relationships with external law enforcement entities and the public. Specifically, when necessary, agencies deploy additional law enforcement officers to assist their local officers. For example, during the armed occupation of the Malheur National Wildlife Refuge, FWS officials reported deploying FWS law enforcement officers from around the country to field units in western states to provide additional security for FWS employees. Agency officials we interviewed also told us that they build relationships with local, state, and other federal agency law enforcement entities to help protect employees and resources in the field and to assist with coordinating law enforcement responses. Such relationships are important because not all field units have a law enforcement officer, and those that do often rely on local law enforcement for assistance in responding to incidents of threats or assaults against agency employees. For example, officials we interviewed at a field unit in Nevada stated that during a high-profile court case involving the agency, the Las Vegas Metropolitan Police Department kept a patrol car outside the field unit for several days to help ensure field unit employees safety. Finally, officials at several field units we visited stated that their law enforcement officers are focused on educating, rather than policing, visitors. Agency officials we interviewed cited several factors that can affect their ability to protect employees. Specifically, agency officials noted that employees are required to interact with the public as part of their official duties and may wear uniforms, which makes them easily recognizable and can put them at risk of being threatened or assaulted. (See figure 1.) Additionally, agency officials stated that it can be difficult to protect employees because, as part of their field work, employees may be dispersed across hundreds of miles of federal lands and may be located hours or days away from the nearest agency law enforcement officer. For example, as of fiscal year 2018, BLM had 194 field law enforcement officers to cover the 245 million acres of land managed by BLM. Further, the number of agency field law enforcement officers at all four land management agencies declined from fiscal year 2013 through fiscal year 2018. For example, BLM experienced a decrease of 9 percent, while the Forest Service experienced a decrease of 22 percent, the largest decrease among the four agencies. Finally, agency officials we interviewed said that the risk to employee safety posed by individuals holding anti-government sentiments can be unpredictable and that incidents of threats and assaults against employees by such individuals are generally sporadic. <3. Land Management Agencies Have Not Met Certain Facility Security Assessment Requirements> The four federal land management agencies have completed some but not all of the facility security assessments on their occupied federal facilities as required by the ISC Standard. Agency officials cited various reasons for not doing so, including lack of resources, training, and expertise. Not complying with the ISC Standard s requirement to complete facility security assessments on all occupied facilities could leave federal agencies exposed to risks in protecting their employees and facilities. While FWS has a plan to complete its assessments, BLM, the Forest Service, and the Park Service do not. Specifically: FWS. FWS has conducted five facility security assessments on its approximately 465 occupied facilities. According to FWS headquarters officials, FWS employees have limited physical security expertise to conduct facility security assessments; therefore, the agency has developed a plan to meet the ISC Standard s requirement using contractors. BLM. BLM has conducted 21 facility security assessments on its approximately 280 occupied facilities, but officials do not know when they will complete the remaining assessments and do not have a plan to do so. Forest Service. The Forest Service has conducted at least 135 facility security assessments on its approximately 1,135 occupied facilities, but officials do not know when they will complete the remaining assessments and do not have a plan for doing so. Park Service. The Park Service has conducted at least 148 facility security assessments on its approximately 1,505 occupied facilities, but officials do not know when they will complete the remaining assessments and do not have a plan to do so. The ISC Standard requires that agencies conduct assessments using a methodology that meets, among other things, two key requirements: (1) consider all of the undesirable events (e.g., arson and vandalism) identified in the ISC Standard as possible risks to facilities, and (2) assess the threat, vulnerability, and consequence for each of these events. The Forest Service s methodology meets these two requirements and utilizes an ISC-compliant facility security assessment methodology developed by the U.S. Department of Agriculture. The Park Service s methodology partially meets the requirements because it does not include a step to assess the consequences of specific undesirable events, as required by the ISC Standard. BLM and FWS have not yet established methodologies for conducting facility security assessments, although officials we interviewed from each agency stated that they intend to develop an ISC- compliant methodology. Specifically, BLM officials told us that they plan to hire a security manager who will develop an assessment methodology but did not know when the manager would be hired. FWS officials we interviewed provided a high-level description of what they expected to be included in their new methodology. However, FWS s description did not indicate that the agency would evaluate the consequences of specific undesirable events, as required by the ISC Standard. Without developing a plan for conducting all of the remaining facility security assessments and using a methodology that complies with ISC requirements, agencies may not identify the risks their facilities face or identify the countermeasures they could implement to mitigate those risks. Based on these findings, we made a total of six recommendations to the four land management agencies, including that BLM, the Forest Service, and the Park Service each develop a plan to conduct all required facility security assessments agency-wide; The Park Service update its facility security assessment methodology to address the consequences of specific undesirable events in order to comply with requirements in the ISC Standard; and BLM and the Forest Service each develop facility security assessment methodologies that comply with requirements in the ISC Standard. The four land management agencies generally concurred with our recommendations and provided examples of actions they plan to take to address our recommendations, including revising policies and developing new tools, training, and data system modules. Chairwoman Haaland, Republican Leader Young, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Anne-Marie Fennell 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 members who made key contributions to this testimony are Casey L. Brown (Assistant Director), Tanya Doriss (Analyst in Charge), Charles W. Bausell, Charles A. Culverwell, John W. Delicath, Emily E. Eischen, Cindy K. Gilbert, Richard P. Johnson, Vanessa E. Obetz, Dan C. Royer, and Breanna M. Trexler. 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.

Why GAO Did This Study A 2014 government report predicted that the rate of violent domestic extremist incidents would increase. In recent years, some high-profile incidents have occurred on federal lands, such as the armed occupation of a FWS wildlife refuge in 2016. Federal land management agencies manage nearly 700 million acres of federal lands and have law enforcement divisions that protect their employees and secure their facilities. This testimony summarizes GAO's September 2019 report on how land management agencies protect their employees and secure their facilities (GAO-19-643). In that report, GAO examined, among other things, for the four federal land management agencies, (1) what is known about the number of threats and assaults against their employees and (2) the extent to which agencies met federal facility security assessment requirements. For the report, GAO analyzed available government data on threats and assaults; examined agencies' policies, procedures, and documentation on facility security assessments; compared the agencies' methodologies against ISC requirements; and interviewed land management agency, ISC, and FBI officials. What GAO Found Data from the four federal land management agencies—the Forest Service within the U.S. Department of Agriculture and the Bureau of Land Management (BLM), Fish and Wildlife (FWS), and National Park Service (Park Service) within the Department of the Interior—showed a range of threats and assaults against agency employees in fiscal years 2013 through 2017. For example, incidents ranged from telephone threats to attempted murder against federal land management employees. However, the number of actual threats and assaults is unclear and may be higher than what is captured in available data for various reasons. For example, employees may not always report threats because they consider them a part of the job. Federal Bureau of Investigation (FBI) data for fiscal years 2013 through 2017 also showed that the FBI initiated under 100 domestic terrorism investigations into potential threats against federal land management agencies. The majority of these FBI investigations involved BLM, and the majority involved individuals motivated by anti-government ideologies. The four federal land management agencies have not completed all of the facility security assessments on their occupied federal facilities as required by the Interagency Security Committee (ISC). Officials at the four agencies said that either they do not have the resources, expertise, or training to conduct assessments agency-wide. FWS has a plan to complete its assessments, but BLM, the Forest Service, and the Park Service do not. Such a plan could help these agencies address the factors that have affected their ability to complete assessments. The ISC also requires that agencies conduct assessments using a methodology that meets, among other things, two key requirements: (1) consider all of the undesirable events (e.g., arson and vandalism) identified as possible risks to facilities, and (2) assess the threat, vulnerability, and consequence for each of these events. The Forest Service's methodology meets these two requirements and the Park Service's methodology partially meets the requirements, but BLM and FWS have not yet established methodologies for conducting facility security assessments. Without developing a plan for conducting all of the remaining facility security assessments and using a methodology that complies with ISC requirements, agencies may not identify the risks their facilities face or identify the countermeasures—such as security cameras or security gates—they could implement to mitigate those risks. What GAO Recommends In its September 2019 report, GAO made six recommendations: that BLM, the Forest Service, and the Park Service develop a plan for completing facility security assessments; and that BLM, FWS, and the Park Service ensure their facility security assessment methodologies comply with ISC requirements. The agencies generally concurred with the recommendations.

gao_GAO-19-530

gao_GAO-19-530_0

<1. Background> <1.1. Travel Pay Roles and Responsibilities> DOD s travel pay program is comprised of payments made by the department to active, reserve, and National Guard service members and civilian employees for temporary and permanent travel expenses. DOD travel is generally documented using authorizations and vouchers. Travel authorizations direct an individual or group of individuals to travel and provide information regarding what travel expenses are authorized to be paid. Travelers submit travel vouchers after the travel is completed to claim reimbursement for the official travel expenses they have incurred. There are a number of DOD entities involved in creating, reviewing and approving, paying, and reporting on DOD travel payments: Travelers are the service-members and civilian employees engaging in travel who create, amend, and digitally sign travel authorizations and vouchers and are legally liable for submitting false or fraudulent claims for payment. Authorizing officials are responsible for authorizing travel and controlling the use of travel funds. The DTS Regulations state that authorizing officials must review, verify, and approve authorizations prior to travel. Certifying officers certify vouchers for payment. According to the DOD guidance on DTS, known as the DTS Regulations, certifying officers must implement, maintain, and enforce internal procedures and controls to minimize erroneous payments; they are presumed negligent and may be pecuniarily liable for all improper payments that they certify. Authorizing officials who are also certifying officers review and certify travel vouchers and verify all required supporting documentation before the vouchers are paid. The Defense Travel Management Office (DTMO) oversees and facilitates DTS, including any necessary changes or enhancements to the system. It establishes and maintains the DTS Regulations, which define the responsibilities of users by role and the minimum required training for each user role, among other things. DTMO also maintains DTS travel payment data that are used for estimating and reporting on improper payments. The Defense Finance and Accounting Service (DFAS), as part of DOD s efforts to reduce improper travel payments, is responsible for reviewing a sample of paid DTS travel vouchers to estimate and report improper travel payments. DFAS also provides data on improper travel payments to DOD components on a quarterly basis. The Office of the Under Secretary of Defense (Comptroller) compiles DOD-wide data on improper payments annually as part of DOD s Agency Financial Report. It also oversees and facilitates DOD efforts to reduce improper travel payments. <1.2. Improper Payments Information Act (IPIA)> The Improper Payments Information Act of 2002, which was later amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), defines an improper payment as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. In accordance with OMB guidance, DOD has identified travel pay as susceptible to improper payments based on the large volume of transactions and high dollar amount of the program. As a program considered susceptible to significant improper payments, DOD travel pay is subject to certain IPIA requirements. Specifically, IPIA, as amended, requires federal executive branch agencies to (1) develop a statistically valid estimate of the annual amount of improper payments for programs identified as susceptible to significant improper payments, (2) implement corrective actions to reduce improper payments and set reduction targets, and (3) report on the results of addressing these requirements. IPERA also requires executive agencies Offices of Inspector General to annually determine and report on whether their agencies complied with certain IPERA-related criteria. These criteria include the requirements to publish a report for the most recent fiscal year that meets OMB reporting requirements, publish statistically valid improper payment estimates, publish and meet reduction targets for improper payment rates, and publish corrective action plans. If an agency does not meet one or more of the six IPERA criteria for any of its programs or activities, the agency is considered noncompliant with IPERA. The DODIG reported that in fiscal year 2018, DOD travel pay was not in compliance with IPIA, as amended, for the seventh consecutive year. Specifically, DOD met three of the six IPERA-related criteria for its travel pay program, by publishing all required information in the Payment Integrity section of its Agency Financial Report; conducting program-specific risk assessments; and reporting an improper payment rate of less than 10 percent for each of the eight programs that included an improper payment estimate in the fiscal year 2018 Agency Financial Report. However, the DODIG reported that DOD did not publish reliable improper payment estimates, include all required elements for the descriptions of corrective action plans, or meet its targets for reducing improper payments. <1.3. OMB Guidance> To meet IPIA requirements, agencies follow guidance issued by OMB for estimating improper payments. OMB Circular No. A-123, Appendix C instructs agencies to obtain the input of a statistician to prepare a statistical sampling and estimation method that produces statistically valid estimates of improper payments. Agencies are required to meet a number of requirements on the content of the sampling plans, including providing clear and concise descriptions of the methods used that also address the assumptions used, sample sizes, and precision, among other aspects. The guidance also says that agencies should incorporate refinements to their methods based on recommendations from agency staff or auditors, such as their agency Inspector General or GAO, whenever possible. OMB guidance also includes requirements for annual reporting on improper payment estimates. According to the guidance, when calculating a program s annual improper payment amount, agencies should use only the amount paid improperly. For example, if a $100 payment was due, but a $110 payment was made erroneously, then the amount applied to the annual estimated improper payment amount should be $10. In addition, when an agency s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an improper payment. OMB also requires agencies to identify and report on the root causes of the improper payments and implement corrective actions to prevent and reduce these causes for programs that have been identified as susceptible to significant improper payments, including DOD s travel pay program. OMB emphasizes that, in identifying root cause, it is important to distinguish between what constitutes a root cause that created an error and an internal control problem that failed to catch an error. The guidance instructs agencies to implement corrective actions that are responsive to root causes, are proportional to the severity of the associated amount and rate of the root cause, and are measurable. It also instructs agencies to annually review their existing corrective actions to determine whether any action can be intensified or expanded to achieve its intended result. <1.4. Methodology DOD Uses to Calculate Improper Payment Amounts and Rates> To comply with IPIA and OMB requirements, and in response to our prior recommendations, DFAS updated its statistical sampling plan in fiscal year 2017 to develop and report improper payment estimates for DTS. The plan is designed to estimate the dollar amount of improper payments, which includes both travel payments that were made in excess of the correct amount (overpayments) and those that were made for less than the correct amount (underpayments). When DOD is unable to discern whether a travel payment is proper because there is insufficient or no documentation to support it, that payment is also included in the improper payment estimate. On a monthly basis, DFAS statistically samples paid travel vouchers, stratified first by component and then by dollar amount. DFAS officials then conduct a review of the sampled post-payment vouchers to identify erroneous travel vouchers and the types of errors that were made. Based on the errors found during the review, DFAS calculates an estimate of the improper payments for each component. The military services process a small portion of their travel payments through other disbursing systems and are responsible for conducting their own post-payment reviews to estimate the improper payments for those systems. The DOD improper payment rate is the estimated total of improper payments from all post- payment reviews divided by the total number of payments. For example, in fiscal year 2018, DOD reported an improper payment rate of 4.59 percent, or $365.32 million of the $7.96 billion total travel payments. <2. DOD Spent $18.3 Billion on DTS Travel Payments for Fiscal Years 2016 through 2018, Including an Estimated $965.5 million in Improper Travel Payments for Those Years> <2.1. DOD Data Show an Average of $6.1 Billion a Year in DTS Travel Payments for Fiscal Years 2016 through 2018, and Travel Spending Increased during that Period> Using DTS data, we calculated that DOD had spent an average of $6.1 billion annually on DTS travel payments in fiscal years 2016 through 2018 a total of about $18.3 billion in travel payments for those years. Travel for active duty servicemembers accounted for the largest portion of those travel payments. We calculated that DOD components reported over $9.5 billion in DTS travel payments for active duty servicemembers in fiscal years 2016 through 2018, accounting for approximately 52 percent of the total travel payments. For the same time period, DTS travel payments for DOD civilian employees totaled about $5.3 billion (29 percent of the total), and travel payments for Reserve and Guard members totaled about $3.5 billion (19 percent of the total) (see fig. 1). DOD data on DTS travel payments show that out of 10 different categories used to identify the purpose of travel, the category representing training accounted for the largest percentage of the travel payments. Payments for training attendance accounted for about $6.6 billion (36 percent) of the $18.3 billion in total travel payments for fiscal years 2016 through 2018 (see table 1). Payments for the trip purpose other travel accounted for about $3.1 billion (17 percent) of the total travel payments for that time period. Other travel is any travel for reasons not covered by the other trip purpose categories; the purpose must be further specified in the travel authorization. Based on our analysis, most travel categorized as other travel was further specified with the trip type routine TDY, which refers to a travel assignment to a location other than the employee s permanent duty station. The two other trip purposes that accounted for the highest percentage of travel payments, based on our analysis of the DTS data, are special mission and site visit, which each accounted for about $2.9 billion (16 percent) of the total travel payments for fiscal years 2016 through 2018. Using DTS data, we also calculated that DOD s reported total travel payments increased from fiscal years 2016 through 2018, for a total increase of approximately $1 billion (16 percent) in nominal dollars and $0.68 billion (11 percent) in constant dollars during fiscal years 2016 through 2018 (see fig. 2). The DOD officials we interviewed were unable to explain why travel payments increased during fiscal years 2016 through 2018 but speculated that overall increases in DOD s budget likely corresponded with additional travel expenses. Officials also stated that travel expenses are tied to DOD s mission requirements. For instance, DOD military and civilian personnel provided support to civil authorities in areas such as humanitarian assistance and disaster recovery during the period of our review, according to these officials. Travel by DOD personnel to locations for these missions would contribute to DOD s travel expenses. <2.2. DOD Estimated an Annual Average of $322 Million in Improper Travel Payments for Fiscal Years 2016 through 2018> According to data provided by DFAS, the annual average of DOD improper travel payments was about $322 million for fiscal years 2016 through 2018, totaling $965.5 million (or 5.3 percent of total DTS travel payments) for those years. For fiscal year 2016, DFAS calculated that an estimated $416.6 million in travel payments (7.3 percent of total fiscal year 2016 DTS travel payments) were improper. For fiscal year 2017, DFAS s estimate of improper payments was $252.4 million (4.2 percent of total fiscal year 2017 DTS travel payments). However, data availability issues limited the scope of that year s post-payment review, which is used to estimate the improper payment rate. For fiscal year 2018, DFAS s estimate of improper payments was $296.6 million (4.5 percent of total fiscal year 2018 DTS travel payments). These improper payment amounts include both overpayments and underpayments and do not necessarily indicate a monetary loss to the government. According to DOD s Agency Financial Report, payments identified as improper do not always represent a monetary loss. For instance, an otherwise legitimate payment that lacks sufficient supporting documentation or approval is reported as improper but is not considered a monetary loss if documentation or approval is subsequently provided. Monetary loss is an amount that should not have been paid and could be recovered. With respect to monetary loss, DFAS calculated that of the DTS improper payments, the department incurred an estimated $205 million (1.6 percent of total DTS travel payments) loss to the government for fiscal years 2017 and 2018 (see fig. 3). Specifically, for fiscal year 2017, DFAS calculated an estimated monetary loss of $97.7 million (1.6 percent of total DTS travel payments), and for fiscal year 2018, it calculated an estimated monetary loss of $107.3 million (1.6 percent of total DTS travel payments). According to DFAS officials, the monetary losses estimated by DFAS were a result of travel voucher errors such as claiming an expense that is automatically generated by DTS during the booking process, rather than updating the travel voucher with the amount actually paid. Other errors that DFAS considers to indicate a monetary loss to the government include duplicate paid vouchers, mileage paid incorrectly, lodging expenses paid twice, and expenses that do not match the receipts (e.g., lodging). <3. DOD Has Taken Steps to Implement Its Remediation Plan, but Its Approach May Not Manage Risk Sufficiently, Many Actions Remain Incomplete, and Communication of Requirements Was Lacking> DOD established and has taken steps to implement a Remediation Plan aimed at reducing improper travel payments that includes specific requirements for all DOD components as well as a committee to monitor the efforts of 10 components that DOD identified as key to addressing improper travel payments. However, DOD did not consider available data on improper travel payment rates in its selection of these 10 components to implement its risk-based approach. Further, the 10 components have not fully implemented the Remediation Plan requirements, and other components were generally unaware of the requirements in the Remediation Plan and DOD s broader efforts to resolve and mitigate improper travel payments. <3.1. DOD Established a Remediation Plan to Address Improper Travel Payments and a Committee to Monitor Implementation by Key DOD Components> In October 2016, DOD established a Remediation Plan for improper payments in its travel pay program. The memorandum establishing the plan specified that it applied to the Military Departments, Defense Agencies, Joint Staff, and Combatant Commands. The Under Secretary of Defense (Comptroller) noted in the memorandum that the rate of improper travel payments had reached an unacceptable level, causing the department s program for preventing improper payments to be non- compliant with IPERA. Accordingly, the Remediation Plan specified steps that DOD components were required to take to reverse the department s poor performance. Specifically, it stated that the military services, defense agencies, DOD field activities, Joint Staff, and combatant commands must each designate in writing a Senior Accountable Official (SAO) responsible for implementing the plan s requirements for that component, train travelers and approving officials, issue guidance on holding approving officials pecuniarily liable for improper travel payments, and prepare component-specific remediation plans and identify corrective actions, among other things. DOD specified that certain steps were to be completed by November 1, 2016. The requirements specified in DOD s Remediation Plan are listed in table 2. DOD officials informed us that they also established a Senior Accountable Official Committee (SAO committee) consisting of the SAOs from the 10 components. The committee provided a mechanism for DOD s Deputy Chief Financial Officer to monitor the implementation of the Remediation Plan s requirements by those components. The SAO committee included the four military services and six additional components: the U.S. Special Operations Command, the Defense Logistics Agency, the Defense Contract Management Agency, the Defense Information Systems Agency, the Missile Defense Agency, and the Defense Contract Audit Agency. An Office of the Under Secretary of Defense (OUSD) (Comptroller) official told us that DOD did not monitor the implementation of other components efforts to implement the Remediation Plan s requirements. The SAO committee met four times from January 2017 through September 2017, with a fifth meeting in May 2018. At these meetings, components represented on the committee discussed approaches they had taken to prevent improper travel payments and highlighted examples of best practices to educate travelers and approving officials about how to avoid improper travel payments. In addition, DFAS officials presented the results of monthly post-payment reviews to identify the most common errors associated with improper travel payments. In June 2018, DOD broadened the scope of the SAO committee and chartered the DOD Improper Payments Senior Accountable Officials Steering Committee, which was established to address all programs included in DOD s improper payments reporting not just travel pay. As of May 2019, this steering committee had met twice, in December 2018 and again in March 2019. <3.2. DOD Selected Components for the SAO Committee Based on Total Travel Payments, but Did Not Consider Components Improper Payment Rates> DOD identified components to include on the SAO committee based on fiscal year 2016 DTS travel payments but did not consider components improper payment rates as selection criteria. According to OUSD (Comptroller) officials, DOD used a risk-based approach to select the 10 components to include in the SAO committee, because these components accounted for the significant majority of the department s DTS travel payments. However, as a result of the way in which DOD reports its estimated rates of improper travel payments, it is unclear whether there is an association between the volume of DTS travel payments and improper travel payment rates. DOD officials told us that they did not use estimated improper travel rates as a selection criterion because DFAS does not report estimated improper payment rates for all DOD components in its annual agency financial report. Instead, DFAS uses a stratified sampling method for the post-payment review of travel vouchers, which means that the sample sizes for certain individual components such as smaller defense agencies may be too small to be statistically reliable. As a result, DFAS reports improper payment rates for the individual military services and U.S. Special Operations Command, but it reports an aggregate rate for the defense agencies that DFAS officials told us also includes joint commands. Notwithstanding DOD s current sampling approach for determining improper payment rates, DOD has previously reported discrete improper payment rates for components that are not represented on the SAO committee, and there may be additional data sources on component- specific improper payment rates. First, a 2016 DODIG report on improper travel payments presented the results of a DFAS review of DTS vouchers for 58 DOD components for July through December, 2014, including 48 components not represented on DOD s SAO committee. Second, DOD has reported improper payment rates for specific components other than the military services as part of the Remediation Plan effort. Specifically, DFAS has reported an improper payment rate for U.S. Special Operations Command in the quarterly reports it provided to the SAO committee separately from the aggregate rate it reports for other joint commands. Third, we found that other sources of data on estimated improper travel payment rates may be available to the department. For example, of the non-SAO components that responded to our survey, 7 of 28 indicated that they track their rate of improper travel payments. Because DOD s approach to monitoring specific components implementation of the Remediation Plan was based solely on the amount of DTS travel payments, DOD lacks assurance that the components it selected for greater scrutiny were the ones most at risk for improper travel payments. Standards for Internal Control in the Federal Government notes that management can define risk tolerances for defined objectives, specifically the acceptable level of variation in performance relative to the achievement of objectives. Federal internal control standards also state that agencies should evaluate whether a risk-based approach is appropriately designed by considering whether it is consistent with expectations for the defined objectives. If the approach is not consistent with expectations, agencies should revise the approach to achieve consistency. In this case, DOD decided to accept the risk associated with targeting its Remediation Plan efforts to only those components that accounted for most of the department s total travel payments in fiscal year 2016. However, without including improper payment rates in its analysis, DOD may have excluded components with lower overall travel payments that had significant improper payment rates. As a result, DOD cannot be assured that it has implemented the Remediation Plan in a way that is both efficient and effective in reducing improper travel payments. <3.3. Components that DOD Identified as Key to Addressing Improper Travel Payments Did Not Fully Implement the Remediation Plan> The 10 components that make up the SAO committee and were identified as key to the effort to reduce improper payments took some steps to address the Remediation Plan requirements but did not complete all of the requirements outlined in the Plan. For example, 7 of the 9 components that responded to our survey reported that they had designated an SAO. Further, these components indicated that their SAOs had completed some required steps, such as issuing guidance to ensure that front-end internal controls were in place to prevent improper travel payments; reviewing training plans to determine their effectiveness in preventing improper travel payments; and providing initial or refresher training to all travelers and approving officials, among other actions. However, none of the components that responded to our survey had completed all of the requirements by the due date of November 1, 2016. As of March, 2019, when we surveyed the 10 DOD components, only four of the 9 components that responded to our survey had completed all of the requirements (see table 3). For instance, 1 component (the Defense Information Systems Agency) had not developed a component-level remediation plan, and 6 of the 10 components had not developed corrective action plans to address the improper travel payments they identified, as required by the Remediation Plan. OUSD (Comptroller) officials told us that they required only the military services to complete corrective action plans, because these components accounted for about 92 percent of DTS travel payments. We found that, while DOD established specific milestones for certain actions in the Remediation Plan, it did not establish milestones for completing most of the actions. Specifically, as shown in table 2 earlier in this report, only 5 of the 11 requirements in the Remediation Plan had an associated due date. Further, while DOD established a mechanism to monitor whether the components had implemented the Remediation Plan requirements through the SAO committee, this mechanism was not effective in holding them accountable for doing so. For example, at the first SAO committee meeting (January 18, 2017), the SAOs were told to complete the Remediation Plan requirements by March 1, 2017, and to be prepared to discuss them at the next SAO committee meeting. However, at the next meeting (March 29, 2017), only 3 components the Navy, the Defense Information Systems Agency, and the Defense Logistics Agency were prepared to present their component-level remediation plans to the committee. At the meeting, the DOD Deputy Chief Financial Officer, serving as the chair of the committee, emphasized that components needed to document progress in order to demonstrate that the department was working toward identifying root causes and implementing corrective action plans to prevent and reduce improper travel payments. At the May 24, 2018 SAO committee meeting, 3 additional components the Air Force, the Defense Contract Management Agency, and the Missile Defense Agency presented their plans to the committee. However, as of March 2019, the U.S. Special Operations Command and the Defense Contract Audit Agency had still not presented their plans to the committee. Standards for Internal Control in the Federal Government states that management should evaluate performance and hold individuals accountable for their internal control responsibilities. Accountability is driven by the tone at the top of an organization and supported by the commitment to integrity and ethical values, organizational structure, and expectations of competence, which influence the control culture of the entity. In addition, the standards state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. As we stated earlier in this report, DOD has been challenged by inaccurate and inconsistent estimates of improper payment rates, which do not allow for reliably tracking the rate of improper travel payments over time. By establishing milestones, monitoring progress, and holding component leadership accountable for the implementation of the requirements of the Remediation Plan, DOD would have greater assurance that it has taken sufficient actions to reduce improper travel payments. <3.4. Non-SAO Committee Components Took Some Steps to Implement the Remediation Plan Requirements but Were Generally Unaware of DOD s Actions in this Area> As we noted above, the department memorandum outlining the Remediation Plan was addressed to all components, and DOD officials confirmed that, although they monitored implementation of the Remediation Plan for the 10 components represented on the SAO committee, the 42 components not represented on the SAO committee (non-SAO committee components) were still required to complete the actions specified in the Plan. However, we found that, based on our survey results, half of the components that responded to our survey were unaware of the requirements established in the Remediation Plan. Of the 28 non-SAO committee components that completed our survey, 14 (50 percent) responded that they were either not at all familiar with the Remediation Plan requirements or only slightly familiar with the requirements. Our survey results and review of DOD documentation also indicate that many of the 42 non-SAO committee components had taken some steps to reduce improper payments, consistent with the Remediation Plan requirements, but had not completed all of the Plan s requirements. For example, of the 28 non-SAO committee components that completed our survey, 10 (36 percent) responded that they had not designated an SAO or other lead entity in writing, and 8 (29 percent) did not know whether their component had designated a SAO. Our survey results also indicate that most of the components not represented on the SAO committee who responded to our survey were unaware of department efforts to prevent and reduce improper travel payments. Specifically, many of the non-SAO committee components had not been made aware of efforts to implement the Remediation Plan across the department through mechanisms such as the SAO committee meeting minutes or quarterly DFAS reports. Sixteen of the 28 non-SAO committee components who responded to our survey reported that no one from their organization had ever attended an SAO committee meeting, and 11 responded that they did not know if anyone from their component had attended. Further, 15 of the 28 components who responded to our survey reported that they had never received a copy of the official SAO committee meeting minutes, and 13 responded that they did not know whether they had. Nine of the 28 components responded that they did not receive copies of the DFAS quarterly reports on improper payments, which are used to track the types of errors that occur in travel payments and help components to target actions to address them. Standards for Internal Control in the Federal Government states that management should internally communicate the necessary quality information to achieve the entity s objectives. Communicating quality information down, across, up, and around reporting lines to all levels of an entity contributes to the design, implementation, and operating effectiveness of this principle. An OUSD (Comptroller) official confirmed that DOD did not take action to share information on the Remediation Plan requirements or implementation efforts with components not represented on the SAO committee. When DOD made the decision to focus the SAO committee on 10 components, it did not establish a mechanism or document how information on Remediation Plan efforts would be communicated to the non-SAO committee components, which are also required to implement the Plan. As a result, the components that are not represented on the SAO committee have not benefited from information on the Plan s requirements or lessons learned and best practices that were identified during the SAO committee effort which may have helped them to reduce their improper payments. Providing opportunities for all components to benefit from the Remediation Plan efforts would give DOD greater assurance that it has taken steps to reduce its overall improper payment rate. <4. DOD Has Implemented Mechanisms to Identify Errors Leading to Improper Travel Payments, but these Efforts Do Not Clearly Identify the Root Causes of These Errors or the Cost-Effectiveness of Addressing Them> <4.1. DOD Identified Errors Leading to Improper Travel Payments but Did Not Clearly Identify the Root Causes of These Errors> DOD has established mechanisms to identify and address the errors that most frequently lead to improper travel payments, but we found some limitations with these mechanisms because they did not consistently identify the root causes of the errors. DTMO Compliance Tool. In response to a requirement in the National Defense Authorization Act for Fiscal Year 2012, DTMO developed a compliance tool that uses a set of digital queries to automatically review vouchers submitted for payment through DTS to determine whether they meet criteria that indicate the potential for improper payment. According to DTMO, as of fiscal year 2018, the tool had recovered $25 million over 5 years. If a voucher is flagged by this tool, an email is automatically generated to the traveler and approving official associated with that voucher with instructions for correcting the error. For example, the compliance tool flags vouchers with duplicate expenses, such as expenses for lodging or rental cars. However, the tool does not flag all potential improper payments, because it does not identify all types of voucher errors. For instance, according to DTMO officials, the tool cannot identify vouchers that have been submitted without required receipts. For fiscal year 2018, the average rate for DTS vouchers identified as erroneous by the DTMO compliance tool was 0.044 percent. In contrast, DOD reported an improper payment rate of 4.5 percent for DTS vouchers in fiscal year 2018. In addition, the tool does not identify the root causes leading to those errors. Rather, the tool simply notifies the traveler and approving official associated with a specific voucher with characteristics indicative of a potential improper payment and requests that they amend the voucher to remove any errors. DFAS Sampling. Each month, DFAS selects a sample of vouchers that have been processed in DTS and assigns staff to review those vouchers to determine whether any resulted in an improper payment. According to DFAS officials, DFAS provides the results of these reviews to the components represented on the SAO committee. DFAS also prepares quarterly reports that summarize the most frequent errors that lead to improper travel payments and presents these reports for discussion at SAO committee meetings. DFAS reports the frequency of voucher errors for each military service and U.S. Special Operations Command and an aggregate rate for defense agencies and joint commands. The DFAS reports also suggest corrective actions to address the identified errors. For example, in November 2018, DFAS reported that the voucher error leading to the third largest amount of improper payments was Lodging Paid Without a Receipt, which accounted for a total of $21,810 in improper payments in that month. The corrective action DFAS suggested was for reviewers or approving officials to verify that receipts were uploaded to DTS and that any uploaded receipts met the criteria for valid receipts. If either of these conditions was not met, the reviewer was to return the voucher to the traveler to correct and resubmit. However, these corrective actions did not address the root causes of those errors. Specifically, neither DFAS nor the SAO committee determined why travelers were not uploading receipts for lodging expenses or why officials were approving vouchers without receipts. According to DFAS reports, errors related to missing lodging receipts were among the top 5 errors from October 2016 through June 2017. By December 2018, these were was the most common errors DFAS identified accounting for a total of $53,125 in improper payments in that month yet DOD did not develop corrective actions to address the root cause (i.e., why travelers were continuing to submit vouchers without lodging receipts). SAO Committee Effort. As we discussed earlier in this report, beginning in January 2017, OUSD (Comptroller) convened five meetings of the SAOs from 10 components that, according to officials, accounted for the majority of DOD travel payments in fiscal year 2016. At these meetings, representatives from the components discussed approaches they were using to reduce improper travel payments. In addition, representatives from DTMO and DFAS presented trends resulting from their efforts to identify improper travel payments using the DTMO Compliance Tool and DFAS post-pay sampling. These presentations conveyed information about the types of voucher errors that were leading to improper travel payments, and SAOs in attendance discussed how to mitigate those errors. However, our review of SAO Committee meeting minutes and the remediation plans prepared by those components represented on the committee found that the components did not identify the root causes of errors leading to improper travel payments. Military Services Corrective Action Plans. The military services, in coordination with OUSD (Comptroller), developed corrective action plans to address improper travel payments. OUSD (Comptroller) provided the military services with guidance on developing the corrective action plans that states that corrective action plans are required to reduce improper payments, as well as to address specific audit recommendations and issues of IPERA non-compliance. OUSD (Comptroller) also provided the military services with a corrective action plan template that instructs them to describe what the plan is intended to address, i.e., improper payments, a specific audit recommendation, or noncompliance issues. The template also defines root causes as underlying issues that are reasonably identifiable, can be controlled by management, and require implementing corrective actions to mitigate. As of May 2019, the military services had prepared 12 corrective action plans for the travel pay area. However, we found that only 4 of them included specific corrective actions addressing the root causes of improper travel payments. We also found that the plans varied in terms of their sophistication in discussing and identifying root causes. For example, none of the corrective action plans prepared by the Air Force targeted the root causes of improper travel payments. By contrast, one of the Navy s corrective action plans clearly identified the root cause of an error (vouchers being approved without the required forms) and specified 10 milestones and associated corrective actions to address the root cause. Of the Army s two corrective action plans, one addressed weaknesses in the Army s sampling plan for determining improper payments at overseas offices but did not discuss identifying the root causes of improper travel payments, and the other required Army travel management officials at overseas offices to improve their reporting of improper travel payments to more clearly link corrective actions with root causes. While DOD has taken some positive steps to identify the errors that most frequently lead to improper travel payments, our review found that component officials do not have a clear understanding of what constitutes the root cause of an improper travel payment. For example, component officials who responded to our survey consistently mischaracterized root causes as the specific errors leading to improper payments (e.g., missing receipts) rather than the underlying reasons for those errors. Our survey asked respondents if their component had taken steps to identify the root causes of voucher errors that led to improper travel payments in fiscal year 2018 and, if so, to provide examples of root causes they had identified. While 31 of the 37 (84 percent) components that responded to the question indicated that they had taken steps to identify root causes, and 28 (76 percent) indicated that they had taken steps to address those identified root causes, open-ended survey responses indicated that the components did not understand the term root cause. Specifically, 24 of the 31 (77 percent) components that provided open-ended responses with examples of the root causes they identified cited voucher errors such as missing receipts rather than identifying the root causes for why those errors occurred. This indicates that the 31 components that responded to this question did not understand the term root cause . It also suggests that the number of components that actually took actions to address root causes is likely significantly lower than the numbers reported by the survey respondents. OMB guidance specifies that agencies should ensure they have identified a true root cause of an improper payment, because it is critical to do so in order to formulate effective corrective actions. DOD s Financial Management Regulation (FMR) states that root causes of improper payments must be identified and corrective plans developed and monitored on a regular basis to ensure that future improper payments will be reduced and eliminated. However, neither DOD s FMR nor the June 2018 charter for the DOD Improper Payments SAO Steering Committee defines the term root cause. And while DOD has established some mechanisms to try to help components identify root causes, our survey demonstrates that many travel management officials at DOD components do not clearly understand the meaning of root cause. Specifically, of the 31 components that provided examples of what they believed to be the root causes of voucher errors, only 7 provided examples of actual root causes. Until DOD defines the term root cause to ensure a common understanding of the term across the department, DOD travel management officials will likely miss opportunities to make changes that could help to address the underlying causes of improper travel payments. <4.2. DOD Has Not Determined How to Assess the Cost- Effectiveness of Addressing Root Causes Once They Have Been Identified> All of the corrective action plans prepared by the military services that are intended to identify root causes of improper travel payments specified the costs associated with implementing the corrective actions. While many of the actions do not fully address root causes, as previously discussed, it is important that the department weighs the cost-effectiveness of its actions. However, we found that the services had not incorporated a consideration of cost-effectiveness into their decisions on whether to implement those actions, at least in part because OUSD (Comptroller) had not provided guidance on how they should assess the cost-effectiveness of potential corrective actions. Specifically, the template OUSD (Comptroller) provided to the military services for preparing corrective action plans neither asked for information on costs nor specified how to determine the cost-effectiveness of specific corrective actions. In May 2019, an OUSD (Comptroller) official told us that DOD is considering formulating guidance on how components should determine cost-effectiveness. OMB guidance states that agencies should be able to measure the effectiveness and progress of each individual corrective action on an annual basis. The guidance further states that agencies should annually review their existing corrective actions to determine if any existing action can be intensified or expanded so that it results in a high return on investment in terms of reduced or prevented improper payments. Addressing the root causes of improper travel payments can be costly, requiring investments in technology changes, among others. For example, component officials whom we interviewed and who responded to our survey indicated that several of the root causes for improper travel payments were related to design flaws in DTS. According to DOD officials, a feature of DTS called Trip Workbook is used by travelers to upload and attach receipts to vouchers. However, Trip Workbook is not visible to approving officials when they process the voucher for approval and payment. As a result, vouchers are being approved without the required receipts, because approving officials cannot determine whether or not the receipts have been attached. Officials stated that changes to DTS are often costly and can take a long time, and in some instances they can be more costly than the improper payment amounts they are intended to reduce. Without clear guidance to assist components in determining whether proposed corrective actions are cost-effective to implement, DOD travel management officials will be hampered in making informed decisions about which actions to implement and which to leave unfunded. <5. Conclusions> DOD spent about $6 billion annually in DTS travel payments from fiscal years 2016 through 2018 for its personnel to travel in support of its mission, but since 2012 the DODIG has consistently found the DOD travel program to be non-compliant with statutory requirements to mitigate improper payments. In 2016, DOD began implementing a Remediation Plan to address weaknesses in its management of improper travel payments. However, DOD did not consider component-specific improper payment rates in addition to overall travel payments when developing its risk-based approach to monitoring the implementation of the Plan. Thus, DOD lacks assurance that the components it selected for greater scrutiny were the ones most at risk for improper travel payments. Further, even the components that DOD determined were critical to implementing the Remediation Plan did not fully implement the Plan s requirements, because DOD had not established milestones for completing all of the requirements, monitored whether the components had completed them on time, or held them accountable for completing the requirements. In addition, DOD did not establish a mechanism to share the results of the SAO committee s initiatives to reduce improper payments with travel management officials across the department, limiting opportunities for the components that were not represented on the SAO committee to benefit from Remediation Plan efforts. DOD has taken some positive steps to identify the errors associated with improper travel payments but can do more to effectively and efficiently address the underlying root causes. First, DOD has not established a common definition of root cause so that travel management officials across the department can clearly identify actions needed to address improper travel payments. In the absence of such a definition, the department is limited in its ability to address the underlying reasons for improver travel payments. Second, DOD components lack guidance to assist them in determining the cost-effectiveness of addressing root causes of improper travel payments. Such guidance would help to provide assurance that investments are targeted to actions that are cost effective to implement. <6. Recommendations for Executive Action> We are making five recommendations to DOD. The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) revises the approach for selecting components to implement the DOD Travel Pay Improper Payments Remediation Plan to consider available improper payment rate data in addition to data on the components amount of travel payments. (Recommendation 1) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) expedites completion of the remaining Travel Pay Improper Payments Remediation Plan requirements by establishing milestones for the requirements, monitoring whether the components have completed them on time, and holding components accountable for completing the requirements. (Recommendation 2) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) establishes a mechanism to share the results of the SAO committee s initiatives to reduce improper travel payments with all appropriate travel management officials across the department. (Recommendation 3) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) takes action to ensure a common understanding of the concept of root cause across the department. This could be done by, among other actions, revising the Financial Management Regulation or the charter for the DOD Improper Payments SAO Steering Committee to include a definition of the term and including a definition of the term in the mechanism used to share the results of the SAO committee s initiatives to reduce improper travel payments with travel management officials across the department. (Recommendation 4) The Secretary of Defense should ensure that the DOD Deputy Chief Financial Officer directs the chairs of the SAO Committee, with the input of OUSD (Comptroller), DTMO and DFAS, to provide guidance to the components on how to determine whether actions that would address root causes are cost effective to implement. (Recommendation 5) <7. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix III, DOD did not concur with our first recommendation, partially concurred with our second and fifth recommendations, and concurred with our third and fourth recommendations and outlined its plan to address them. DOD also provided technical comments, which we incorporated in the report where appropriate. In non-concurring with our first recommendation that OUSD (Comptroller) revise the approach for selecting components to implement the DOD Travel Pay Improper Payments Remediation Plan (Remediation Plan) to consider available improper payment data in addition to the amount of travel payments of DOD components, DOD stated that OUSD (Comptroller) had focused implementation of its remediation efforts on the 10 components that accounted for approximately 95 percent of the department s travel pay disbursements in DTS. DOD added that this approach achieved maximum coverage of travel payments, given its time and resource limitations. DOD also stated that improper payment metrics reported by DFAS supported this approach, as these data show that the military services accounted for 92 percent of DTS travel payments and a majority of improper travel payments. We acknowledge in our report that DOD identified the 10 components to include on the SAO committee because these components accounted for the significant majority of the department s fiscal year 2016 DTS travel payments. However, our report also states that it is unclear whether there is an association between the volume of DTS travel payments and improper travel payment rates (measured in terms of the percentage of DTS travel payments made improperly), because DOD does not routinely collect data on improper travel payment rates for all components even though as we also note in our report such data are available. As a result, DOD may have excluded components with relatively lower travel payments but higher rates of improper payments. DOD s approach can serve to reduce DOD s total improper travel payment amounts, but it may not fully support a key goal of DOD s Remediation Plan to reduce the risk of improper travel payments. Thus, we continue to believe that DOD should incorporate improper payment rates into its approach to oversee the implementation of its remediation efforts. In partially concurring with our second recommendation that OUSD (Comptroller) expedite completion of the remaining Remediation Plan requirements by establishing milestones for the requirements, monitoring whether the components have completed them on time, and holding components accountable to completing the requirements, DOD stated that OUSD (Comptroller) will expedite completion of the Remediation Plan requirements for the six components that have not yet completed them. DOD specified that OUSD (Comptroller) will establish milestones for the remaining requirements, monitor their progress, and hold components accountable for their completion. DOD stated that it would complete these actions by January 31, 2020. DOD also reiterated that it does not believe detailed oversight beyond the largest components is cost-effective, but noted that it would continue to monitor the non-SAO components and their impact on improper travel payments. The intent of our recommendation is to ensure that DOD expedites completion of the Remediation Plan requirements for, at a minimum, the 10 components that accounted for a significant majority of DOD s DTS travel payments. We believe the planned actions that DOD outlined in its response will meet the intent of our recommendation. Further, as discussed in our report, requiring additional components to complete the Remediation Plan requirements may be warranted if those components have relatively high improper payment rates. Therefore, DOD s stated plan to monitor other components and their impact on improper travel payments would be responsive to our recommendation, provided the department holds non- SAO committee components accountable for addressing high improper payment rates. In partially concurring with our fifth recommendation that the DOD Deputy Chief Financial Officer direct the chairs of the SAO Committee, with the input of OUSD (Comptroller), DTMO and DFAS, to provide guidance to the components on how to determine if actions that would address root causes are cost-effective to implement, DOD stated that OUSD (Comptroller) will revise the improper payments corrective action plan template to require reporting components to perform a cost-benefit analysis to determine the best or most cost-effective solution, resulting in savings to the department. DOD added that OUSD (Comptroller) will not provide specific steps to the components on how to determine whether their actions are, in fact, cost-effective to implement. DOD further stated that it believes that the criteria and/or appropriate steps to determine whether corrective actions are cost-effective for a component must be identified and agreed upon internally within the component. DOD stated that it would complete these actions by October 31, 2019. The intent of our recommendation is to ensure that DOD components determine the cost-effectiveness of actions to address the root causes of improper travel payments. DOD s stated plan to require the reporting components to perform a cost-benefit analysis will meet the intent of our recommendation, provided that the department ensures that the components are evaluating the cost-effectiveness of planned corrective actions that address the root causes of improper travel payments. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the DOD Chief Management Officer, the Under Secretary of Defense (Comptroller), the Secretary of the Army, the Secretary of the Air Force, the Secretary of the Navy, the Commandant of the Marine Corps, the Chairman of the Joint Chiefs of Staff, the Director of the Defense Finance and Accounting Service, and the Director of the Defense Travel Management Office. In addition, the report is available at no charge on our website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2775 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: DOD Components Included in GAO s Web-Based Survey Defense Media Activity (DMA) Missile Defense Agency (MDA) Defense Acquisition University (DAU) Defense Advanced Research Projects Agency (DARPA) Defense Commissary Agency (DECA) Defense Contract Audit Agency (DCAA) Defense Finance and Accounting Service (DFAS) Defense Intelligence Agency (DIA) Defense Logistics Agency (DLA) Defense Security Service (DSS) Defense Technical Information Center (DTIC) Defense Technology Security Administration (DTSA) Defense Threat Reduction Agency (DTRA) Department of Defense Education Activity (DODEA) National Defense University (NDU) National Geospatial-Intelligence Agency (NGA) Defense POW/MIA Accounting Agency (DPAA) Defense Health Agency (DHA) Court of Appeals for the Armed Forces (CAAF) Uniformed Services University of Health Sciences (USU) DOD Inspector General (DOD IG) Defense Contract Management Agency (DCMA) Defense Security Cooperation Agency (DSCA) White House Military Office (WHMO) Defense Microelectronics Activity (DMEA) Test Resource Management Center (TRMC) Office of the Secretary of Defense (OSD) Office of Economic Adjustment (OEA) Office of General Counsel (OGC) Defense Human Resources Activity (DHRA) Component Name Washington Headquarters Service (WHS) Pentagon Force Protection Agency (PFPA) Joint Chiefs of Staff (JCS) U.S. Africa Command (AFRICOM) U.S. Central Command (CENTCOM) U.S. European Command (EUCOM) U.S. Northern Command (NORTHCOM) U.S. Indo-Pacific Command (INDOPACOM) U.S. Special Operations Command (SOCOM) U.S. Strategic Command (STRATCOM) U.S. Transportation Command (TRANSCOM) Inter American Defense Board (IADB) Joint Interagency Task Force West (JIATF-W) North Atlantic Treaty Organization (NATO) United Nations Command/US Forces Korea (USFK) U.S. Military Entrance Processing Command (USMEPCOM) Components represented on the Senior Accountable Official Committee (SAO committee) since establishment of the committee. The SAO committee had a total of 13 member components, but DOD officials told us that 3 components (the Office of the Under Secretary of Defense (Comptroller), the Defense Finance and Accounting Service, and the Defense Travel Management Office) served in support roles and were not held accountable for completing the Remediation Plan requirements. Appendix II: Objectives, Scope, and Methodology Our objectives were to examine (1) the amount the Department of Defense (DOD) spent on Defense Travel System (DTS) travel payments for fiscal years 2016 through 2018 and how much of those payments DOD estimated to be improper; (2) the extent to which DOD implemented its Remediation Plan; and (3) the extent to which DOD established mechanisms to identify errors leading to improper travel payments, the root causes of those errors, and the cost effectiveness of addressing root causes. To address our first objective, we collected DTS data on travel payments for fiscal years 2016 through 2018, by DOD component and trip purpose, from the Defense Travel Management Office (DTMO). We used this time period because DOD issued its plan to remediate improper payments in 2016. We calculated the total payments for that time period, as well as the average annual payments and subtotals for various categories such as the military services and the trip purposes that represented the top three highest percentages of payments. We discussed with DTMO officials how the data were generated and what the data points represented. We chose to focus on DTS because it is the primary system for processing travel vouchers for DOD, and the vouchers it processes account for the majority of DOD travel. We also collected data from the Defense Finance and Accounting Service (DFAS) on travel payments made in DTS that were identified as improper, as well as data on the dollar amount of those improper payments that were estimated to result in a monetary loss to the government. We discussed with DFAS officials the methodology that they used to estimate both the improper payment amounts and the portions of those amounts that were estimated to be monetary losses to the government. To assess the reliability of the data we obtained, we reviewed corroborating documentation, analyzed the data for inconsistencies, and interviewed service officials about the reliability of the data. We determined that the data were sufficiently reliable for our reporting purposes, which were to determine the amount of DOD s DTS travel payments and to provide insight into the estimated improper travel payment amounts that the department reported for fiscal years 2016 through 2018. However, we also determined that, based on persistent problems with DOD s improper payment estimates that we and the DOD Inspector General have reported since 2013, these data were not sufficiently reliable for other purposes, such as determining the specific progress DOD has made in reducing its rates of improper travel payments. To address our second objective, we reviewed documents and met with officials to discuss DOD s implementation of its Remediation Plan. We also conducted a web-based survey of officials at DOD components. We administered the survey from February 4 through March 29, 2019, soliciting information on the extent to which components had implemented the Remediation Plan, steps the components had taken to address improper travel payments, the types of issues that frequently lead to improper travel payments, and challenges associated with reducing improper travel payments. We sent this survey to 52 components, 37 (71 percent) of whom responded. More specifically, 9 of 10 (90 percent) components represented on the Senior Accountable Official (SAO) committee (SAO components) responded and 28 of 42 (67 percent) components not represented on the SAO committee (non- SAO components) responded. The survey results represent the views of only those components that responded and may not be generalizable to all components. The results of our survey provide measures of component officials views at the time they completed the survey in February and March 2019. Please see appendix I for a list of the 52 components we contacted. How familiar are you, in responding to this survey on behalf of the #COMPONENT, with DOD s Travel Pay Improper Payments Remediation Plan (dated October 1, 2016), if at all? (Response options provided: Checkboxes labeled Very familiar, Moderately familiar, Slightly familiar, Not at all familiar, and No opinion/no response. ) Has a lead entity in the #COMPONENT been designated for implementing DOD s Travel Pay Improper Payments Remediation Plan (dated October 1, 2016) requirements? (Response options provided: Checkboxes labeled Yes, an office has been designated the lead for this effort, Yes, a person has been designated the lead for this effort, No entity has been designated to lead implementation requirements, and Don t know ) Has the #COMPONENT designated in writing a Senior Accountable Official (SAO)? (An SAO is a Senior Executive Service member, general officer, or flag officer designated by a component as responsible for reducing improper payments.) (Response options provided: Checkboxes labeled Yes, No, but my component is represented by an SAO in another component or organization, No, and Don t know. ) Has the #COMPONENT completed this? (Response options provided: Checkboxes labeled Yes, No, and Don t know. ) If yes, what was the month the #COMPONENT completed the action? (Response option provided: one text box.) If yes, what was the year the #COMPONENT completed the action? (Response option provided: one text box.) Has the #COMPONENT completed any of the following actions? Review Defense Finance and Accounting Service (DFAS) reports on improper travel payments. (Response options provided: Yes, No, Not applicable (do not receive DFAS reports), and Don t know. ) Have representatives of the #COMPONENT attended the quarterly Senior Accountable Official (SAO) meetings since they were first held in January 2017? An SAO is a Senior Executive Service member, general officer, or flag officer designated by a component as responsible for reducing improper payments. (Response options provided: Yes, a representative of our component attended all of the meetings, Yes, a representative of our component attended some, but not all, of the meetings, No, a representative of our component has never attended an SAO meeting, and Don t know. ) Has the #COMPONENT received a copy of the official minutes of the quarterly Senior Accountable Official (SAO) meetings since they were first held in January 2017? (Response options provided: Yes, our component received a copy of the minutes for all of the meetings, Yes, our component received a copy of the minutes for some, but not all, of the meetings, No, our component has not received a copy of the minutes for any of the SAO meetings, and Don t know. ) Has the #COMPONENT taken steps to identify the root causes of voucher errors that led to improper travel payments in fiscal year 2018? Note, for the purpose of this question we define root causes as the reasons personnel made errors preparing or approving vouchers, including but not limited to: travelers were insufficiently trained on voucher preparation, approvers did not have sufficient time to review vouchers, and/or Defense Travel System was not effectively designed to process vouchers. (Response options provided: Yes, No, and Don t know. ) What are some examples of root causes of voucher errors that the #COMPONENT identified in fiscal year 2018? (Response option provided: one text box.) Has the #COMPONENT taken steps to address any identified root causes of voucher errors that led to improper travel payments in fiscal year 2018? (Response options provided: Yes, No, and Don t know. ) What steps have been taken by the #COMPONENT to address the root causes of voucher errors that led to improper travel payments in fiscal year 2018? (Response option provided: one text box.) Because the majority of survey respondents did not provide open-ended responses to each question, we did not conduct a formal content analysis of the responses. We determined that the open-ended responses would not be representative of all components that responded to our survey, and we therefore present them only as illustrative examples. To analyze open-ended comments provided by those responding to the survey, GAO analysts read the comments, jointly developed categories for the responses, and flagged relevant responses for inclusion in this report. To address our third objective, we reviewed DOD s Remediation Plan, documents related to DOD s implementation of the Remediation Plan, such as the minutes of SAO committee meetings, and the June 2018 DOD Improper Payments Senior Accountable Officials Steering Committee Charter. In addition, we met with DOD and component officials to discuss efforts to identify and address root causes of improper travel payments and conducted a web-based survey of travel administrators in 52 DOD components (summarized above) to obtain information on their efforts to identify and address the root causes of improper travel payments. We compared the information we obtained with OMB guidance on how agencies are to identify and address the root causes of improper payments, as well as the definition of root cause contained in the template DOD uses for corrective action plans intended to address improper travel payments. We conducted this performance audit from April 2018 to August 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Matthew Ullengren (Assistant Director), Vincent Buquicchio, Christopher Gezon, Foster Kerrison, Jill Lacey, Joanne Landesman, Rob Letzler, Kelly Liptan, and Michael Silver made key contributions to this report.

Why GAO Did This Study Improper payments—including payments that should not have been made or were made in an incorrect amount—are a long-standing, significant challenge in the federal government. Both GAO and the DOD Inspector General have reported on problems related to improper payments in DOD's travel pay program. This report examines (1) the amount DOD spent on DTS travel payments for fiscal years 2016 through 2018 and how much of those payments DOD estimated to be improper and the extent to which DOD has (2) implemented its Remediation Plan and (3) identified travel payment errors, the root causes of those errors, and the cost-effectiveness of addressing root causes. GAO analyzed fiscal years 2016 through 2018 data on DTS payments, reviewed DOD's Plan and documentation, interviewed officials about implementation efforts, and surveyed 52 DOD components about steps taken to address improper travel payments. What GAO Found The Department of Defense's (DOD) Defense Travel System (DTS)—the primary system DOD uses to process travel payments—accounts for most of DOD's travel payments. DOD spent $18.3 billion on DTS travel payments from fiscal years 2016 through 2018, while incurring a reported $965.5 million in improper travel payments. In that period, DOD averaged $6.1 billion in DTS travel payments and $322 million in improper travel payments annually. Not all improper travel payments—such as legitimate payments that initially lacked supporting documentation―represented a monetary loss to the government. Officials said DOD first estimated a monetary loss from improper travel payments in fiscal year 2017. For fiscal years 2017 and 2018 it estimated a total monetary loss of $205 million out of $549 million in improper DTS payments (see fig.). In October 2016, DOD established a Remediation Plan to reduce improper travel payments and a committee to monitor implementation of the plan at 10 DOD components. DOD selected these 10 components because they accounted for a significant percentage of total travel payments. However, DOD did not take into account the components' own estimates of their improper payment rates. As of March 2019, only 4 of the 9 components that responded to GAO's survey had completed all of the plan's requirements, in part because of a lack of milestones in the plan and ineffective monitoring for required actions. As a result, DOD does not have reasonable assurance that its actions have been sufficient. DOD has mechanisms to identify errors leading to improper travel payments, and some components have developed specific corrective plans to address the errors. However, GAO found that these efforts did not clearly identify the root causes of the errors, in part because there is no common understanding of what constitutes the root cause of improper travel payments. DOD components also have not incorporated considerations of cost-effectiveness into decisions about whether to take actions that could reduce improper payments. Without addressing these issues, DOD will likely miss opportunities to implement the changes necessary to address the root causes of improper travel payments. What GAO Recommends GAO made 5 recommendations, including that DOD consider data on improper payment rates in its remediation approach; define the term “root cause”, and consider cost effectiveness in deciding how to address improper payments. DOD generally concurred with 4 recommendations, but did not concur with revising its approach for selecting components to implement its Remediation Plan, stating that it has already taken actions that address this issue. GAO believes the recommendation remains valid.

gao_GAO-19-691

gao_GAO-19-691_0

<1. Background> FAR Part 15 describes negotiated contracting, which includes the use of several competitive source selection processes. The processes are associated with the best value continuum, which includes the LPTA process on one end and the trade-off process on the other (see figure 1). Federal agencies may elect to use the LPTA process where the requirement is clearly defined and the risk of unsuccessful contract performance is minimal. In such cases, agencies can determine that cost or price should play a dominant role in the source selection. When using the LPTA process, the agency specifies the evaluation factors that establish the requirements of acceptability in the solicitation. Firms submit their proposals and the agency determines which of the proposals meet those requirements. No trade-offs between cost or price and non-cost factors (for example, technical capabilities or past performance) are permitted. Non-cost factors are rated on an acceptable or unacceptable basis. The award is made based on the lowest priced, technically acceptable proposal submitted to the government. In contrast, agencies may elect to use the trade-off process in acquisitions where the requirement is less definitive, more development work is required, or the acquisition has a greater performance risk. In these instances, non-cost factors may play a dominant role in the source selection process. Trade-offs between price and non-cost factors allow agencies to accept other than the lowest priced proposal. The FAR requires the solicitation to state whether all evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price. Contracting officials have broad discretion in the selection of the evaluation criteria that will be used in an acquisition. When one is required, a written acquisition plan generally should include a description of the acquisition s source selection process and the relationship of the evaluation factors to the acquisition objectives. The FAR does not explicitly require contracting officials to document the reasons why the specific source selection process was chosen. The defense and civilian provisions required the DFARS and FAR, respectively, be revised to require that the LPTA process only be used if certain criteria are met, as described in table 1. The defense and civilian provisions also required that the use of the LPTA process be avoided, to the maximum extent practicable, in procurements that are predominantly for the products and services identified in table 2. <1.1. The FAR and DFARS Rulemaking Process> The process for revising the FAR and DFARS is governed by statute, which generally requires agencies to issue a proposed rule in the Federal Register. Agencies are also required to provide at least a 30-day public comment period following publication of the proposed rule. Figure 2 illustrates the basic process that is generally used to revise the FAR and the DFARS. <1.2. Recent Reports on DOD s Use of the LPTA Process> We have issued two reports in response to the defense provisions requiring us to review DOD s use of the LPTA process. In November 2017, we found that the Army, Navy, and Air Force used the LPTA process for information technology and other services in 9 out of 133 instances when awarding contracts valued at $10 million or more in the first half of fiscal year 2017. Contracting officials stated that the LPTA process was used in these instances, in part, because the requirements were well-defined, noncomplex, or recurring. We also found that contracting officials use of the LPTA process was generally consistent with the criteria listed in the defense provisions. In November 2018, we estimated that about 26 percent of DOD s contracts and orders valued at $5 million or more in fiscal year 2017 were competitively awarded using the LPTA process. We found that DOD used the LPTA process to buy equipment, fuel, information technology services, and construction services, among other things. We also found that contracting officials used the LPTA process for reasons consistent with the criteria in the defense provisions. Specifically, contracting officials associated with the 14 contracts and orders we selected used the LPTA process, in part, because they determined there was no trade-off available or determined that DOD would not derive any benefit from paying a premium for offers that exceeded the minimum capabilities. Finally, we found that some contracting officials were confused about how to apply two of the criteria included in the defense provisions. Specifically, contracting officials were confused regarding how to assess life cycle costs associated with their procurements (shown as criterion 6 in table 1) or whether the products and services they were acquiring would be considered expendable in nature (criterion 8). Absent clarification on how to consider these two criteria, we found there was potential for increased risk that DOD contracting officials would not consistently apply the criteria of the defense provisions. Accordingly, we recommended that DOD address how contracting officials should apply these two criteria when using the LPTA process. DOD concurred with our recommendations, and plans to address them by issuing guidance concurrent with publication of the final rule at the end of fiscal year 2019. <2. Status of Revisions to Regulations Addressing Use of the LPTA Process> <2.1. Defense and Civilian Agencies Revisions to the DFARS and the FAR> In December 2018, DOD issued a proposed DFARS rule for public comment to address the defense provisions for using the LPTA process. The December 2018 proposed rule reflected the criteria and limitations for using the LPTA process set forth in the defense provisions, and provided further clarification that these provisions were applicable to both contracts and orders. The public comment period ended on February 4, 2019, during which time the Defense Acquisition Regulations Council received 15 comments. In commenting on the proposed rule, industry representatives generally indicated their support for the proposed rule. On June 19, 2019, the Council agreed to move forward with the process for issuing a final rule revising the DFARS. Defense Pricing and Contracting officials stated that DOD expects to finalize the rule by the end of fiscal year 2019. The time required to develop and finalize the revisions to the DFARS has been longer than provided for under the NDAA for fiscal year 2017, which required the DFARS be revised within 120 days after enactment, which would have been in April 2017. In July 2019, we found that it can take a year or longer to issue a final DFARS rule. For this DFARS case, a Defense Pricing and Contracting official cited several reasons why the revisions have been delayed, including the need to address LPTA-related provisions in two separate NDAAs and the need to resolve a backlog of DFARS changes. In addition to ongoing efforts to update DFARS regulations, DOD officials plan to update the DFARS Procedures, Guidance and Information to provide defense contracting officers with supplemental guidance on applying the new criteria for using the LPTA process. A Defense Pricing and Contracting official stated that this update would be finalized by the end of fiscal year 2019 to coincide with the issuance of the final DFARS rule. The FAR Council has also initiated efforts to incorporate the civilian provisions for using the LPTA process into the FAR. The NDAA for Fiscal Year 2019 required that the FAR be revised to incorporate the civilian provisions within 120 days after enactment, which would have been in December 2018. Officials from the Office of Federal Procurement Policy told us, however, that it generally takes much longer than 120 days to revise the FAR. According to an analysis provided by DOD, it takes 483 days on average to issue a FAR rule. The FAR case to implement the civilian LPTA provisions was initiated in August 2018 the same month the NDAA for Fiscal Year 2019 was enacted. Office of Federal Procurement Policy officials stated that a proposed FAR rule is scheduled to be published in the Federal Register in September 2019. The public comment period for the proposed rule is scheduled to end in November 2019. Figure 3 shows when the defense and civilian provisions were enacted, when the rules were required to be implemented, and some of the efforts associated with revising both the DFARS and the FAR. <2.2. Current Agency Guidance for Using LPTA> Of the six agencies we reviewed, we found that DOD and DHS had existing source selection guidance that already reflected some of the criteria for using the LPTA process identified in the defense and civilian provisions. The other four civilian agencies did not have source selection guidance specific to using the LPTA process. Table 3 shows the status of selected agencies existing guidance related to the LPTA process. We found the following: DOD s March 2016 Source Selection Procedures generally includes five of the eight criteria for using the LPTA process. A Defense Pricing and Contracting official stated that this guidance could be updated after the DFARS rule is implemented and the Procedures, Guidance, and Information resource is updated. The DHS September 2013 Source Selection Guide generally includes the first four of the six criteria for using the LPTA process. DHS officials stated that they plan to update their guidance after the FAR is amended to reflect the criteria and limitations for using LPTA. Acquisition policy officials from VA, GSA, USDA, and HHS stated that they do not have agency-specific guidance for using the LPTA process beyond what is currently provided for under the FAR. These officials stated that they were waiting for regulations to be finalized before determining if there is a need to develop any new guidance. <3. DOD Used the LPTA Process More Frequently Than Selected Civilian Agencies in Fiscal Year 2018> Based on the results of our generalizable samples, we estimate that the selected DOD components used the LPTA process for about 25 percent of competitive contracts and orders valued at $5 million or more in fiscal year 2018, compared to about 7 percent of such contracts and orders at selected civilian agencies, as shown in Table 4. Our findings regarding how often DOD uses the LPTA process are consistent with what we found in our prior work. In November 2018, for example, we reported that Army, Navy, Air Force, and DLA awarded about 26 percent of contracts and orders using the LPTA process in fiscal year 2017. In November 2017, we reported that officials told us the LPTA process was used in instances where the requirements were well- defined, noncomplex, or recurring. This is the first year we were required to evaluate civilian agencies use of the LPTA process. Civilian agency officials we interviewed provided various perspectives on the extent to which their agency used the LPTA process. HHS officials told us that their acquisitions are generally complex, so the LPTA process is not often deemed the appropriate mechanism for determining best value. USDA officials told us that they have few acquisitions valued at more than $5 million, and that those acquisitions are likely to have more complex requirements. In such cases, the officials told us, technical and performance considerations generally would be more important than price factors. In analyzing FPDS-NG data, we found that 1 percent of USDA s fiscal year 2018 contracts and orders were valued at more than $5 million. GSA officials told us their agency often procures services where it is beneficial for industry to propose solutions to a stated need, rather than GSA dictating the solution, such as professional services or information technology systems for a secure network solution. In these cases, officials said they would not have the technical specifications that an LPTA process would require. Officials from DHS and VA stated that they do not centrally track the source selection method used and they do not have sufficient information to say why their agencies use LPTA less frequently than other source selection methods. Within the sample of contracts we reviewed, we found DOD and the five selected civilian agencies bought a variety of products and services using the LPTA process in fiscal year 2018 (see table 5). We found that four of these DOD contracts and orders and one civilian agency order were for services that could be considered within the categories for which the defense and civilian provisions place limitations on, but do not prohibit, use of the LPTA process. In November 2018, we found that DOD contracting officers generally justified the use of the LPTA process for products and services in these categories. As described earlier in this report, the DFARS and FAR are in the process of being revised and do not currently address the limitations on the use of LPTA for these products and services. <4. Agency Comments> We provided a draft of this report to OFPP, DOD, VA, HHS, GSA, DHS, and USDA for review and comment. OFPP, DOD, GSA, DHS and HHS provided technical comments, which we incorporated as appropriate. VA and USDA told us that they had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget, the Secretary of Defense, the Administrator of General Services, the Secretary of Veterans Affairs, the Secretary of Homeland Security, the Secretary of Agriculture, and the Secretary of Health and Human Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology Section 813 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017, as amended, included a provision that we report on the number of instances where Department of Defense (DOD) used the lowest price technically acceptable (LPTA) process for contracts exceeding $5 million, as well as provide an explanation of how acquisition officials considered the new criteria in making a determination to use the LPTA process. We have previously issued two reports in response to this provision. Subsequently, Section 880 of the NDAA for Fiscal Year 2019 included a provision that we report on the number of instances where civilian agencies used the LPTA process for contracts exceeding $5 million, as well as provide an explanation of how acquisition officials considered the six criteria in making a determination to use the LPTA process. This report, which addresses both provisions, describes (1) the status of regulatory changes required by the defense and civilian provisions for using the LPTA process and (2) the extent to which DOD and selected civilian agencies used the LPTA process to competitively award contracts and orders valued at $5 million or more in fiscal year 2018, and what they bought using this process. To address both objectives and select the DOD components and civilian agencies included in our scope, we used data from the Federal Procurement Data System-Next Generation (FPDS-NG) to identify the population of DOD and civilian agency contracts and orders that were reported as competitively awarded and valued at $5 million or more in fiscal year 2018. For DOD, we focused our review on the top four DOD components Army, Navy, Air Force, and Defense Logistics Agency (DLA) because they accounted for about 5,400 or about 88 percent of all DOD contracts and orders valued at $5 million or more that were reported as competitively awarded in fiscal year 2018. Similarly, we focused our analysis on the top five civilian agencies the Departments of Veterans Affairs (VA), Health and Human Services (HHS), Homeland Security (DHS), and Agriculture (USDA) and the General Services Administration (GSA) which accounted for about 3,000 or about 66 percent of all civilian agency contracts and orders valued at $5 million or more that were reported as competitively awarded in fiscal year 2018. To describe the status of regulatory changes governing the use of the LPTA process, we obtained information on agency officials efforts to amend the Defense Federal Acquisition Regulation Supplement (DFARS) and the Federal Acquisition Regulation (FAR). To do this, we met with DOD and Office of Federal Procurement Policy officials responsible for overseeing the regulatory changes. We also reviewed DOD s December 2018 proposed rule to revise the DFARS and the 15 public comments DOD received on the proposed rule. Because revisions to the FAR and DFARS have not been finalized, regulations do not yet require or provide guidance to acquisition officials on how to consider the new criteria. Therefore, we also analyzed agency guidance and interviewed acquisition and contracting policy officials at DOD and each of the selected civilian agencies to determine whether agencies had existing guidance that addressed the defense and civilian provisions, in whole or in part. Specifically, we reviewed agency-specific source selection guidance from DOD, DHS, and VA. GSA, USDA, and HHS do not have source selection guidance that specifically addresses the LPTA process. According to officials, DOD and the selected civilian agencies do not maintain centralized data on whether the LPTA process is used to award contracts and orders. Consequently, to describe the extent to which DOD and civilian agencies used the LPTA process in competitively awarded contracts and orders valued at $5 million or more in fiscal year 2018, we used FPDS-NG to select two generalizable random samples of contracts and orders to estimate the use of LPTA by the DOD components and the civilian agencies within our scope. This resulted in samples of 102 contracts and orders for the four selected DOD components and 100 for the five selected civilian agencies. We removed five contracts and orders from our DOD sample: two contracts and one order because they were incorrectly reported by the agency in FPDS-NG as having been competitively awarded, and two contracts because they were classified. We removed three contracts and orders from our civilian agency sample: two orders because they were incorrectly reported by the agency in FPDS-NG as having been competitively awarded, and one contract because it was incorrectly reported as having an estimated value of more than $5 million. After removing these contracts and orders, our generalizable sample consisted of 97 DOD contracts and orders and 97 civilian agency contracts and orders. For each contract and order in our sample, we requested that the selected agencies identify whether the LPTA process was used. We independently verified agency responses by reviewing the solicitations for each of the contracts and orders within our two samples. We also verified relevant FPDS-NG data on estimated value and competition using agency-provided documentation for the contracts and orders we reviewed. Based on this, we determined these data were sufficiently reliable for us to estimate the percentage of contracts and orders valued at $5 million or more that the four components within DOD and the five selected civilian agencies competitively awarded in fiscal year 2018 using the LPTA process. We also used FPDS-NG product and service codes to identify whether the LPTA contracts and orders in our sample could be considered to be within one of the categories that the defense and civilian provisions direct agencies to avoid use of the LPTA process to the maximum extent practicable. The regulatory changes required by the defense and civilian provisions are not yet in place, and the defense and civilian provisions do not explicitly prohibit use of the LPTA process to acquire these categories of products and services. Therefore, we did not evaluate the reasons why an agency may have used the LPTA process in these instances. The findings based on our review of the product and services codes for the LPTA contracts and orders in our sample are not generalizable. We conducted this performance audit from February 2019 to September 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, Justin Jaynes (Assistant Director), Heather B. Miller (Analyst-in-Charge), Sarah Cantatore, Matthew T. Crosby, Lorraine Ettaro, Lori Fields, Stephanie Gustafson, Julia Kennon, Sarah Martin, Alyssa Weir, and Khristi Wilkins made key contributions to this report.

Why GAO Did This Study When awarding a contract competitively, agencies can evaluate proposals using a best value, LPTA process that assesses which firm offered the lowest priced technically acceptable proposal. Section 813 of the NDAA for Fiscal Year 2017, as amended, included limitations on DOD's use of the LPTA process and required DOD to revise its acquisition regulation to reflect new criteria for use of the LPTA process. Section 880 of the NDAA for Fiscal Year 2019 required the FAR to be updated with similar requirements for civilian agencies. Sections 813 and 880 also included provisions for GAO to report on the number of instances where the LPTA process was used for contracts exceeding $5 million. This report describes (1) the status of regulatory changes governing the use of the LPTA process; and (2) the extent to which DOD and selected civilian agencies used the LPTA process to competitively award contracts and orders valued over $5 million in fiscal year 2018. GAO interviewed DOD and civilian agency officials involved in revising the DFARS and the FAR. GAO used data from the Federal Procurement Data System-Next Generation to select the top four DOD components and the top five civilian agencies based on the total number of contracts and orders valued at $5 million or more and competitively awarded in fiscal year 2018. Using this data, GAO developed generalizable samples to estimate these components' and agencies' use of the LPTA process in fiscal year 2018. What GAO Found Defense and civilian agencies are in the process of revising acquisition regulations to include criteria and limitations for using the lowest price technically acceptable (LPTA) process, as established under the National Defense Authorization Acts (NDAA) for Fiscal Years 2017 and 2019. While the Acts required revised regulations to be in place within 120 days of enactment, officials involved in revising the regulations stated that this process typically takes at least a year. The Department of Defense (DOD) issued a proposed Defense Federal Acquisition Regulation Supplement (DFARS) rule in December 2018 and expects the rule to be finalized by the end of fiscal year 2019. Officials responsible for revising the Federal Acquisition Regulation (FAR) have drafted a proposed FAR rule. The proposed FAR rule is scheduled to be published in the Federal Register in September 2019. See the figure below for the time frames and actions taken to update the DFARS and the FAR. Based on the results of GAO's generalizable samples, DOD used the LPTA process more frequently than selected civilian agencies in fiscal year 2018 for competitive contracts and orders valued at $5 million or more (see table).

gao_GAO-20-291

gao_GAO-20-291_0

<1. Background Federal Procurement for Telecommunications and Call Centers> The federal government relies on commercial communications networks to obtain various services, including video conferencing, local and long- distance telephone calls, email, text messages, file transfers, and more. Much of the communications infrastructure is owned or operated by commercial entities. Similarly, federal agencies rely on call centers (also known as contact centers) to handle public inquiries on government programs and services, such as Medicare. These centers utilize automated and live telephone response systems, websites, and trained customer service representatives to provide information to the public. Agencies that contract with industry to meet their telecommunications and call center needs report information about these contracts and their obligations in FPDS-NG the federal government s primary database for contract information at the prime contract level. When reporting contract data, agencies report information on the type of product or service being purchased as well as the NAICS code that best describes the principal purpose of the product or service being acquired. See table 1 for a description of the industry categories for businesses that provide telecommunications and call center goods or services. In addition to FPDS-NG, the federal government has developed other contract reporting systems to collect contracting information related to subcontracting. The Electronic Subcontract Reporting System (eSRS) was created in 2005 to streamline contractors reporting of progress toward meeting the small business subcontracting goals in their subcontracting plans and to facilitate agency oversight. The Federal Acquisition Regulation (FAR) generally requires that contractors be required to submit an acceptable subcontracting plan when they are awarded a contract that exceeds $700,000 and is expected to have subcontracting possibilities. Depending on the individual contract, the system may contain subcontracting information reported by both the prime contractor as well as multiple subcontractors. The Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) was created in 2010 to provide transparency about federal spending. Prime contractors must register and report subcontract information for first-tier subcontractors, as applicable. Information on subcontracts awarded by first-tier subcontractors to other entities, or lower-tier subcontractors, is not required. USASpending.gov was created in 2007 to promote transparency by providing the public with information about where and how federal dollars are spent. USASpending.gov contains prime contract award data from FPDS-NG and subcontract information from FSRS. <2. Laws and Technology Standards to Protect Federal Communications Data> Telecommunications and information technology (IT) fields have been merging in recent years due to integration of the technologies and combined operational management of their functions. Federal telecommunications systems can include a multitude of IT equipment and products, as well as services, such as managed network services and IT security services. In addition, telecommunications include such broadband internet services. The Federal Information Security Modernization Act (FISMA) of 2014 provides a comprehensive framework for ensuring that effective information security controls are put in place for information resources and assets that support federal operations and for ensuring the effective oversight of the security of the information. Under FISMA, the Office of Management and Budget (OMB) is responsible for overseeing agency information security policies and practices. To implement FISMA, the National Institute of Standards and Technology (NIST) a component within the Department of Commerce developed standards and guidelines for agencies to use to help manage information security risks. Both FISMA and OMB require agencies to comply with applicable NIST standards and guidelines. The NIST framework has many components, but generally provides guidance to agencies to manage information security risks for communication and information technology networks. The framework emphasizes that an organization needs to develop and implement appropriate safeguards to ensure delivery of critical services. To accomplish this goal an agency generally must be able to develop an organizational understanding to manage cybersecurity develop and implement appropriate safeguards to ensure delivery of mitigate those events, and restore system capabilities or services that were impaired due to a cybersecurity event. NIST publications can help agencies mitigate potential risks by providing approaches on how to manage or resolve information technology risks. For example, NIST states that agencies should conduct continuous threat monitoring and suggests control activities to implement to help manage supply chain risks, among other things. Some of the controls that NIST recommends are access controls authentication requirements and physical access controls to limit or detect inappropriate access to data, equipment, and facilities; security management controls establish a framework and continuous cycle for assessing data systems for security weaknesses, implementing security procedures, and monitoring the procedures to ensure adequate protection of sensitive or critical resources; and contingency planning and restoration of services planning for how to provide continued or restored services when system interruptions or problems occur. <3. Federal Laws and Regulations to Protect Workers> Various federal laws exist to protect workers, establishing requirements related to wages, hours worked, and worker safety and health, among other things. Some of these laws apply specifically to federal contractors, although the requirements may vary depending on factors such as the type and size of the contract. For example, the Service Contract Act establishes minimum wage, fringe benefit, and safety and health requirements for covered federal service contractors. Telecommunications service contracts are exempt from the Service Contract Act, but call center contracts may be subject to it. Similarly, the Walsh-Healey Act establishes minimum wage, overtime, and workplace safety and health requirements for covered federal supply contractors. Contractors are also generally subject to a number of non-discrimination and equal employment opportunity requirements under an executive order and federal laws. For example, covered contractors and subcontractors are prohibited from discriminating in employment based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or status as a protected veteran. In addition, covered contractors and subcontractors generally are prohibited from discriminating against applicants or employees because they inquire about, discuss, or disclose their compensation or that of others, subject to certain limitations. Along with laws that apply specifically to federal contractors, worker protection requirements of other federal laws may also apply, such as the Fair Labor Standards Act or the Occupational Health and Safety Act. Federal contractors are also generally subject to the requirements set forth in the FAR, which provides uniform policies and procedures for acquisition by executive agencies. Specifically, Part 22 of the FAR, Application of Labor Laws to Government Acquisitions, establishes various labor-related requirements for federal contractors and implements applicable requirements, as described above. Federal contractors may also be subject to specific department or agency regulations. For example, when contracting with DOD, contractors must comply with applicable contract provisions and clauses from the Department of Defense Federal Acquisition Regulation Supplement (DFARS), such as clauses incorporated pursuant to DFARS Part 222, Application of Labor Laws to Government Acquisitions. FAR clauses in the prime contract can indicate whether the contractor s requirements will flow down to its subcontractors. FAR flow-down clauses may be mandatory or discretionary, and are subject to other considerations such as whether a subcontract is performed extraterritorially. Total Obligations Were Consistent across Recent Years for Both Telecommunications and Call Center Contracts; Data on Subcontracting and Offshoring Are Limited <4. Federal Obligations for Telecommunications Averaged $6 Billion Annually> Federal agencies reported obligating a total of over $30 billion to acquire telecommunications products and services during fiscal years 2014 through 2018. Telecommunications spending accounted for 1.2 percent of total federal obligations for the 5-year period. Over these five years, the majority of the government-wide telecommunications obligations 84 percent were awarded for services, such as internet and satellite services with the remainder going to products. In fiscal year 2018, federal agencies reported obligating $6.2 billion to acquire telecommunications products and services an amount that is consistent with the preceding 4 fiscal years. DOD accounted for about two-thirds of this amount and civilian agencies for roughly one-third. These obligation levels are consistent with the previous 4 fiscal years. Within DOD, DISA which has responsibility for providing, operating, and assuring command and control and information-sharing capabilities across the full spectrum of military operations had the highest obligations for telecommunications services and products. Among civilian agencies, the National Aeronautics and Space Administration, the Department of Transportation, and the Department of Veterans Affairs had the highest obligations. These three agencies consistently had the highest obligations in each of the previous 4 fiscal years. Defense and civilian agencies obligations for telecommunications for the 5-year period are shown in figure 1. Agencies procured telecommunications products and services from an average of 1,500 vendors each year across the five telecommunications industry categories. A little more than half of these contractors were classified as small businesses. Ten contractors accounted for 52 percent of total federal telecommunications obligations for fiscal year 2018, which is generally consistent with obligation levels in the preceding 4 fiscal years. Appendix III provides additional information on the top federal telecommunications contractors based on dollars obligated. For the 5- year period we reviewed, our analysis shows that agencies reported the majority of dollars obligated were for purchases for wired telecommunications, as illustrated in figure 2. <5. Federal Obligations for Call Centers Averaged $800 Million Annually> Agencies reported an average of $800 million annually for call center obligations for fiscal years 2014 through 2018, with HHS accounting for at least 80 percent of total spending. Call center spending accounted for 0.2 percent of all federal spending during the 5-year period we reviewed. Almost all an average of 99.7 percent of call center contract obligations were awarded for services each year, such as professional and administrative support, help desk, and technical assistance services. For example, the CMS contract in our sample was awarded to acquire management and staffing services for a call center that handles Medicare beneficiary inquiries for 1-800 MEDICARE and consumer inquiries for the Health Insurance Marketplace. Total government-wide call center obligations for fiscal years 2014 through 2018 are shown in figure 3. An average of 133 different contractors had contracts with obligations for call centers during the 5 years we reviewed and about half were classified as small businesses. One contractor accounted for the majority of all obligations with obligation levels ranging from 80 to 84 percent for fiscal years 2014 through 2018. Appendix IV provides additional information on the top call center contractors based on dollars obligated. <6. Contract Reporting Systems Have Limited Data to Determine Extent of Subcontracting or Offshoring> Three federal reporting systems provide limited information about subcontracting and no information about offshoring because the systems were not designed to capture the extent of these activities. While FPDS-NG captures data on contracts entered into by federal agencies, it was not designed to include subcontracting data. The system has a field to indicate whether the prime contractor has developed a subcontracting plan, but does not have a field for contracting officials to specify details about what or how much of the products or services will be obtained through subcontracting. In addition, FPDS-NG was not designed to collect data on the extent to which prime contractors may offshore work performed on a federal contract. No field exists for contracting officials to indicate whether the contract involves business activities that include offshoring, regardless of what type of products or services are being acquired. eSRS collects information from prime contractors on their planned use of subcontractors. The FAR generally requires that contractors be required to submit an acceptable subcontracting plan when they are awarded a contract that exceeds $700,000 if subcontracting opportunities exist, and impose subcontracting plan requirements on subcontractors that receive subcontracts above certain thresholds. However, as we previously reported in December 2014, eSRS was not designed to provide a list of subcontractors associated with a particular contract. As a result, the utility of eSRS in linking reported subcontractors to prime contracts is limited. Additionally, in general, prime contractors are not required to report in eSRS if a subcontractor s services are being performed outside of the United States or its territories. Contracting officials told us that they have limited insight into whether prime contractors subcontract with foreign entities. FSRS is used to collect award and entity information, such as subcontractor names and award amounts, from prime contractors on their subcontract awards. Prime contractors obtain and report information provided by their subcontractors into FSRS. However, in June 2014, we reported that we could not verify the subcontract data in FSRS as agencies frequently do not maintain the records necessary to verify the information reported by the awardees. In light of this, we recommended that the Director of OMB, in collaboration with Treasury s Fiscal Service, clarify guidance on agency maintenance of records to verify the accuracy of required data reported. OMB generally agreed with our recommendation. As of our latest report in April 2017, OMB had not yet taken action to implement our recommendation. Selected Telecommunications and Call Center Contracts Included Worker Protections We identified several examples of worker protection requirements in our review of the five selected contracts. We categorized those requirements into three areas: wages and hours, workplace safety and health, and protections against certain employer actions. Wages and Hours. These protections ensure the payment of minimum wage rates and authorize overtime pay, as appropriate, among other things. For example: The GSA Networx services contract and the DISA contract for DOD Information Network operations include requirements to ensure that covered contractor employees are to be paid wages at least at the federal minimum wage rate. The CMS call center operations contract and the DISA emergency telecommunications services contract authorize the contractor to provide overtime pay to certain employees if they work more than their standard hours. The CMS call center operations contract and the DISA contract for DOD Information Network operations identify classes of workers and state the minimum wage rate and fringe benefits that may be or are payable to them. For example, the CMS call center operations contract reflects Department of Labor rates for federal hires. The CMS call center operations contract also includes an HHS- specific requirement related to salary rate limitations that specifies that the contractor shall not use contract funds to pay the direct salary of an individual at a rate that exceeds the Federal Executive Schedule Level II in effect on the date the funding was obligated. Workplace Safety and Health. These protections address dangers in the workplace that might affect the workplace safety or health of contractor employees. All five contracts reviewed contain requirements aimed at promoting or ensuring safe behaviors in the work environment, among other things. For example: All five contracts require the contractor to promote a drug-free workplace environment. DISA s DOD Information Network operations contract requires the contractor to establish specific safeguards to protect the health of its workers who might work in a federal building complex that is known to be a toxic location, since asbestos and toxic metals have been located in the soil. DISA s DOD Information Network operations contract also includes requirements for the contractor to ensure its employees have health screenings and vaccinations as applicable to ensure they are physically and psychologically fit to perform the work at specific locations, such as those in military operation zones. All five contracts encourage the contractor to establish policies to ban text messaging while driving. Protections against Certain Employer Actions. These protections are intended to protect workers from potentially harmful actions undertaken by employers such as discrimination in hiring practices, retaliation for reporting company violations, and participation in human trafficking. For example: All five selected contracts included equal employment opportunity provisions that prohibit discrimination in employment based on specific characteristics, such as being a veteran or a person with a disability. The CMS call center operations contract also included an agency requirement for the contractor to cooperate in any investigations into allegations of employment discrimination. The CMS call center operations contract, the two DISA contracts, and the GSA Networx services contract incorporate clauses requiring their contractors to provide whistleblower protections that protect an employee from reprisal when they inform authorities of fraud, waste, abuse, or violations of contract law by the contractor. All five selected contracts include the clause that prohibits the contractor and its employees from any involvement in trafficking in persons. In addition, DISA s DOD Information Network operations contract requires the contractor to offer employment to specific groups of people under certain circumstances. Specifically, the contractor is to employ local residents when work is to be performed in Hawaii. In addition, the contractor is to offer employment to former federal employees first when work is to be performed at a military base that is closing. Observations on Offshoring. We did not identify offshoring of the products or services being acquired in the five contracts we reviewed. Generally, if a prime contractor awards a subcontract, the contractor will flow down applicable requirements to the first-tier subcontractor and other subcontractors at lower tiers, unless otherwise specified. We identified only one worker protection clause that would flow down to the subcontractor in the event of offshoring the requirement to prohibit involvement in trafficking in persons. Selected Telecommunications and Call Center Contracts Included Data Protection and System Security Requirements The five selected contracts we reviewed include examples of various safeguards such as limiting access to data systems and data, system management controls, contingency planning and restoration of services, and restrictions on the use of equipment to protect data systems and personally identifiable information from unauthorized access and use. These safeguards are all part of NIST standards. Access Controls. Physical access controls and authentication requirements limit, block, or detect inappropriate access to data, equipment, and facilities. These controls help to reduce the chances of data systems being used for malicious purposes and protect the systems from unauthorized modification, loss, or disclosure. For example: The GSA Alaska telecommunications services contract states that the physical access point to the telecommunications closet must be limited to personnel with appropriate identification. In addition, this contract requires the contractor to follow agency security procedures, such as having personnel sign into and out of physical locations and abide by escort procedures. Further, the contractor is required to ensure that all employees have identification that meets specific federal guidelines. The contract also states that subcontractors are subject to personal identity verification, and are to comply with applicable standards. The CMS call center operations contract requires a multifactor authentication which requires two pieces of identifying information to log in for call center employees to remotely access sensitive government-owned data on computer systems. In addition, the contract requires all employees who have access to data systems and personally identifying information to pass a background check. Further, the contract reduces the ability of employees to copy or transmit a customer s personal information by requiring the contractor to ensure a secure floor that prohibits cell phone usage or note taking on paper. According to the CMS officials, the call center employees are required to leave all personal items, such as cell phones, in lockers, and the scripts they reference during calls are laminated. In addition, the supervisor on duty checks desks to ensure personal items are not present. According to CMS officials these steps help protect callers sensitive data, such as their medical information. The DISA contract for the day-to-day operations for the DOD Information Network states that the contractor must have a plan in place that includes physical security and protection of the system infrastructure. Security Management Controls. These controls establish a framework and continuous cycle for assessing data systems for security weaknesses, implementing security procedures, and monitoring the procedures to ensure adequate protection of sensitive or critical resources. A variety of security management control requirements were included in the selected contracts. For example: The GSA Networx contract, which provides a variety of network services to the federal government, states that a contractor must comply with FISMA and NIST standards. According to a GSA contracting official, contractors have to show that their information systems are adequately protected against cybersecurity threats before performing any services on a task order. Government officials will certify the system once they agree the system is adequately protected. This certification occurs after a contract has been awarded, but before work begins. According to a government official, these systems are periodically reviewed and monitored to ensure the systems stay protected. The DISA contract for the day-to-day operations for the DOD Information Network requires the contractor to assist the government to ensure that all networks and information systems are accredited in accordance with DOD s Certification and Accreditation Program, which requires certain cybersecurity protections are in place. This contract also requires that the contractor or any subcontractor implement safeguarding requirements to protect covered contractor information systems, such as limiting access to authorized users, verifying and controlling connections to and use of external information systems, authenticating the identities of users before allowing access to information systems, and limiting physical access to systems and equipment. The contract also requires that the government have access to the contractor s databases in order to carry out vulnerability testing and audits to safeguard against threats to the integrity, availability, and confidentiality of data or to the functions of information technology systems operated on behalf DISA or DOD. The DISA contract that provides priority telecommunications for executive branch staff in case of an emergency requires that the contractor must identify and analyze threats to the system on a 24- hours-a-day, 7-days-a-week basis, and offer solutions to fix identified weaknesses. DISA contracting officials stated that threats to the data systems are mitigated before contract award because the government is trying to prevent attacks and not just react to threats. Additionally, the contractor has to provide periodic maintenance of the installed networking infrastructure to certify proper functioning of the equipment. The CMS call center operations contract requires that the contractor perform annual vulnerability assessments, which includes tests that attempt to break into the contractor s systems, the contractor s system programs, and the contractor s facility in accordance with agency specific standards. Contingency Planning and Restoration of Services. Planning for how to provide continued or restored services when system interruptions or problems occur is necessary because even a minor interruption can result in lost or incorrectly processed data. NIST has published guidance on the contingency planning process. Several of the contracts we reviewed required the contractor to have contingency plans in place in case of any disruption of services and specified how quickly services are to be restored if disrupted. For example: The GSA Alaska telecommunication services contract requires that the contractor restore service within 4 hours of any system disruption. According to the contracting officer, not restoring the system within 4 hours, unless a longer time is agreed to by the contracting officer, would be considered a performance issue and would count against the contractor during its performance review. This includes restoring any equipment, transmission station, circuit, or area that the government deems critical. The DISA DOD Information Network services contract requires the contractor to ensure that there is no disruption of services on the government networks during routine maintenance of systems, during system upgrades, or while the system has vulnerability testing, among others. The CMS call center contract requires that the contractor develop a business continuity plan that identifies and prioritizes critical systems and recovery strategies, as well as a consolidated business continuity plan. The consolidated plan needs to account for the interdependence between applications and operations and address procedures for sustaining essential business operations while recovering from significant disruptions, including contingencies for a catastrophic loss of equipment required to deliver its services. Restricting the Purchase and Use of Equipment from Identified Countries or Manufacturers. As we reported in July 2018, reliance on a global supply chain introduces multiple risks to federal information systems, including the installation of intentionally harmful hardware or software, reliance on malicious service providers, or installation of hardware or software containing unintentional vulnerabilities such as defective code. NIST published several guidelines to help federal agencies select controls and activities relevant to managing supply chain risk. Our selected contracts included several requirements related to mitigating supply chain risks. For example: Under the CMS call center contract, certain government-provided systems are supplied to the contractor to meet the requirements of the contract. By providing the systems, the government controls what type of equipment is being used and reduces the risk that any compromised equipment is introduced in its network. The DISA contract for the day-to-day operations for the DOD Information Network requires the contractor to use the DISA-approved products list for purchasing equipment for use in repair and similar functional activities. According to a DISA contracting official, this list is continuously updated to make sure that vulnerable products are not being purchased. In addition, this contract specifically prohibits contractors from using certain Chinese-manufactured equipment or services utilizing that equipment. This requirement extends to any equipment or services provided by subcontractors. According to the contracting officer, the contractor requests confirmation from its subcontractors that they are not using prohibited equipment. The contractor then notifies the contracting officer that prohibited equipment is not used on the contract. All five contracts include a restriction on purchases of most goods and services from specific countries, such as Cuba and Iran. The contract requires this restriction to flow down to any subcontractor. Privacy for Personally Identifiable Information. The CMS call center contract involves handling personally identifiable information, such as private medical information. As part of the contract terms, contractor personnel are required to follow specific health care privacy requirements to protect customers personal health information. In addition, the contract includes agency-specific requirements to protect personally identifiable information and personal health information. Observations on Offshoring. The five contracts we reviewed included requirements that limited the contractors opportunity to use offshoring for labor. The DISA contract for the day-to-day operations for the DOD Information Network stipulates that only U.S. citizens can be hired to perform services. According to the contracting officer, the DISA contract that provides priority telecommunications for executive branch staff in case of an emergency also requires that the contractor hire only U.S. citizens. In addition, the GSA Networx services contract states that work on some orders may require U.S. citizenship. The GSA Alaska telecommunications services contract states that contractor personnel may be required to successfully pass a background check to work in controlled areas under the contract. The CMS call center contract requires that the call center be located in a facility within the continental United States. According to officials, this requirement helps protect data and privacy information. CMS officials stated that generally for call center contracts the contractor must obtain prior approval from the agency s contracting officer in writing if it wants to subcontract or move operations to a location outside of the United States or its territories. According to CMS contracting officials, they have never received a request to offshore call center operations. Agency Comments We provided a draft of this product to DOD, DOL, GSA, and HHS for review and comment. DOL, GSA, and HHS provided technical comments, which we incorporated as appropriate. DOD informed us that it had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees and the Secretaries of Defense, Labor, and Health and Human Services and the Administrator of General Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact William T. Woods at (202) 512-4841 or [email protected] or Cindy S. Brown Barnes art (202) 512-7215 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 V. Appendix I: U.S. Employment Trends in the Telecommunications and Call Center Industries and Observations on Offshoring <7. Employment Decline in Telecommunications Industry Potentially Influenced by Technological Advances> Our review of data from the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages shows that employment in the telecommunications sector overall declined 12 percent from calendar years 2014 through 2018, as illustrated in figure 4. In contrast, during the same 5-year period, total employment across all industries in the United States grew by 7 percent. According to BLS data, the decline in telecommunications employment has been underway since at least 2009. BLS projects this decline will continue through at least 2028. Department of Labor (DOL) data series on trends in employment are not designed to identify causes of employment changes. However, BLS officials and other researchers cited the role of technology as a possible cause of the decline in telecommunications employment. For example, BLS officials said the move toward newer technologies, such as satellite transmissions, has had an adverse impact on employment. Additionally, representatives of a major telecommunications contractor told us that technological advances either resulted in fewer employees being needed to perform specific functions or replaced previous manual operations with automated processes. In addition, the representatives stated that uses of artificial intelligence, such as smart networks and machine learning, facilitate tasks that in the past relied extensively on human labor. Finally, the effect of technology on employment in telecommunications has also been noted by an industry analyst. Employment in the telecommunications industry has been marked by job gains as well as losses in the last 5 years, although generally, losses have exceeded gains. BLS s Business Employment Dynamics data capture the gross number of job gains from establishment openings and expansions and job losses from establishment closings and contractions across the U.S. economy. In the last 5 years, new jobs in telecommunications have been generated; however, job losses have exceeded job gains in almost every quarter since 2014, as shown in figure 5. The effect of offshoring on employment in telecommunications, if any, is unknown due to the absence of data. Although U.S. employment in telecommunications has declined, the role of offshoring as a potential contributor to the decline is unclear, due to a lack of data and because offshoring is one of many factors that can affect employment levels. According to BLS officials, no public or private data exist that estimate the extent of offshoring in this or any industry sector. BLS officials told us that little interest has been expressed in collecting data on offshoring. They noted that if BLS were to develop a new survey aimed at measuring the extent of offshoring, technical issues including determining what data should be collected that would give such insight would need to be resolved. Furthermore, the BLS officials stated that they did not identify offshoring as a factor contributing to recent employment declines in telecommunications based on their industry research, which included interviews with industry specialists. According to BLS researchers, offshoring is one of many factors that can affect job gains and losses for occupations within an industry. In a 2008 article estimating the susceptibility of different occupations to offshoring, BLS researchers cautioned that no attempt should be made to attribute growth rates in an occupation, or differences between occupations, to offshoring. <8. Call Center Employment Levels Appear Relatively Stable> Overall, employment in call centers has fluctuated recently, but appears relatively stable over the period of calendar years 2014 through 2018, though it remains higher than during the previous 5 years. As shown in figure 6, after rising for a few years, in 2018 employment returned to a level slightly below that reached in 2015. According to BLS officials, employment in the business support services industry, which includes call centers, is projected to increase modestly through 2028. BLS officials said it is not clear why employment in call centers declined in 2018. Although GAO and others have identified call centers as potentially subject to offshoring, the full extent of offshoring occurring within the U.S. call center industry is unknown. Some anecdotal evidence exists about the purported growth of offshore call centers that serve U.S. companies. However, we found no analyses in our literature review regarding the effects of offshoring on call center jobs overall. Just as with telecommunications, many other factors potentially affect call center employment, such as technological advances. For example, interactive voice response technology has been used to provide responses to simple inquiries, which to some extent may reduce or eliminate some call center work. <9. Research Has Identified Various Factors That Potentially Affect Offshoring across Industries> Although we did not find studies that address the effects of offshoring on telecommunications and call centers specifically, the literature we reviewed discussed some characteristics of workers, services, and companies that potentially influence offshoring decisions, in general, across industries. As such, offshoring decisions may involve, but are not limited to, considerations of the presumed interchangeability of U.S.- based and overseas workers, workers languages and cultures, technical requirements for the services being offshored, and companies ability to manage offshoring. Appendix II: Objectives, Scope, and Methodology This report addresses: (1) total federal obligations for telecommunications and call center contracts; (2) worker protections identified in selected telecommunications and call center contracts; and (3) data security and privacy protection requirements identified in these contracts. This report also includes observations on the extent and effect of offshoring. For the purposes of this report we define telecommunications to encompass the preparation, transmission, communication, or related processing of information that can be in the form of voice, video, or data; call centers to include centers handling inquiries via multiple channels such as telephone, Web page, e-mail, and postal mail; and offshoring to mean the obtaining of goods or services from non-U.S.-based employer subcontractors located outside of the United States and its territories that use non-U.S. citizen employees. In addition, we gathered information on employment trends for the telecommunications and call center industries for calendar years 2014 through 2018. To determine the level of federal obligations for telecommunications and call centers, we used data from the Federal Procurement Data System- Next Generation (FPDS-NG) for fiscal years 2014-2018. We identified obligations for telecommunications and call center contracts by using the associated North American Industry Classification System (NAICS) codes for these industry sectors. As defined in the NAICS manual, telecommunications contracts are identified as having a NAICS code starting with the prefix 517, and call center contracts are identified as having a NAICS code starting with the prefix 56142. To identify examples of worker protections and data security and privacy protections in federal contracts, we selected a nongeneralizable sample of five contracts from three agencies with some of the highest obligations for telecommunications and call center contracts during fiscal years 2014 through 2018. Specifically, we selected (1) the Department of Defense (DOD) because it obligated the highest amount for telecommunications contracts; (2) the Department of Health and Human Services (HHS) because it obligated the highest amount for call center contracts; and (3) the General Services Administration (GSA), which is among the top ten agencies with the highest amounts for telecommunications contracts, because it provides a government-wide contract available for agencies to place orders for telecommunications and call centers. We then identified the component within each agency that obligated the most for these services or that provides a large government-wide contract vehicle. The components were DOD s Defense Information Systems Agency, GSA s Federal Acquisition Service, and HHS s Center for Medicare and Medicaid Services (CMS). We selected contracts that included a large call center and a large government-wide telecommunications contract vehicle. We also selected a variety of telecommunications contracts that were among the highest obligations during fiscal years 2014 through 2018, and represented different types of telecommunications services procured during the period, such as wired and wireless services. Table 2 provides a synopsis of the 5 contracts included in our review. We reviewed documentation from the five selected contracts, along with the relevant federal acquisition regulations for worker protections, data security and privacy protections, subcontracting, and offshoring. We interviewed cognizant contracting officials to clarify our understanding of the contract requirements we identified related to worker protection and data security and privacy protections. We also met with representatives from three contractors to obtain their insights into contracting with the government, relevant contract requirements, and industry trends. The purpose of our contract review was to illustrate the different worker protections and data security and privacy protections that may be included in these types of contracts. To address the employment trends in telecommunications and call centers and how they were affected by offshoring, we reviewed employment data from the Quarterly Census of Employment and Wages published by the Bureau of Labor Statistics (BLS) within the Department of Labor. The Quarterly Census of Employment and Wages program publishes a quarterly count of employment and wages reported by employers that covers more than 95 percent of U.S. jobs and is supported by quarterly reports from all private sector employers. We also reviewed data from BLS employment projections program, which draws from several BLS data collections as well as interviews with industry specialists and reviews of relevant articles to develop information about the labor market for the nation as a whole for 10 years in the future. In addition, we reviewed BLS Business Employment Dynamics data, which consist of a quarterly series of statistics on gross job gains and gross job losses for the entire economy. Gross job gains and gross job losses reveal some aspects of business dynamics, including establishment openings and expansions, and establishment closings and contractions. The quarterly data series include the number and percent of gross jobs gained by opening and expanding establishments, and the number and percent of gross jobs lost by closing and contracting establishments. Furthermore, we reviewed DOL data on layoffs collected by the Trade Adjustment Assistance program that are considered to be caused by trade through shifts in production or services to a foreign country. While the data include layoffs in telecommunications, DOL officials did not believe the data would be useful for this report. Specifically, the data do not necessarily reflect all layoffs in a given sector, but only those associated with requests for investigations by DOL as to the role of trade in the layoff, and initial estimates of affected workers those facing layoffs and those threatened by layoffs are not representative. To review the potential effect of offshoring on employment trends, we performed a literature review of selected economic research and other relevant articles, and discussed the results with DOL officials. To identify relevant material including reports, dissertations, working papers, and journal articles we searched databases including the National Bureau of Economic Research, Bureau of Economic Analysis, Business Source Corporate Plus, EBSCO, EconLit, ProQuest (including dissertations and theses), Social SciSearch, Public Affairs Information Service via DIALOG, Lexis Trade files, SSRN, WorldCat, National Academies Press, and National Technical Information Service. We used search terms that included variations on telecommunications and call centers, as well as offshoring, offshore outsourcing, labor market impact, worker displacement, layoffs, employment trends, and hiring trends. From our initial literature search we selected 13 documents for more in-depth review. We excluded references that addressed the effects of offshoring on non-U.S. economies and labor forces, or were otherwise beyond our scope, such as working conditions, work flow, collective bargaining, customer service, service quality, or training in call centers. Based on this research, we identified reasonable observations about employment trends and offshoring in telecommunications and call centers. As noted in this report, research on the questions addressed in this report reaches different conclusions. The relevant research that we reviewed provided some insights on how offshoring could potentially affect the telecommunications and call center industries, but provided no information regarding the extent of the impact. Because of this and other data limitations, we were unable to determine the extent to which offshoring may be occurring and what effect offshoring is having on the telecommunications and call center industries. We conducted this performance audit from March 2019 to April 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: Top Federal Telecommunications Contractors during Fiscal Years 2014 through 2018 Agencies reported obligations for approximately 1,500 different contractors that provided telecommunications products and services each year during fiscal years 2014 through 2018. Ten of these contractors accounted for 52 percent of obligations for telecommunications contracts in fiscal year 2018. The top contractor received 10 percent of the total telecommunications obligations in fiscal year 2018, and was also one of the top three contractors in the preceding fiscal years. Figure 7 shows the top 10 telecommunications contractors based on total obligations during fiscal years 2014 through 2018. Appendix IV: Top Federal Call Center Contractors during Fiscal Years 2014 through 2018 Agencies reported obligations for approximately 133 different call center contractors each year during fiscal years 2014 through 2018. Ten contractors accounted for 94 percent of obligations for call centers in fiscal year 2018; with one contractor accounting for 83 percent of total obligations for the 5-year period we reviewed. Figure 8 shows the top 10 telecommunications contractors based on total obligations during fiscal years 2014 through 2018. Although the amount of obligations each year changed, these contractors were generally among the top 10 across all 5 fiscal years. Appendix V: GAO Contacts and Staff Acknowledgments <10. GAO Contacts> <11. Staff Acknowledgments> In addition to the contacts named above, Candice Wright (Assistant Director), Blake Ainsworth (Assistant Director), R. Eli DeVan (Analyst-in- Charge), Pedro Almoguerra, Sarah Cornetto, Lorraine Ettaro, Suellen Foth, Stephanie Gustafson, Victoria Klepacz, Chris Morehouse, Patricia Powell, Miranda Riemer, Roxanna Sun, Alyssa Weir, and April Yeaney made key contributions to this report.

Why GAO Did This Study The federal government relies on an extensive global telecommunications network to carry out operations and provide information to the public. These networks and call centers, which handle public inquiries, are often maintained or supported by contractors. Concerns have been raised about the extent to which federal contractors are subcontracting or offshoring work, and have in place worker protections and mechanisms to secure the technologies and the data they handle. GAO was asked to review aspects of contracting for federal telecommunications and call centers, including the extent of subcontracting and offshoring. This report provides information on, among other things (1) federal obligations on telecommunications and call center contracts, (2) worker protections identified in selected contracts, and (3) data security and privacy protections identified in selected contracts. GAO analyzed federal procurement data for fiscal years 2014 through 2018 (the most recent available), reviewed a nongeneralizable sample of five contracts from three agencies with significant telecommunications and call center procurements to identify worker protections and data security and privacy protections; and interviewed relevant officials and federal contractors about contracting and industry trends. What GAO Found The federal government obligated over $30 billion for telecommunications contracts and almost $4 billion for call center contracts from fiscal years 2014 through 2018. On average for the 5-year period, telecommunications and call center obligations were a nominal portion of total federal spending—accounting for 1.2 percent and less than 0.2 percent, respectively. Defense agency obligations accounted for the majority of federal telecommunications spending to support a range of information capabilities across the full spectrum of military operations. The Department of Health and Human Services accounted for the majority of call center obligations to support customer inquiries about Medicare and the health insurance marketplace, among other services. Federal procurement data systems do not collect information that can provide insight into the extent of subcontracting or offshoring—including for telecommunications and call center contracts—because they were not designed to do so. GAO's review of selected contracts found that four of the five contracts expressly stated that some or all work must be performed within the continental United States or by U.S. citizens. GAO identified several examples of worker protection requirements in the five selected contracts, generally falling into the areas of wages and hours, workplace safety and health, and protections against certain employer actions. With regard to data security and privacy protections, the five selected contracts GAO reviewed included requirements to limit access to data systems and data maintained, establish security management procedures for and monitoring of data systems, or establish contingency plans for how to provide continued or restored services when system interruptions or problems occur.

gao_GAO-20-475T

gao_GAO-20-475T_0

<1. Background> While U.S. airlines business practices were largely deregulated following the Airline Deregulation Act of 1978, a number of consumer protections are in place at the federal level. For example, some consumer protections are required by federal statute, such as the Air Carrier Access Act of 1986 (ACAA), as amended, which prohibits airlines from discriminating against individuals based on a disability. Federal statutes have also authorized DOT to regulate certain areas affecting passengers. For example, DOT has the authority to stop airlines from engaging in unfair or deceptive practices, or unfair methods of competition, and promulgates consumer protection regulations under its statutory authorities. Under these authorities, DOT issued three final rules on Enhancing Airline Passenger Protections from 2009 through 2016. These rules have addressed long tarmac delays, increased compensation amounts for passengers who are involuntarily denied boarding, and required certain airlines to post information about their fees and on-time performance on their websites. <2. Airlines Operational Performance Has Generally Improved, but Passengers Filed More Complaints and May Experience a Range of Inconveniences> <2.1. Rates of Mishandled Baggage and Denied Boardings Generally Declined From 2008 Through 2017, While Airlines On-Time Performance Remained Relatively Steady> In 2018, we found that airlines operational performance as measured by DOT data on denied boardings; mishandled baggage; and late, cancelled, or diverted flights generally improved from 2008 through 2017, the most recent data available at the time of our review. While rates of voluntary and involuntary denied boardings and mishandled baggage generally declined, airlines on-time performance stayed about the same (fig. 1). For example, over the 10-year period of our review, the lowest rate of involuntary denied boardings occurred in 2017. Specifically, in 2017, airlines involuntarily denied boarding to about .003 percent of all passengers (or about 23,000 of more than 680 million passengers) a slight decrease from prior years. Our more recent work on airlines denied boarding practices found that even fewer passengers were denied boarding involuntarily in 2018. Rates of mishandled baggage also generally declined in recent years. For example, in 2017 airlines posted a rate of 2.5 mishandled bags per 1,000 passengers (a rate of .25 percent of mishandled bags per passenger enplanement), compared to a rate of 5.25 mishandled bags per 1,000 passengers in 2008. In 2019, we identified a number of factors that can cause airlines operational issues. For example, passengers might be denied boarding when airlines overbook their flights (i.e., intentionally sell more seats than are available on a flight) or have to substitute smaller aircraft than what was originally scheduled due to maintenance issues. We also found that outages associated with airline IT systems which are used for flight and crew planning, passenger reservations or check-in, or for providing flight information to the Federal Aviation Administration can cause flight delays and cancellations. While we found some outages caused minimal issues, the impact of others was more substantial. For instance, in 2016, an outage in one airline s system that is used to check in and board passengers resulted in the cancellation of 2,300 flights over 3 days. <2.2. The Rate of Passenger Complaints Generally Increased From 2008 Through 2017> While airlines operational performance generally improved, we found in 2018 that the number of passenger complaints reported to DOT, relative to passenger boardings, generally increased from 2008 through 2017 for 12 selected airlines, peaking in 2015 and declining somewhat in later years. Specifically, in that work we found that the rate of passenger complaints reported to DOT, relative to passenger boardings, increased about 10 percent, from about 1.1 complaints per 100,000 passengers in 2008 to 1.2 complaints per 100,000 passengers in 2017. Complaints about operational issues discussed above which make up three of DOT s 15 complaint categories accounted for about half of all complaints for the 12 selected airlines from 2008 through 2017. More specifically, in 2018 we found: Flight problems generally accounted for an average of about 33 percent of all complaints. This category includes complaints related to delays, cancellations, and missed connections, among other things. From 2008 through 2017, the rate of complaints in this category generally increased. Baggage issues generally accounted for an average of about 15 percent of total complaints. Complaints were largely related to lost, delayed, or damaged bags. The rate of baggage complaints generally decreased over our time period. Denied boardings generally accounted for an average of about 4 percent of total complaints. Complaints were related to airlines failure to solicit volunteers or providing compensation below the required amount. Rates of complaints about denied boardings generally stayed constant over our time period. Two of the remaining 12 complaint categories tracked by DOT accounted for about a quarter of passenger complaints. One category related to reservations, ticketing, and boarding, and the other related to customer service such as airline staff having a poor attitude or refusing to provide assistance, and unsatisfactory seat assignments. Each of these categories generally accounted for an average of about 13 percent of all complaints over the 10-year period. <2.3. Representatives from Selected Airlines Cited Technological and Other Actions Taken to Improve Service> Our previous work identified actions taken by airlines or DOT in response to such operational issues. DOT s actions are primarily related to establishing regulations about operational issues. For example, while DOT does not prohibit airlines from overbooking flights, it has set compensation amounts for passengers denied boarding involuntarily. DOT has also issued regulations related to returning mishandled baggage within 24 hours, tarmac delays, and prohibiting chronically delayed flights. Examples of airlines actions are listed below. Reducing denied boardings. In 2019, we reported that selected airlines have taken a range of actions, aimed at reducing involuntary denied boardings. Some of these actions also provide additional incentives for passengers to volunteer to be denied boarding. Actions include reducing or eliminating overbookings; improving software to better predict passenger no-shows; requesting volunteers earlier (e.g., at check-in instead of at the gate); increasing compensation for volunteers; and conducting reverse auctions to solicit volunteers. Less mishandled baggage. As we reported in 2018, representatives from almost all airlines we interviewed reported investing resources to improve baggage-handling efforts and minimize the effects to passengers whose bags are lost or delayed. Among other actions, airline representatives told us they upgraded baggage technology; modernized the claims process, so passengers could complete forms on-line; and instituted replacement baggage programs, where passengers can get a replacement bag at the airport. One airline also invested several million dollars to use radio frequency identification technology to track bags, as well as allowing passengers to track their baggage via an application on their smartphone. Efforts to minimize flight disruptions. In 2018, we also reported that selected airlines had taken numerous actions to improve on-time performance or mitigate challenges for passengers associated with flight delays and cancellations. For example, one airline began tracking flights that were at-risk of meeting DOT s definition of a chronically delayed flight, so it could, among other things, swap crews or substitute aircraft and avoid these types of delays. Other airlines told us they use technology, such as text-messaging updates, to communicate with passengers during delays and cancellations or increased the number of circumstances for which passengers are compensated during delays and cancellations. <2.4. Passengers May Experience Inconveniences When Operational Issues Occur> Our prior work has shown that passengers may be affected to varying degrees by airline operational issues, and that incidents can be costly and disruptive for some passengers. Airlines are required by DOT regulations to provide compensation or certain amenities to inconvenienced passengers under certain circumstances. For example, some passengers who are denied boarding involuntarily are entitled to compensation, with the amount varying based on certain factors. Airlines are also required by DOT s interpretation of the statutory prohibition on unfair and deceptive practices to provide refunds for canceled and significantly delayed flights, if a passenger chooses to cancel his or her trip. Beyond those requirements, DOT officials previously told us that airlines are not obligated to provide accommodations for flight disruptions, such as cancellations and delays, unless specified in an airline s contract of carriage, although as mentioned above, some voluntarily choose to do so in certain situations. This may result in significant inconveniences for passengers, who may incur costs for lodging, meals and transportation. However, according to our prior work, available information about the number and magnitude of these effects is largely anecdotal and cannot be quantified. Furthermore, our review of selected airlines contracts of carriage in February 2019 showed variation in the types of accommodations airlines provide and circumstances in which they will be provided, when operational issues occur. <3. Civil Rights Complaints Have Recently Increased, and DOT and Most Airlines Have Training Efforts> <3.1. Disability-Related Complaints Have Increased Steadily, While Discrimination-Related Complaints Have Seen a Recent Increase> <3.1.1. Disability Complaints> According to the 2010 U.S. Census, 57 million Americans (roughly 1 in 5) have a disability, and more than half of those 57 million Americans have mobility issues. Furthermore, older Americans are representing an increasing share of the U.S. population. As the population continues to age, the likelihood of this group needing assistance may increase. Without accommodations such as effective communication of flight information, accessible seats, appropriate boarding assistance, and careful handling and stowage of wheelchairs and other assistive devices people with accessibility or mobility issues may face challenges when flying, or they may be unable to fly altogether. As previously mentioned, the ACAA prohibits airlines operating in the U.S. from discriminating against individuals on the basis of disability in the provision of air transportation. Under this law, DOT has promulgated regulations requiring that airlines provide passengers with disabilities (1) assistance in enplaning and deplaning; and (2) compensation for lost, damaged, or delayed wheelchairs or other assistive devices. In contrast to all other complaints that passengers submit directly to airlines, DOT regulations require that airlines report annually to DOT the number of all disability-related complaints they received. In our May 2017 report, we provided information showing that disability complaints reported to airlines and DOT generally increased from 2005 through 2015. More recent data shows that passenger complaints reported to U.S. airlines continued to increase (see table 1). In particular, we found that complaints reported to airlines on disability issues increased by about 50 percent from 2010 (19,347) to 2017 (29,662), the most recent year for which data are available. Based on our review, the vast majority of passengers chose to file their disability complaints directly to the airlines. Notably, the number of passenger complaints on disability issues reported to DOT from 2010 through 2019 ranged from 572 to 944 and averaged about 780 complaints per year. Complaints reported to DOT rose in 2019, after peaking in 2015 and declining the three following years. In 2017, the last year data are available for both, complaints reported to airlines and DOT were most commonly related to failure of airline staff to provide assistance, seating accommodation issues, and service animal issues. As we have previously reported, the number of complaints may not fully reflect the inconvenience experienced by passengers or would-be- passengers with accessibility issues. Some may choose not to fly and others may have to take inconvenient or uncomfortable precautionary measures to avoid using the aircraft lavatory. For example, in our recent work examining the accessibility of aircraft lavatories, stakeholders we interviewed told us that some passengers severely limit their food and fluid intake in advance of the flight, risking dehydration; use a catheter; or wear a protective undergarment. Furthermore, because lavatories accessible by the aircraft s onboard wheelchair are not required on most aircraft (i.e., single-aisle aircraft) and there may not be an expectation that the lavatory be accessible by an onboard wheelchair, passengers may not see grounds to complain or may not take the time to submit a complaint. More generally, in our prior work, we found that complaint data are inherently limited because a substantial portion of dissatisfied individuals do not submit complaints and are therefore not represented in the complaint data. <3.1.2. Discrimination Complaints> A number of federal statutes also prohibit or have been interpreted by DOT to prohibit airline discrimination against airline passengers. Federal statute also allows airlines to refuse to transport any passenger if the airline determines that the passenger is, or might be, a threat to safety. According to DOT guidance, this determination is made by the pilot in command of the aircraft or certain other specified airline personnel and cannot be arbitrary, but must be based on specific facts and circumstances known at the time. In its guidance, DOT has unequivocally provided that a passenger s status in a protected class (e.g., race, ancestry, national origin, or religion) cannot be the determinative factor in an airline s decision to deny boarding or remove a passenger from a flight. Our August 2019 report showed that the total number of passenger complaints reported to DOT against U.S. airlines alleging discrimination generally declined from 2010 through 2015, but began to increase starting in 2016. Moreover, updated data for 2019 show a further increase, with 96 complaints filed (table 2). According to our analysis, from 2010 through 2019, DOT received, on average, 80 discrimination- related complaints a year, most commonly about racial discrimination. Despite the recent increase in the total number of discrimination complaints, they account for a small percentage of total passenger complaints DOT receives, as well as total passenger boardings. For example, in 2019, of the 9,547 complaints DOT received against U.S. airlines, 96 alleged discriminatory treatment. As noted above and previously reported, DOT s discrimination complaint data does not capture passenger complaints reported directly to airlines. In 2018, we reported that DOT officials estimated that, across all complaint categories, for every passenger complaint they receive, airlines receive about 50. While we have previously requested discrimination complaint data from selected airlines, they have generally declined, citing the proprietary nature of this information. Since 2017, DOT has disaggregated discrimination complaints into sub-categories, such as racial or religious discrimination, and published this data in its Air Travel Consumer Report. <3.2. DOT and Airlines Have Ongoing Training Efforts on Disability and Discrimination Issues> We previously identified actions that DOT and airlines have taken that are intended to ensure that no passengers are discriminated against on the basis of disability or other protected class. Our work primarily examined airlines efforts to train staff and contractors. However, our work also identified other airline actions (both proactive and reactive) taken to enhance compliance with consumer protections in these areas. For example, one airline developed a wheelchair tracking system in response to a DOT enforcement action to help reduce incidents of lost or mishandled wheelchairs. DOT requires that airlines provide their employees and contractor staff who interact with the traveling public training on the proper and safe operation of equipment used to accommodate passengers with a disability, as well as on boarding and deplaning assistance. While not required, DOT encourages airlines to implement comprehensive non- discrimination trainings to help prevent discrimination. DOT has also developed training materials, available on its aviation consumer protection website, for airline employees and contractor staff. These materials include brochures, digital content, and videos on the rights of passengers with disabilities, as well as tips on providing wheelchair assistance at airports and onboard aircraft. In 2017, DOT also developed guidance for airline personnel on non-discrimination topics. The material included scenarios for recognizing discriminatory behavior and provided examples of how to ask additional questions or conduct additional screening in a non-discriminatory manner. <3.2.1. Training on Disability Issues> In 2017 we reviewed disability training programs for 12 selected airlines and found that they all had disability-related training requirements for their staff and contractors, with some variations in the content and format. Over the course of that work, each airline demonstrated that it had, as required, initial and recurrent training for its employees, contractors, and complaint resolution officers (CRO). All 12 selected airlines used a mix of training, including classroom-based training, computer-based training, situational scenarios, and hands-on training, such as wheelchair handling and lifting passengers into aisle seats to assist in boarding for specific groups. We also found that these selected airlines generally consulted with disability organizations when developing ACAA training programs. Some airlines also voluntarily implemented quality assurance programs to improve and sustain their disability-training programs performance. Another step some airlines have taken, though not required by the ACAA or its implementing regulations, is the creation of a disability board, which serves as a forum for increasing awareness among their workforce about disability issues. <3.2.2. Training on Non-Discrimination Issues> In 2019, we reported that representatives from all six U.S. airlines we selected for review told us they provide non-discrimination training to employees, although not all contractor staff receive that training. These representatives told us they provide initial non-discrimination training to newly hired employees who interact with passengers including, for example, pilots, flight attendants, and customer service representatives and that most regularly update the training based on current events or changes in policy. Airline representatives provided high-level examples describing the content of their trainings, but with one exception, they declined to provide more specific information, citing the sensitive or business proprietary nature of such materials. We found some similarities and differences in what representatives reported their trainings covered. For example, representatives generally stated that non-discrimination trainings which were typically embedded in larger training programs and combined in-person and web-based modules emphasized treating all individuals fairly and without bias, regardless of race, ancestry, or religion, among other things. Most also said trainings covered implicit bias a term that refers to attitudes or stereotypes about groups of people that unconsciously affect a person s understanding, actions, and decisions and half said they have used DOT s guidance discussed above, with some airline-specific modifications. <3.3. Airlines and DOT Have Taken Initial Steps in Other Consumer Protection Areas> In our recent work on aircraft lavatories, we found that some U.S. airlines voluntarily installed lavatories accessible by the aircraft s onboard wheelchair for some of their single-aisle aircraft. However, we found that these aircraft only constituted about 4.5 percent of the eight selected airlines combined single-aisle fleet. According to airline representatives, providing lavatories accessible by the aircraft s onboard wheelchair may reduce the number of revenue generating seats in the aircraft cabin, which can increase airlines costs and result in higher fares for consumers. In lieu of lavatories accessible by the aircraft s onboard wheelchair, airline representatives said they have added certain features such as assist handles or grab bars, and accessible call buttons or door locks designed to increase access to certain lavatory functions. DOT has recently issued three notices of proposed rulemaking (NPRM) designed to improve the accessibility of aircraft lavatories, regulate service animals, and clarify DOT s authority to stop airlines from engaging in unfair or deceptive practices. For example, in January 2020, DOT issued an NPRM to solicit comments on short-term accessibility improvements on single-aisle aircraft through the installation of accessibility features within the lavatory, such as those mentioned above, without changing the size of lavatories. In addition, DOT announced its intention to issue an advance NPRM to address long-term accessibility improvements and to solicit comments and gather information on the costs and benefits of requiring airlines to increase the size of the single- aisle lavatory on new aircraft models to accommodate a wheelchair as well as an assistant. In 2008, DOT noted that accessible lavatories on single-aisle aircraft would benefit passengers with disabilities, but also expressed concerns that revenue loss and other cost impacts could be too great for the airlines. The FAA Reauthorization Act of 2018 included a number of ongoing requirements for DOT in the airline consumer protection area. For example, DOT is responsible for developing leading non-discrimination practices for airlines, in consultation with airlines and other consumer advocates. In addition to our recently published work, we have ongoing work examining airport accessibility for passengers with disabilities, as well as DOT s enforcement approach to consumer protections. We anticipate issuing reports on the results of this work later this year. Chairman Larsen, Ranking Member Graves, and members of the Subcommittee, this completes my prepared remarks. I look forward to answering any questions you may have. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this statement, 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 statement. GAO staff who made key contributions to this testimony are Jonathan Carver, Assistant Director, Geoffrey Hamilton, Delwen Jones, Josh Ormond, Amy Suntoke, Melissa Swearingen, and Elizabeth Wood. 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.

Why GAO Did This Study Each year, hundreds of millions of passengers rely on airlines to get them to their destination without incident—including some of the 57 million Americans with a disability. While airlines maintain their performance and service have improved, passengers may still experience a range of inconveniences. A number of consumer protections are in place at the federal level. These protections have addressed long tarmac delays and increased compensation for passengers who are involuntarily denied boarding. Some protections are specific to passengers with disabilities, requiring that airlines provide (1) help enplaning and deplaning, and (2) compensation for lost or damaged wheelchairs. DOT enforces these protections. This statement discusses (1) DOT's data on airline operational performance from 2008 through 2017, and (2) what is known about passenger complaints and airlines' practices related to accessibility and non-discrimination issues. This statement is based on six prior GAO reports issued in the past 3 years. For that work, GAO analyzed relevant DOT data and passenger complaints; reviewed DOT documents and regulations; and interviewed DOT officials and representatives from selected airlines and consumer advocate organizations. For this statement, GAO updated prior analyses on passenger complaints for accessibility and discrimination issues and reviewed recent DOT rulemakings. What GAO Found The Department of Transportation's (DOT) data show that airlines' operational performance—as measured by rates of denied boardings, mishandled baggage, and flight delays—generally improved from 2008 through 2017, the latest available data at the time of GAO's review. Nevertheless, in 2018, GAO found that passenger complaints to DOT across all complaint categories increased about 10 percent from 2008 through 2017 for 12 airlines that GAO selected for review. Complaints about airlines' operational performance accounted for around 50 percent of the total. Passenger disability complaints submitted to airlines—which vastly outnumber such complaints submitted directly to DOT—have steadily increased since 2011. Unlike all other categories of passenger complaints, airlines are required to annually report the number of disability-related complaints they receive to DOT. Passenger disability complaints submitted directly to DOT also increased in 2019, accounting for the second highest level in the past 10 years. Complaints to airlines and DOT in 2017—the most recent year data were available—were most commonly about failure of airline staff to provide assistance, seating accommodation issues, and issues related to service animals. Passenger complaints submitted to DOT related to discrimination also rose in 2019, with 96 complaints filed. From 2010 through 2019, DOT received, on average, 80 complaints a year from passengers alleging discrimination, most commonly about racial discrimination. DOT requires that airlines provide training on accessibility issues and encourages non-discrimination training for its staff. In 2017, GAO found that 12 selected airlines had accessibility-related training requirements for their staff and contractors, with some variations in the content and format. In 2019, GAO reported that representatives from six selected U.S. airlines provide non-discrimination training to employees, although not all contractor staff receive that training. Airlines have taken initial actions in other areas. More recently, in 2020, GAO found that only about 4.5 percent of the eight largest U.S. airlines' fleet of aircraft with single aisles were designed to accommodate airplane onboard wheelchairs.

gao_GAO-19-513

gao_GAO-19-513_0

<1. Background> Corrosion is defined in section 2228 of Title 10, U.S. Code, as the deterioration of a material or its properties due to a reaction of that material with its chemical environment. Corrosion can take varied forms, such as rusting, pitting, galvanic reaction, calcium or other mineral build- up, degradation due to ultraviolet light exposure, and mold, mildew, or other organic decay. Corrosion can be either readily visible or microscopic. To provide leadership on corrosion matters, including the development of policy guidance and oversight, consistent with section 2228, DOD has established an organizational structure that includes the Corrosion Office and Corrosion Executives. The Director of the Corrosion Office is to provide oversight and coordination of corrosion control and prevention efforts for the department. The military departments have each assigned officials to serve as Corrosion Executives. The Corrosion Executives operate within the chain of command of their respective military departments, while also coordinating with the Corrosion Office. <2. DOD Has Relocated the Corrosion Office, but It Continues to Perform Its Statutory Roles and Responsibilities and Is Making Plans for Future Operations> <2.1. DOD Relocated the Corrosion Office within the Restructured Acquisition and Sustainment Organization in Fiscal Year 2018> Prior to August 2018, the Corrosion Office reported directly to the Under Secretary of Defense for Acquisition, Technology, and Logistics. In 2018 the Corrosion Office was relocated within DOD, after section 901 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. No. 114- 328, hereinafter referred to as the Act) required DOD to restructure parts of the Office of the Secretary of Defense. Among other things, the Act eliminated the Under Secretary of Defense for Acquisition, Technology, and Logistics, and it created: The Under Secretary of Defense for Research and Engineering, who, among other things, serves as the principal advisor to the Secretary of Defense on all research, engineering, and technology development activities and programs in DOD. The Under Secretary of Defense for Acquisition and Sustainment, who, among other things, serves as the principal advisor to the Secretary of Defense on acquisition and sustainment in DOD. In addition, the Under Secretary establishes policies on and supervises all elements of DOD relating to acquisition and sustainment. As part of this restructure, effective August 1, 2018, DOD relocated the Corrosion Office within the department s restructured acquisition and sustainment organization, as shown in figure 1. The Corrosion Office is now located within the department s Office of the Under Secretary of Defense for Acquisition and Sustainment. Within this office, the Deputy Assistant Secretary of Defense for Materiel Readiness oversees the Corrosion Office. The Deputy Assistant Secretary of Defense for Materiel Readiness is a principal advisor to the Assistant Secretary of Defense for Sustainment; provides integration and oversight of DOD s maintenance program; and develops policies and procedures for materiel readiness and maintenance support of DOD s major weapon systems and military equipment. The Deputy Assistant Secretary of Defense for Materiel Readiness stated that he is supportive of the Corrosion Office s mission and views its move to the Materiel Readiness organization as fitting in with the other areas under his oversight. Officials representing the military departments Corrosion Executives also stated that they support DOD s organizational movement of the Corrosion Office. They stated that they continue to find the Corrosion Office to be helpful in establishing corrosion prevention standards and in providing opportunities for networking and information sharing by means of triannual corrosion forums. In addition, they stated that they have found the Deputy Assistant Secretary of Defense for Materiel Readiness to be supportive of corrosion oversight and prevention in their meetings with him. Since August 1, 2018, the Corrosion Office has had an acting director. According to a Corrosion Office official, the Deputy Assistant Secretary of Defense for Materiel Readiness is involved in the ongoing hiring process for a permanent director. According to a Corrosion Office official, the time frame in which a permanent director is projected to be in place is Spring 2019. <2.2. The Relocated Corrosion Office Continues to Perform Its Statutory Roles and Responsibilities> Section 2228 of Title 10, U.S. Code, contains provisions regarding the duties and responsibilities of the Director of the Corrosion Office. Specifically, these duties and responsibilities include the following: overseeing and coordinating efforts throughout DOD to prevent and mitigate corrosion of military equipment and infrastructure, and developing and recommending corrosion policy guidance to be issued by the Secretary of Defense; developing and implementing, on behalf of the Secretary of Defense, a long-term strategy to reduce corrosion and the effects of corrosion on military equipment and infrastructure; reviewing corrosion programs and funding levels proposed by the military departments during the annual internal DOD budget review process as those programs and funding proposals relate to programs and funding for the prevention and mitigation of corrosion, and submitting recommendations regarding those programs and proposed funding levels to the Secretary of Defense; providing oversight and coordination of efforts within DOD to prevent or mitigate corrosion during the design, acquisition, and maintenance of military equipment, as well as the design, construction, and maintenance of infrastructure; monitoring DOD acquisition practices to ensure that the use of corrosion prevention technologies and the application of corrosion prevention treatments are fully considered during research and development in the acquisition process; and ensuring that, to the extent determined appropriate for each acquisition program, such technologies and treatments are incorporated into that program, particularly during the engineering and design phases of the acquisition process. The Corrosion Office continues to perform the duties outlined in section 2228, as evidenced below. Specifically, the Corrosion Office is taking the following actions: Developing and recommending corrosion policy guidance. DOD previously developed and issued an instruction that establishes policy, assigns responsibilities, and provides guidance for corrosion prevention and mitigation. The Corrosion Office, via a working group in a working integrated product team, plans to update this DOD instruction. The working group intends for the updated DOD instruction to reflect the Corrosion Office s movement within DOD s restructured acquisition and sustainment organization; any statutory changes made to section 2228 since it was last issued; direction from the new acquisition and sustainment leadership; and any changes made to address the findings and recommendations in our 2018 report. Additionally, the Corrosion Office plans to create a new DOD manual on corrosion that, according to Corrosion Office officials, will contain operating procedural details on, among other items, conducting and recording the Corrosion Office s review and evaluation processes. According to Corrosion Office officials, the Corrosion Office s target time frame for updating this DOD instruction and creating this new manual is by the end of calendar year 2020. Also, since July 2018 the Corrosion Office has been reviewing other DOD policy guidance to identify relevant documents in which corrosion content should be added or updated. Corrosion Office officials stated that the new director will update existing corrosion prevention and mitigation policy guidance, directives, and instructions in coordination with the military departments Corrosion Executives, under the guidance of the Deputy Assistant Secretary of Defense for Materiel Readiness. Developing and implementing a long-term strategy to reduce corrosion and its effects. In 2015 DOD issued a long-term strategy for preventing and mitigating corrosion that calls for implementing DOD- wide standards and improving strategies and processes to prevent, detect, and treat corrosion. According to Corrosion Office officials, there was a planning meeting for the working integrated product teams leads and co-leads in mid-March 2019. At this meeting, the team leads and co-leads prepared a draft update to the long-term strategy, which had last been updated in 2015. These officials told us that examples of changes included in the draft update are revised goals, objectives, and metrics. In addition, these officials told us that the draft update was aligned to reflect the DOD sustainment and materiel readiness mission statements and objectives articulated by the Assistant Secretary of Defense for Sustainment and the Deputy Assistant Secretary of Defense for Materiel Readiness. According to Corrosion Office officials, this draft plan is being reviewed internally, and the Corrosion Office s target time frame is to update it by the end of calendar year 2020. Reviewing corrosion programs and funding levels proposed by the military departments and submitting related recommendations to the Secretary of Defense. As it did prior to the restructure, the Corrosion Office continues to review the military departments proposed corrosion-related programs and funding levels during the annual internal DOD budget review process. In addition, it continues to annually submit a report to Congress on corrosion funding with the defense budget materials. As part of this process, the Corrosion Office collected information from the Corrosion Executives on the corrosion control and prevention programs within the respective military departments. The Corrosion Office in Autumn 2018 included the information provided by each Corrosion Executive as appendixes in its annual report on corrosion funding. The fiscal year 2020 report was submitted to Congress on February 15, 2019. Monitoring and ensuring that corrosion prevention and mitigation are incorporated into acquisition and maintenance programs. As we reported in November 2018, Corrosion Office officials told us that they continue to perform the Corrosion Office s acquisition and maintenance-related duties. For instance, the Corrosion Office continues to review acquisition documentation, such as Systems Engineering Plans, and to maintain information on hundreds of technologies for preventing and mitigating corrosion. In November 2018 we recommended that the Corrosion Office develop a process to maintain documentation of its reviews of corrosion planning for major weapon system programs. Further, we stated that these records, at a minimum, should show what comments were made by the Corrosion Office in its reviews and evaluations, and should track the actions taken to resolve those comments. DOD concurred with this recommendation and stated that the Corrosion Office would develop and maintain such a process. More specifically, Corrosion Office officials stated that they plan to describe this process in a new DOD manual on corrosion. According to Corrosion Office officials, the DOD manual will also include information on considering corrosion during the weapon system program-planning evaluation process. In addition, the Corrosion Office plans to develop an internal data system that these officials told us will track its reviews and evaluations along with the weapon system programs responding actions. According to Corrosion Office officials, their target time frame is to create this new manual and internal data system by the end of calendar year 2020. Corrosion Office officials told us that they have not changed the way in which they carry out additional authorities identified in section 2228. For example, the Corrosion Office continues to develop and deliver corrosion training with the Defense Acquisition University. In addition, it continues to interact with industry, trade associations, other government corrosion prevention agencies, academic research and educational institutions, and a scientific organization engaged in corrosion prevention. <2.3. DOD Is Making or Planning Changes for Some of the Ways in Which the Corrosion Office Operates> According to the Deputy Assistant Secretary of Defense for Materiel Readiness, he is working to change some of the ways in which the Corrosion Office operates. Specifically, he is working to increase the following: corrosion advocacy throughout DOD; oversight of the Corrosion Office; the accountability of the military departments and the Corrosion Office to mitigate corrosion; and the transparency of corrosion and its alignment with materiel readiness. One of the efforts made by the Corrosion Office for achieving these objectives is by providing funding for corrosion technology demonstration projects proposed and implemented by the military departments. According to Corrosion Office officials, the Deputy Assistant Secretary of Defense for Materiel Readiness changed the process for awarding fiscal year 2019 funding by obtaining feedback from the military departments Corrosion Executives as to which project proposals should receive funds. Officials representing the military departments Corrosion Executives confirmed that they were able to provide such feedback. Corrosion Office officials told us that, as of April 2019, they had selected and funded demonstration projects for fiscal year 2019 in part based on the information provided by the military departments. In addition, the Deputy Assistant Secretary of Defense for Materiel Readiness stated that he wanted to have more of an emphasis on funding demonstration projects that would be beneficial to all of the military services. According to Corrosion Office officials, another effort they undertook at the direction of the Deputy Assistant is that of working to make the Corrosion Office more cost-efficient by streamlining the number of professional services and other support contracts it awards. For example, Corrosion Office officials stated that by consolidating five contracts for professional services and reporting on the cost of corrosion into a single contract by a target date of mid-July 2019, they estimate achieving savings of approximately $2 million. In another effort, the Deputy Assistant Secretary of Defense for Materiel Readiness provided written feedback to each of the military departments Corrosion Executives in March 2019 on their respective departments corrosion control and prevention programs. Specifically, the feedback concerned whether each military department s calendar year 2018 corrosion report complied with statutory requirements; each department s strengths and weaknesses related to its corrosion efforts; and recommendations each department had identified for itself to implement. <3. DOD s Corrosion Office Has Taken Action or Plans to Take Action to Implement Most of GAO s Recommendations> In calendar years 2003 through 2018, we made 35 recommendations to the Corrosion Office in 11 corrosion-related products on topics such as strategic planning, performance management, and mandatory oversight reports. In responding to these products, DOD initially concurred with 16 of those recommendations, partially concurred with eight, and non- concurred with 11. As of March 2019 DOD s Corrosion Office had taken action or had plans to take action on most of our recommendations. Specifically, out of 35 recommendations, DOD s Corrosion Office had taken action on 18 recommendations, including sufficient action for us to close those recommendations as implemented; planned to take action to implement 12 additional recommendations. These planned actions include, among other actions, updating existing guidance and developing new policy or processes; and did not plan to take action on the remaining five recommendations. Corrosion Office officials stated that they did not plan to take action on these recommendations for a variety of reasons. For instance these officials stated that the Corrosion Office did not have the authority over the military departments to take the recommended actions. We continue to believe our recommendations are valid. Appendix I summarizes all 35 recommendations and DOD s response to each recommendation at the time of our report and provides information, as of March 2019, on DOD s actions or planned actions to address each recommendation. In some instances DOD had taken action or planned to take action on recommendations with which it had not concurred at the time of our report. <4. Agency Comments> We provided a draft of this report to DOD for review and comment. DOD concurred with the draft and had no technical comments. We are sending copies of this report to the appropriate congressional committees and to the Acting Secretary of Defense and the Under Secretary of Defense for Acquisition and Sustainment. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or our staff have any questions about this report, please contact me, Diana Maurer, at (202) 512-9627 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs are listed on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: GAO Recommendations to the Department of Defense (DOD) Corrosion Office and DOD s Response and Actions Appendix II: GAO Contact and Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, Marilyn Wasleski (Assistant Director), Dawn Godfrey, Shvetal Khanna, Amie Lesser, Edward Malone, Nathan J. Napolitano, Carter Stevens, and Cheryl Weissman made key contributions to this report.

Why GAO Did This Study Corrosion negatively affects DOD equipment and infrastructure and can lead to reduced asset availability, deterioration in performance, and increasing weapon system and infrastructure costs. According to a study contracted by DOD, the cost impact of corrosion to DOD in fiscal year 2016 was $20.6 billion. Senate Armed Services Committee Report 115-262 accompanying a bill for the John S. McCain National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review aspects of the DOD Corrosion Office. This report examines (1) how the restructuring within the Office of the Secretary of Defense has affected DOD's Corrosion Office, including its performance of its statutory roles and responsibilities; and (2) what actions, if any, DOD has taken or has planned to implement recommendations GAO made from calendar years 2003 through 2018 related to corrosion management. GAO analyzed DOD documents, such as guidance and required reports provided to Congress, and interviewed DOD officials to address these objectives. GAO also assessed DOD's actions against its prior recommendations to determine the extent to which DOD had addressed the recommendations or has actions underway to address those recommendations. What GAO Found The Department of Defense (DOD) relocated the Office of Corrosion Policy and Oversight (Corrosion Office) within the restructured acquisition and sustainment organization in fiscal year 2018. Prior to the restructure, the Corrosion Office reported directly to the Under Secretary of Defense for Acquisition, Technology, and Logistics. As part of the restructure, DOD relocated the Corrosion Office within the Office of the Under Secretary of Defense for Acquisition and Sustainment, where it reports to the Deputy Assistant Secretary of Defense for Materiel Readiness. It continues to perform its statutory roles and responsibilities under the new oversight organization. For instance, it is continuing to develop and recommend corrosion policy guidance; develop and implement a long-term strategy to reduce corrosion; review corrosion programs and funding levels proposed by the military departments, and submit related recommendations to the Secretary of Defense; and monitor and ensure that corrosion prevention and mitigation are incorporated into acquisition and maintenance processes. DOD is also making or planning changes to the operation of the Corrosion Office, specifically planning to increase corrosion advocacy throughout DOD, oversight of the Corrosion Office, corrosion accountability of the military departments, and corrosion transparency and its alignment with materiel readiness. DOD's Corrosion Office has taken or planned actions to implement most recommendations GAO made in calendar years 2003 through 2018 related to corrosion management. Specifically, GAO made 35 recommendations to the Corrosion Office in 11 corrosion-related products on topics such as strategic planning, performance management, and mandatory oversight reports. In comments on these products, DOD concurred with 16 of those recommendations, partially concurred with eight, and non-concurred with 11. As of March 2019, DOD had taken action or planned to take action on most of GAO's prior recommendations (see figure). Specifically, DOD's Corrosion Office had taken action on 18 recommendations. Corrosion Office officials also described to GAO their plans to take action to implement 12 additional recommendations. These planned actions include, among other actions, updating existing guidance and developing new policy or processes. DOD stated that the Corrosion Office does not plan to take action on the remaining five recommendations. GAO continues to believe that its recommendations are valid.

gao_GAO-19-256

gao_GAO-19-256_0

<1. Background> On September 6, 2017, the eye of Hurricane Irma traveled about 50 nautical miles to the north of the northern shore of Puerto Rico as a category 5 hurricane. Less than two weeks later, Hurricane Maria made landfall as a category 4 hurricane on the main island of Puerto Rico on the morning of September 20, 2017 with wind speeds up to 155 miles per hour. The center of the hurricane moved through southeastern Puerto Rico to the northwest part of the island, as shown in figure 1 below. In response to the request of the Governor of Puerto Rico, the President declared a major disaster the day after each hurricane impacted Puerto Rico. Major disaster declarations can trigger a variety of federal response and recovery programs for government and nongovernmental entities, households, and individuals, including assistance through the Public Assistance program. Under the National Response Framework, DHS is the federal department with primary responsibility for coordinating disaster response, and within DHS, FEMA has lead responsibility. The Administrator of FEMA serves as the principal adviser to the President and the Secretary of Homeland Security regarding emergency management. <1.1. FEMA s Public Assistance Program> FEMA s Public Assistance program provides funding to state, territorial, local, and tribal governments to assist them in responding to and recovering from major disasters or emergencies. As shown in figure 2, Public Assistance program funds are categorized broadly as either emergency work or permanent work. Within those two broad categories are separate sub-categories. In addition to the emergency work and permanent work categories, FEMA s Public Assistance program includes category Z, which represents indirect costs, administrative expenses, and other expenses a recipient or subrecipient incurs in administering and managing projects. Puerto Rico s agencies, such as the Department of Housing; public corporations, such the Puerto Rico Electric Power Authority and the Puerto Rico Aqueduct and Sewer Authority; and Puerto Rico s 78 municipalities are eligible to apply for the Public Assistance program. FEMA s Public Assistance program also provides funding for cost- effective hazard mitigation measures to reduce or eliminate the long-term risk to people and property from future natural and man-made disasters and their effects. Specifically, FEMA provides funding for hazard mitigation measures in conjunction with the repair of disaster-damaged facilities to enhance their resilience during future disasters. For example, a community that had a fire station damaged by a disaster could use Public Assistance funding to repair the facility and incorporate additional measures such as installing hurricane shutters over the windows to mitigate the potential for future damage. In Puerto Rico, the Public Assistance program is administered through a partnership between FEMA and the recipient (Puerto Rico), which provides funding to eligible subrecipients (local or territory-level entities). Under the standard Public Assistance program process, once the President has declared a disaster, Public Assistance staff work with the recipient or subrecipients to help them document damages, identify eligible costs and work, and prepare requests for Public Assistance grant funds by developing project proposals. Officials then review and obtain approval of projects prior to FEMA obligating funds to reimburse recipients or subrecipients for eligible work. <1.2. The Use of Alternative Procedures for Public Assistance Projects in Puerto Rico> The Sandy Recovery Improvement Act of 2013 authorized the use of alternative procedures in administering the Public Assistance program, thereby providing new flexibilities to FEMA, states, territories, and local governments for debris removal, infrastructure repair, and rebuilding projects using funds from this program. The stated goals of the alternative procedures are to reduce the costs to the federal government, increase flexibility in the administration of the Public Assistance program, expedite the provision of assistance under the program, and provide financial incentives for recipients of the program for the timely and cost- effective completion of projects. Unlike the standard Public Assistance program where FEMA will fund the actual cost of a project, the Public Assistance alternative procedures allow awards for permanent work projects to be made on the basis of fixed cost estimates to provide financial incentives for the timely and cost- effective completion of work. Under these procedures, if the actual cost of the project exceeds the fixed cost estimate agreed upon by FEMA and the recipient, the recipient or subrecipient is responsible for the additional costs. However, if the actual cost of completing eligible work for a project is below the estimate, the recipient or subrecipient may use the remaining funds for other eligible purposes, such as for additional cost-effective hazard mitigation measures to increase the resiliency of public infrastructure. These funds may also be used for activities that improve the recipient s or subrecipient s future Public Assistance operations or planning. Although FEMA had approved alternative procedure grants in 30 states as of April, 2018, in these cases, alternative procedures were used on a project-by-project basis. Puerto Rico s recovery from the 2017 hurricanes is the first recovery to use alternative procedures for all large permanent work projects. On October 30, 2017, Puerto Rico requested to use the alternative procedures process for all large-project funding for Public Assistance permanent work, categories C through G. According to FEMA guidance, as part of the alternative procedures process in Puerto Rico, FEMA and Puerto Rico must agree on a group of personnel with cost estimation expertise who will serve as part of a center of excellence. This center of excellence will assist FEMA and Puerto Rico in developing cost estimating methodologies to be used for determining fixed cost estimates for Public Assistance permanent work projects. FEMA officials stated that they are in the process of conducting inspections for Public Assistance projects for permanent work and, as of August 2018, had a total list of 10,000 site inspections to complete. FEMA officials stated that October 2019 is their target date for completing all alternative procedures fixed cost estimates for Public Assistance permanent work. However, pursuant to 428 guidance published in April 2018, this time frame may be adjusted on a project-by-project basis, based on extenuating circumstances. <1.3. Puerto Rico s Central Recovery Office Oversees Federal Recovery Spending> Amendment 5 to the President s disaster declaration imposed a number of grant conditions, including that Puerto Rico establish an oversight authority supported by third-party experts. This authority is to act as the grant recipient for all Public Assistance and hazard mitigation funding to ensure sound project management and enhanced, centralized oversight over FEMA grant distributions. In October 2017, the Governor of Puerto Rico established COR3, a Puerto Rico government office, to plan, guide, and oversee recovery efforts, including administering and overseeing the Public Assistance program. According to FEMA and COR3 officials, COR3 will fulfill the oversight requirements outlined in Amendment 5. According to COR 3 officials, COR3 was also established to ensure coordination with FEMA. The Executive Director of COR3 will act as the Governor s Authorized Representative, which is the designated individual responsible for administering federal disaster assistance programs on behalf of Puerto Rico. Among other things, COR3 will: Identify, procure, and administer all federal, territorial, and private resources available to Puerto Rico related to recovery; Provide oversight of subrecipients using risk-based monitoring; and Provide technical assistance and advise Puerto Rico s governmental agencies and municipalities regarding any matter related to recovery. According to COR3 officials, they will also implement internal controls, policies, and procedures to appropriately manage recovery funds. COR3 has also launched an online transparency portal intended to provide a breakdown of FEMA Public Assistance and other federal funding made available for disaster recovery in Puerto Rico. <1.4. Bipartisan Budget Act of 2018 Requirements for Puerto Rico and Congressional Oversight of Recovery Efforts> The Bipartisan Budget Act of 2018 (Bipartisan Budget Act) required that Puerto Rico submit an economic and disaster recovery plan to Congress by August 9, 2018, that defines the priorities, goals, and expected outcomes of Puerto Rico s recovery related to a number of sectors, including, among other things, infrastructure, housing, electric power systems and grid restoration. The Bipartisan Budget Act also directs the Governor of Puerto Rico to develop the disaster recovery plan in coordination with FEMA, with support and contributions from other federal agencies having designated responsibilities in the National Disaster Recovery Framework. As of June 2015, Puerto Rico had roughly $66.9 billion in outstanding debt. According to the recovery plan, economic contraction in the years prior to the hurricanes contributed to a severe fiscal crisis and Puerto Rico s credit rating dropped below investment grade in early 2014, followed by a series of defaults on debt payments. In response to Puerto Rico s financial crisis, Congress passed and the President signed the Puerto Rico Oversight, Management, and Economic Stability Act in June 2016, which established the FOMB with broad budgetary and financial control over Puerto Rico. The Bipartisan Budget Act also permits the FOMB to review any federal funds over $10 million that are designated for Puerto Rico s response to or recovery from Hurricanes Irma or Maria. <2. FEMA Obligated Almost $4 Billion in Public Assistance Funding, and Puerto Rico and FEMA Have Taken Actions to Provide Oversight of Federal Recovery Funds> FEMA obligated nearly $4 billion in Public Assistance funds for Puerto Rico s emergency work projects, as well as the repair and restoration of its public infrastructure, among other things. In order to provide financial oversight of these funds, Puerto Rico is developing an internal controls plan as well as management policies and procedures that will, in part, help provide financial monitoring. In the interim, FEMA has instituted a manual reimbursement process to mitigate risk and ensure fiscal accountability. <2.1. FEMA Obligated Almost $4 Billion, and Puerto Rico Expended Almost $1.7 Billion in Public Assistance Funding as of September 2018> As shown in figure 3, FEMA has obligated $3.63 billion (93 percent) for emergency work (categories A and B), and $151 million (4 percent) for permanent work (categories C through G) in Puerto Rico as of September 30, 2018. An additional $136 million (3 percent) was obligated for management and administrative costs. As of the end of fiscal year 2018, Puerto Rico expended about $1.7 billion (about 43 percent) of the almost $4 billion Public Assistance funds obligated by FEMA. Ninety-eight percent of this amount went toward emergency work projects in categories A and B. For example, the Puerto Rico Aqueduct and Sewer Authority expended almost $91 million to cover the costs of generator usage. Aside from generators, one category B project by the Puerto Rico Emergency Management Agency repaired the emergency warning system for about $9.4 million. A third project put a temporary roof on a Puerto Rico Institute of Culture facility in Vieques for $4,000. As shown in table 1, the majority of FEMA s obligations in Puerto Rico as of September 30, 2018, have been for emergency work categories because these projects began soon after the disasters struck and focused on removing debris and providing assistance to address immediate threats to life and property. In contrast, permanent work projects take time to identify, develop, and ultimately complete as they represent the longer-term repair and restoration of public infrastructure. Funds expended by Puerto Rico for permanent work have been mostly limited to roads and bridges (category C) because impassable roads like the one shown in figure 4 below impede the provision of critical services to citizens. They can also get in the way of other disaster recovery efforts. Expenditures for roads and bridges (category C) amount to approximately $32 million, while expenditures for other permanent work categories (D- G) total approximately $1 million. According to FEMA officials, Public Assistance projects in categories D-G are still pending prioritization and formulation. For example, figure 5 below shows a recreational public space along the edge of a river in Maricao. The dashed line indicates where the iron railing and concrete paving used to continue, overlooking the river, before Hurricane Maria. As of September 2018, the municipality was awaiting FEMA assistance to begin restoration FEMA categorizes Puerto Rico s subrecipients as commonwealth public corporations, commonwealth agencies, municipalities, and all other entities. As shown in table 2 below, 89 percent of obligations, as of the end of September 2018, for Puerto Rico were awarded to commonwealth public corporations and commonwealth agencies, with 47 percent awarded to the Puerto Rico Electric Power Authority. Overall, about 43 percent of obligated funds have been expended. <2.2. Puerto Rico is Developing an Internal Controls Plan and Recovery Management Policies and Procedures to Provide Oversight of Federal Recovery Funds> As previously discussed, Puerto Rico designated COR3 to administer and manage the Public Assistance program in coordination with FEMA. As part of COR3 s recovery oversight role, COR3 officials stated that they are developing an internal controls plan and recovery management policies and procedures with FEMA. According to COR3, these oversight documents will provide detailed guidance on grant application, procurement, payment and cash management, and financial monitoring and reporting, among other things. According to COR3 officials, they have held numerous meetings to coordinate with FEMA and have submitted drafts of the internal controls plan as well as management policies and procedures for FEMA s consideration. In addition, according to COR3 officials, COR3 plans to provide direct technical assistance related to federal grants management to Puerto Rico s cabinet-level agencies, public corporations, municipalities and other eligible subrecipients. As part of COR3 s advisory role, COR3 is expected to help Puerto Rico s agencies, public corporations, municipalities, and some nonprofit entities formulate projects, draft cost estimates, and make funding requests, among other things. <2.3. FEMA Has Instituted an Interim Manual Reimbursement Process to Mitigate Risk> Federal grant award regulations allow FEMA to impose additional specific grant award conditions in specific circumstances, such as to mitigate risk and ensure fiscal accountability of the recipient or subrecipient. According to FEMA, once FEMA obligates funds, the recipient is able to expend funds as necessary. However, in November 2017, according to FEMA officials, the agency instituted a manual reimbursement process for subrecipients in Puerto Rico for federal funds, including Public Assistance funds, to mitigate fiduciary risk and decrease the risk of misuse of funds. Specifically, FEMA officials stated that they decided to institute this process because the government of Puerto Rico had expended funds prior to submitting complete documentation of work performed. According to FEMA officials, they also decided to institute the manual reimbursement process due to Puerto Rico s financial situation, weaknesses in internal controls, and the large amount of recovery funds, among other things. This manual reimbursement process requires that COR3 fill out the Office of Management and Budget s Standard Form 270 and submit supporting documentation before obligated funds can be withdrawn by Puerto Rico through COR3 and reimbursed to subrecipients. Subsequently, FEMA must review the submitted Standard Form 270 and all project documentation for completeness, compliance, and accuracy before disbursing funds to the recipient. In cases where FEMA requires additional documentation to process a Standard Form 270 request, FEMA will submit requests for information asking COR3 to supply the information needed for FEMA to complete the review. FEMA officials said that they aim to complete the entire process described above within ten calendar days, or 15-20 calendar days if FEMA needs to request additional information from COR3. Additionally, FEMA officials stated that the manual reimbursement process is intended as a temporary measure. They will cease the process once FEMA has reviewed the operational effectiveness of COR3 s internal controls and approved the final internal controls plan, which are under review. <3. FEMA, COR3, and Subrecipients Report Initial Challenges with the Recovery Process> FEMA, COR3, and Puerto Rico municipal government officials from ten municipalities we interviewed reported initial challenges with the recovery process, including with Public Assistance alternative procedures. These concerns included (1) workforce capacity constraints, (2) a need for additional guidance, (3) delays related to choosing cost estimators, and (4) reimbursement for emergency work. Workforce capacity constraints. FEMA and municipality officials cited concerns about FEMA staff turnover and lack of knowledge about how the Public Assistance alternative procedures are to be applied in Puerto Rico. While several municipal officials we spoke to remarked positively on consistent communication with FEMA officials, municipal officials in six municipalities we visited cited high levels of turnover among FEMA staff as a challenge. For example, officials in three municipalities said that discontinuity in FEMA personnel has caused them to have duplicative conversations with FEMA. An official from one municipality described the disruption that had been caused by repeated changes in FEMA personnel, especially when their point of contact at FEMA changed at least six times since the hurricanes. FEMA officials acknowledged that more personnel with expertise in the alternative procedures process are needed to administer the Public Assistance program and assist subrecipients. According to FEMA officials, FEMA has leveraged existing expertise from personnel in the Federal Coordinating Officer Advisory Group to train new employees to increase workforce capacity. FEMA personnel from this group are rotating experts assigned to recovery issues to increase institutional understanding of alternative procedures and train local hires. According to FEMA officials, these local hires can serve as FEMA staff for up to one year before they become reservists. In addition, FEMA officials stated that they have identified contractors with previous experience regarding alternative procedures to provide additional assistance to subrecipients. Need for additional guidance. Municipal officials cited concerns about a lack of comprehensive guidance for the alternative procedures process. Specifically, officials in eight municipalities we interviewed cited problems with missing, incomplete, or conflicting guidance from FEMA. In addition, officials in four municipalities stated that they are waiting on additional written instructions to establish more clear and consistent guidance. Officials from one municipality told us that the lack of written guidance has meant that the municipality has had to re-submit documents to FEMA multiple times to respond to changing guidance that they have received verbally. Additionally, four municipalities cited missing, incomplete, or conflicting guidance from COR3 as a challenge. However, one municipality noted that the quality of communication with COR3 has improved over time as COR3 has become more established. According to FEMA officials, they are drafting supplemental guidance for the alternative procedures process with the goal of incorporating lessons learned from prior iterations of the alternative procedures. Similarly, according to COR3 officials, COR3 is currently developing additional guidance and standard operating procedures to help subrecipients, including municipalities and Puerto Rico government agencies, better understand FEMA Public Assistance grant requirements. Delays related to choosing cost estimators for Puerto Rico. As mentioned previously, FEMA s guidance for alternative procedures requires that FEMA and Puerto Rico, through COR3, choose personnel with expertise in cost estimation to serve as a center of excellence, which will develop a cost estimating methodology. FEMA has chosen personnel to staff the center of excellence. However, in August 2018, FEMA officials told us that COR3 had not yet finalized their choice of personnel, which had delayed the cost estimation process. Subsequently, COR3 officials told us that personnel have been identified to serve on the center of excellence and the final contracting process for these personnel is now in progress. Reimbursement for emergency work. Officials in nine municipalities we spoke to said that they had not been fully reimbursed for emergency work they completed. Further, officials in five municipalities we interviewed stated that the lack of full reimbursement has caused financial hardships. For example, officials in three municipalities said that the lack of full reimbursement has meant that the municipalities have had to pause or delay recovery work due to lack of financial resources. A mayor in one municipality stated that they have scaled back some essential services, such as the frequency of garbage pick-up, while waiting for full reimbursement. According to FEMA officials, delays in providing reimbursement were due to several factors including a loss in FEMA personnel to process reimbursement requests and a significant increase in the volume of reimbursement requests submitted by COR3 to FEMA. FEMA officials also stated an increasing need to make requests for information to COR3 due to a lack of documentation submitted at the time of the reimbursement request. In response to these factors, FEMA officials told us that they have undertaken new procedures with COR3. For example, according to FEMA officials, COR3 adopted procedures to review the completeness of documentation prior to submitting a reimbursement request to FEMA. FEMA officials stated that the agency is also holding weekly meetings with COR3 to increase coordination, and that FEMA increased the number of personnel devoted to reimbursement reviews. According to officials from FEMA and COR3, these steps have contributed to reduced delays. <4. Puerto Rico Developed an Economic and Disaster Recovery Plan in Response to the Bipartisan Budget Act of 2018 That Addresses Long- and Short-Term Needs> In response to the Bipartisan Budget Act, Puerto Rico submitted an economic and disaster recovery plan (recovery plan) to Congress on August 8, 2018. The recovery plan defines the priorities, goals, and expected outcomes of Puerto Rico s recovery related to building government capacity for the recovery and strengthening of Puerto Rico s infrastructure, among other things. The recovery plan estimates infrastructure repair and recovery costs of $132 billion and total recovery costs of $139 billion for a time period starting in 2018 and ending in 2028. According to the recovery plan, COR3 will guide recovery investment and policy in the months and years ahead and is intended to serve as a focal point for strategic thought and management of Puerto Rico s recovery. The recovery plan is generally responsive to the directives outlined in the Bipartisan Budget Act. For example, Puerto Rico submitted the plan to Congress within 180 days of enactment of the Bipartisan Budget Act. The recovery plan defines priorities, goals, and expected outcomes for Puerto Rico s recovery effort based on damage assessments conducted by sector. As mentioned earlier, Puerto Rico developed the recovery plan in coordination with FEMA and with support of the U.S. Department of Energy, the U.S. Department of Health and Human Services, and other federal agencies with responsibilities outlined in the National Disaster Recovery Framework. Additionally, the FOMB of Puerto Rico certified the recovery plan on August 28, 2018, as directed in the Bipartisan Budget Act, but provided two caveats to its certification. First, FOMB expressed concern that the recovery plan lacks sufficient detail of funding sources and estimates a much greater amount of federal funding than the certified fiscal plan for Puerto Rico projects. The recovery plan states that at the time of its release, Puerto Rico had not undergone eligibility reviews in various federal funding programs, and therefore the ability to identify accurate funding sources was limited. COR3 officials confirmed that full recovery funding needs will not be known until all damage assessments are complete, and they will continue to identify and leverage all funding resources as they are made available. Second, FOMB indicated that the recovery plan does not address oversight of federal funds and the recovery process. While the Bipartisan Budget Act does not require specific mechanisms for oversight of federal funding as part of the recovery plan, according to COR3 officials, they plan to implement internal controls, policies, and procedures to provide oversight. Puerto Rico s recovery plan outlines 276 courses of action (actions) defined by the plan as a collection of potential activities, policies, and other actions that could contribute to recovery selected by Puerto Rico to align with its future recovery vision. As shown in table 3 below, the actions reflect Puerto Rico s short-term and long-term recovery vision, organized into three areas. First, the recovery plan proposes precursor actions those that serve as a foundation for all future actions that will be prioritized for implementation. For example, the recovery plan includes actions to build capacity of municipalities to secure and manage recovery funds, and to improve the quality and volume of public data available to decision makers. Second, the recovery plan proposes a set of actions that aim to build the infrastructure and systems that support Puerto Rico s economy, society, and disaster resiliency, such as addressing vulnerabilities in Puerto Rico s electric grid. Finally, the recovery plan proposes a set of actions that address Puerto Rico s long-term recovery goals, such as developing and enhancing Puerto Rico s visitor economy. Most individual actions in the recovery plan include initial and recurring cost estimates for the time period from 2018 through 2028. The recovery plan describes all cost estimates as preliminary, and says that more specific cost estimates require completion of damage assessments and more details about the implementation of actions. To develop Puerto Rico s disaster recovery plan, FEMA assisted COR3 in retaining the Homeland Security Operational Analysis Center (HSOAC), a federally-funded research and development center operated by the RAND Corporation under contract with DHS. According to FEMA officials, FEMA provided funding and technical assistance, through contractor support, for Puerto Rico to develop the recovery plan, but COR3 and Puerto Rico will be responsible for its implementation. These officials also stated that Puerto Rico received input and technical assistance from other federal departments, such as those in the Recovery Support Function Leadership Group led by FEMA. HSOAC developed the recovery plan in consultation with Puerto Rico by developing a preliminary sector-by-sector assessment of damages and needs caused by Hurricanes Irma and Maria across Puerto Rico. In conjunction with Puerto Rico s stated vision for the recovery process, HSOAC s damage assessment report provided the baseline needed to define, compare, and prioritize actions. HSOAC worked in teams of sector-specific experts to develop and refine the actions by reviewing reports, proposals, best practices, and other literature. For example, in June 2018, the U.S. Department of Energy released a report on energy resilience for Puerto Rico s electric grid, containing recommendations for Puerto Rico to consider when developing the Recovery Plan. HSOAC sought feedback from various subject matter experts and stakeholders while developing the recovery plan. According to FEMA officials, FEMA s joint recovery office delivered interim drafts of the recovery plan to federal agency partners and Puerto Rico for feedback. HSOAC also sought input from local-level stakeholders, including Puerto Rico s municipal governments. For example, HSOAC commissioned a survey of officials from municipalities to gauge the challenges they faced in the aftermath of the 2017 hurricanes. According to FEMA and HSOAC officials, the survey, along with other input provided by mayors led to the development of actions focused on building the capacity of municipal governments to support recovery efforts. HSOAC officials noted that while the final recovery plan was submitted to Congress, they will continue to produce products that will assist Puerto Rico and their stakeholders in recovery implementation. HSOAC intends to release updated versions of the recovery plan, including updated damage and needs assessments. Other expected products include detailed descriptions and cost estimates for each action and a lessons learned report. The Bipartisan Budget Act also directs Puerto Rico to develop a public report on the progress made in achieving the recovery plan s goals every 180 days after submission. FEMA officials explained that the recovery plan serves as a strategic, direction-setting plan for recovery, and does not provide step-by-step or site-by-site guidance on the recovery process. FEMA officials also acknowledged that there may be some overlap between some of the actions in the recovery plan and some of the permanent work funded through FEMA s Public Assistance program, but that it is COR3 s responsibility to merge and coordinate such recovery efforts. <5. Agency Comments and Our Evaluation> We provided a draft of this report to DHS and the government of Puerto Rico for review and comment. In its comments, reproduced in appendix I, DHS summarized the amount of Public Assistance funding provided to Puerto Rico through fiscal year 2018. DHS also described FEMA s temporary manual reimbursement process instituted to mitigate risk and ensure fiscal accountability of taxpayer dollars, and stated that FEMA is committed to supporting Puerto Rico as it finalizes internal controls, management policies and procedures to oversee disaster recovery funds. DHS also provided technical comments, which we incorporated as appropriate. The government of Puerto Rico provided comments that we reproduced in appendix II. In its comments, the government of Puerto Rico stated that in addition to what was discussed in this report, COR3 achieved progress and faced additional challenges. This report is a part of an ongoing review of disaster recovery efforts in Puerto Rico. The remainder of our ongoing work will continue to examine Puerto Rico s recovery process, including implementation of the Public Assistance alternative procedures process and efforts by FEMA and Puerto Rico to oversee disaster recovery funds, including the manual reimbursement process. If you and your staff have any questions, please contact me at (404) 679- 1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Homeland Security Appendix II: Comments from the Government of Puerto Rico Appendix III: GAO Contact and Staff Acknowledgments <6. GAO Contact> Chris Currie, (404) 679-1875 or [email protected]. <7. Staff Acknowledgments> In addition to the contact named above, Joel Aldape (Assistant Director), Pedro Almoguera, Aditi Archer, Michelle Bacon, Sylvia Bascope, Lilia Chaidez, Taylor Hadfield, Danielle Pakdaman, Lorraine Ettaro, Eric Hauswirth, Heidi Nielson, and Kevin Reeves made key contributions to this report.

Why GAO Did This Study In 2017 two major hurricanes – Irma and Maria – caused extensive damage throughout Puerto Rico. Hurricane Maria, a Category 4 hurricane, was the most intense hurricane to make landfall in Puerto Rico since 1928, destroying roads, buildings, and cutting power and communication lines, among other things. Puerto Rico estimates that $132 billion will be needed to repair and reconstruct infrastructure and services. FEMA—a component of the Department of Homeland Security (DHS)—is the lead federal agency responsible for assisting Puerto Rico as it recovers. FEMA administers the Public Assistance program in partnership with Puerto Rico to provide funds to rebuild damaged infrastructure and restore critically-needed services. GAO was asked to review the federal government's recovery efforts related to the 2017 hurricanes. This report, among other objectives, describes (1) FEMA's Public Assistance spending in Puerto Rico and oversight efforts of federal recovery funds, and (2) initial challenges with the recovery process. GAO reviewed Public Assistance program documents; analyzed grant funding data; and interviewed officials from Puerto Rico and DHS about the Public Assistance program and recovery efforts, as well as officials from ten municipalities selected on the basis of population and Public Assistance spending. GAO is not making recommendations at this time, but will continue monitoring the recovery as part of its ongoing work. What GAO Found The Federal Emergency Management Agency (FEMA) obligated almost $4 billion in Public Assistance grant funding to Puerto Rico as of September 30, 2018 in response to the 2017 hurricanes. FEMA obligated about $3.63 billion for emergency work—emergency measures such as debris removal and generators—and about $151 million for permanent work to repair and replace public infrastructure such as roads (see figure). Puerto Rico established a central recovery office to oversee federal recovery funds and is developing an internal controls plan to help ensure better management and accountability of the funds. In the interim, FEMA instituted a manual reimbursement process—requiring FEMA to review each reimbursement request before providing Public Assistance funds—to mitigate risk and help ensure financial accountability. FEMA officials stated that they will remove this manual process once the agency approves Puerto Rico's internal controls plan. Officials from FEMA and Puerto Rico's central recovery office and municipalities that GAO interviewed reported initial challenges with the recovery process, including with Public Assistance alternative procedures. Unlike in the standard Public Assistance program where FEMA will fund the actual cost of a project, the Public Assistance alternative procedures allow awards for permanent work projects to be made on the basis of fixed cost estimates to provide financial incentives for the timely and cost-effective completion of work. Challenges identified included concerns about lack of experience and knowledge of the alternative procedures being applied in Puerto Rico; concerns about missing, incomplete, or conflicting guidance on the alternative procedures; and concerns that municipalities have not been fully reimbursed for work already completed in the immediate aftermath of the hurricanes, causing financial hardships in some municipalities. FEMA officials stated that the agency is taking actions to address reported recovery challenges, such as leveraging existing expertise to train personnel and developing supplemental guidance on alternative procedures and reducing delays in reimbursements. GAO will continue to monitor these issues and plans to report additional findings and recommendations as appropriate later this year.

gao_GAO-20-155

gao_GAO-20-155_0

<1. Background> GSA s existing government-wide telecommunications program is called Networx. As part of this program, in 2007 GSA awarded two sets of Networx contracts, which had an estimated combined value of $20 billion. These sets of contracts had differing characteristics: GSA awarded Networx Universal contracts to AT&T, Verizon Business Services, and Qwest Government Services. Networx Universal offers voice and data services, wireless services, and management and application services, including video and audio conferencing, as well as mobile and fixed satellite services, with national and international coverage. Networx Universal contracts were set to expire in March 2017; however, GSA has twice extended these contracts. According to GSA officials, the most recent extension, which GSA announced in November 2018, is to include one base year and two 1-year options, plus an additional option for the number of months required for the contracts to reach May 31, 2023. If the extension is executed and all options are exercised, the contracts will expire in May 2023. GSA awarded Networx Enterprise contracts to AT&T, Verizon Business Services, Qwest Government Services, Level 3 Communications, and Sprint Nextel. Networx Enterprise offers services similar to those of Networx Universal, with a focus on those that are internet-based. Networx Enterprise requires telecommunications services to be available in a smaller geographic area than Networx Universal. Networx Enterprise contracts were set to expire in May 2017; however, GSA has twice extended these contracts to each participating vendor, except one. According to GSA officials, the most recent extension, which GSA announced in November 2018, is to include one base year and two 1-year options, plus an additional option for the number of months required for the contracts to reach May 31, 2023. If the extension is executed and all options are exercised, the contracts will expire in May 2023. In addition, GSA provides telecommunications services through programs called Washington Interagency Telecommunications System 3 and Regional Local Service Agreements. Washington Interagency Telecommunications System 3: these contracts support a variety of telecommunications services available to all federal agencies in Washington, D.C., and surrounding Maryland and Virginia counties. For example, among other things, these contracts provide data and voice services, as well as cloud services. These contracts were set to expire on or before May 2020. As of December 2019, GSA planned to extend these contracts. GSA officials stated that the extension is to include one base year and two 1-year options, plus an additional option for the number of months required for the contracts to reach May 31, 2023. If the extension is executed and all options are exercised, the contracts will expire in May 2023. Regional Local Service Agreements: these contracts provide local telecommunications services in every state and major city in the United States. According to GSA officials, the expiration dates for these contracts ranged from October 2019 through March 2023. As of December 2019, GSA was in the process of extending these contracts. In particular, GSA officials reported that certain contracts had already been extended to May 2023, and the officials planned to extend the remaining contracts through May 2023, as well. According to data provided by GSA officials, in fiscal year 2019, federal agencies spent approximately $2.5 billion on services acquired through Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements contracts. About $2 billion of this spending was on services acquired through Networx alone. <2. Enterprise Infrastructure Solutions Provides Contracts for Agencies to Acquire IT and Telecommunications Services> EIS is the replacement for Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements telecommunications contracts. GSA intends for EIS to address federal agencies global telecommunications and IT infrastructure requirements. GSA plans for EIS to provide agencies with traditional and emerging services to meet current and future requirements by: simplifying the government s process of acquiring IT and telecommunications products and services; providing cost savings to each agency through aggregated volume buying and pricing (with generally lower costs for services on EIS compared to the costs for similar services on Networx), and spending visibility; enabling the procurement of integrated solutions; promoting participation by small businesses and fostering competition; offering a flexible and agile suite of services supporting a range of government purchasing patterns into the future; and providing updated and expanded security services to meet current and future government cybersecurity requirements. In addition, GSA has identified several benefits that EIS is expected to provide to the agencies that participate in its telecommunications programs. These projected benefits include streamlined contract administration, a possible 15-year period of performance, simplified pricing, and enhanced management and operations support. On August 1, 2017, GSA announced that it had awarded EIS contracts to 10 vendors. These contracts have a combined value of up to $50 billion and are for a possible period of up to 15 years (one 5-year base period and two 5-year option periods). According to GSA s plans as of November 2019, the transition to EIS is expected to be completed by May 2023, when the current Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements telecommunications contracts are expected to expire (if all contract options are exercised, as discussed earlier). To help ensure that agencies services are fully transitioned to EIS before the current contracts expire, GSA issued guidance that identified several critical milestones that agencies should meet. These milestones include: (1) releasing all planned fair opportunity solicitations to EIS vendors by March 31, 2019; (2) issuing all planned task orders by September 30, 2019; and (3) achieving 100 percent transition of services by September 30, 2022. Figure 1 provides a timeline of the planned transition to EIS, including GSA s critical milestones, as of November 2019. <2.1. GSA, Agencies, and Contractors Have Transition Responsibilities> Central to the successful transition from GSA s current telecommunications services contracts to EIS are transition planning and execution activities that involve GSA, federal agencies, the incumbent telecommunications contractors, and EIS contractors. GSA serves as the facilitator for all transition management activities. The agency is using contractors to assist in tracking transition activities, in order to avoid delays and other problems that can arise throughout the process. In particular, GSA s primary responsibility is to provide program management for the current telecommunications programs (Networx, Washington Interagency Telecommunications System 3, and Regional Local Service Agreements) and EIS. As part of this, GSA is responsible for conducting government-wide strategy and project management; providing tailored assistance to agencies for transition planning and help with contractor selection and ordering; tracking and reporting the use of metrics that convey the relative complexity and transition progress; and providing customer support, training, and self-help tools and templates. GSA developed two contracting vehicles to provide transition assistance to agencies: (1) a Transition Coordination Center vehicle that includes assistance with inventory validation, transition planning, and solicitation development; and (2) a Transition Ordering Assistance vehicle that addresses tasks including requirements development and source selection assistance, and proposal evaluation. The Coordination Center vehicle was put in place in January 2016 and the Ordering Assistance vehicle was initially awarded in September 2016, but was not finalized until March 2017, after the conclusion of a bid protest. Agencies have principal responsibility for the transition. They are responsible for coordinating transition efforts with the incumbent contractors and EIS contractors to ensure that existing telecommunications services are disconnected and that new services are ordered under EIS. According to GSA, agencies responsibilities under EIS include: identifying key personnel, chiefly a Senior Transition Sponsor, Lead Transition Manager, and Transition Ordering Contracting Officer; engaging expertise from Chief Information Officers, Chief Acquisition Officers, and Chief Financial Officers to build an integrated transition team of telecommunications managers, acquisition experts, and financial staff; developing a financial strategy and budget for transition costs beginning in fiscal year 2017; analyzing and confirming the accuracy of the inventory of active services that must be transitioned; developing a transition plan that describes technological goals, a transition schedule that includes GSA s major transition milestones (e.g., releasing all fair opportunity solicitations by March 31, 2019, and issuing all task orders by September 30, 2019), a strategy for issuing task orders on EIS for transitioning services, and any constraints or risks; preparing solicitations for task orders; placing task and service orders; coordinating resources to facilitate scheduling and communications for implementing and maintaining services; and reviewing, accepting or rejecting, and paying for services. At the agencies we reviewed, the staff responsible for the transition were part of their agencies offices that were headed by the Chief Information Officers. Finally, the incumbent and EIS contractors are responsible for disconnecting existing services under the current contracts and installing new services that agencies order under EIS. They are also to collaborate with GSA and agencies to share transition planning and execution best practices and help resolve issues. <2.2. GAO s Prior Work Has Examined Agencies Efforts to Plan for Transitioning between Telecommunications Contracts> We have previously reported on efforts by GSA and agencies to transition from one telecommunications program to another. In a June 2006 report, we identified a range of transition planning practices that can help agencies reduce the risk of experiencing adverse effects of moving from one broad telecommunications contract to another. These planning practices were to: (1) develop an accurate inventory of telecommunications assets and services, (2) perform a strategic analysis of telecommunications requirements, (3) develop a structured transition management approach, (4) identify the resources needed for the transition, and (5) develop a transition plan. In that report, we also noted the progress of six selected agencies in preparing for the transition to Networx and found that the agencies generally had not implemented the practices, but were planning to do so. We recommended, among other things, that two of the agencies take actions to address gaps in their transition planning efforts. Both agencies agreed with the recommendations and implemented them. In addition, in 2008, we reported on the extent to which six selected agencies were following the transition planning practices during the Networx transition. We noted that the agencies were generally implementing the practices, but three of them had not fully implemented some of the key activities of the practices and were not planning to do so. For example, one agency was not planning to clearly define all key transition roles and responsibilities and another agency was not planning to identify local and regional points of contact. We made recommendations focused on addressing the gaps in transition planning to the three agencies that had not implemented key practice activities and did not plan to do so. One of the three agencies agreed with the recommendations and two agencies partially agreed with them. One agency implemented the recommendation we made to it, one implemented one of the two recommendations directed to it, and one agency implemented one of the seven recommendations we made to it. In 2013, we reported on factors that had contributed to the delay in the Networx transition and the consequences of the delay. We pointed out that weak project planning and complex acquisition processes were factors that had contributed to the delay. As a result, we recommended, among other things, that GSA take two actions to improve planning and execution of the next telecommunications transition. GSA agreed with these recommendations. The agency then implemented one of the recommendations and did not implement the other one, which was to examine, in coordination with the Office of Personnel Management, potential government-wide telecommunications expertise shortfalls and use the study to shape the next telecommunications acquisition (now called EIS). More recently, we reported in 2017 that, among other things, the five agencies we selected had yet to fully apply most of the five planning practices. Specifically, we noted that one agency fully implemented one practice, partially implemented three practices, and did not implement another. The other four agencies partially implemented each of the five practices. Accordingly, we recommended, among other things, that the five agencies complete adoption of the planning practices to avoid schedule delays and unnecessary costs. Four of the five agencies agreed with all of our recommendations. The other agency agreed with two recommendations, partially disagreed with one, and disagreed with two recommendations. All five agencies have efforts underway to address our recommendations, but had not yet fully implemented them as of November 2019. <3. Agencies Have Various Plans for, and Are in Different Stages of, Transitioning from Their Current Telecommunications Contracts to Enterprise Infrastructure Solutions> The 19 selected agencies have varied plans for transitioning from their current telecommunications contracts to EIS program contracts. As of October 2019, these agencies were also in different stages of their EIS transitions. All of the selected agencies reported that they plan to fully transition their telecommunications services to EIS before the current contracts are set to expire in May 2023. However, over half of the selected agencies did not plan to complete the transition by GSA s September 30, 2022, milestone. In addition, the majority of selected agencies did not meet GSA s two critical EIS transition milestones in 2019 to (1) release all fair opportunity solicitations by March 31, 2019, and (2) issue all task orders by September 30, 2019. <3.1. Selected Agencies Had Varied Plans for Completing Their Transitions to Enterprise Infrastructure Solutions> The 19 selected agencies had various plans for completing their transitions to EIS. In particular, eight of the selected agencies reported that they planned to finish their transitions to EIS by GSA s September 30, 2022, milestone. The 11 remaining agencies did not plan to complete their transitions by that date. Table 1 identifies the 19 selected agencies plans for completing the transition to EIS by GSA s September 30, 2022, milestone. Officials from the 11 selected agencies that did not plan to finish their transitions to EIS by GSA s September 30, 2022, milestone the Departments of Agriculture, Commerce, Energy, HHS, Homeland Security, the Interior, Justice, Transportation, the Treasury, and VA; and the Social Security Administration reported that they planned to complete the transitions before the current telecommunications contracts are set to expire in May 2023. Specifically, Commerce and the Social Security Administration planned to complete their transitions in December 2022; the Department of Transportation planned to do so in January 2023; the Departments of Agriculture, HHS, Homeland Security, and the Treasury planned to complete their transitions in March 2023; and the Departments of Energy, the Interior, Justice, and VA planned to complete their transitions in May 2023, just before the current telecommunications contracts are set to expire. In addition, the planned scope and amount of effort that is expected to be required to fully transition to EIS varied among the selected agencies. Specifically, agencies varied in the scope of their planned efforts related to two of GSA s critical transition milestones to release EIS fair opportunity solicitations and issue EIS task orders. Specifically, Eighteen of the selected agencies planned to release between one and six EIS fair opportunity solicitations, and the final agency the Department of Defense planned to release 54 solicitations. Thirteen of the agencies planned to issue between one and five EIS task orders, while the remaining six agencies the Departments of Defense, Homeland Security, Labor, the Treasury, and VA; and NASA planned to issue more than five task orders. Table 2 identifies the estimated number of planned EIS fair opportunity solicitations and task orders for the 19 selected agencies, as of November 2019. Further, the selected agencies had different plans for the types of transitions that they would implement. Specifically, as of November 2019, four of the selected agencies planned to implement primarily a like-for-like transition of their services. The remaining 15 agencies planned to conduct a combination of a like-for-like transition and upgrading or transforming services. Table 3 identifies the 19 selected agencies plans for the types of transitions to EIS that they will implement, as of November 2019. <3.2. Selected Agencies Were in Different Stages of Their Transitions to Enterprise Infrastructure Solutions> As of October 2019, the 19 selected agencies were in different stages of their EIS transitions. Eighteen of the agencies were in the acquisition planning and/or acquisition decision phases, during which the agencies release fair opportunity solicitations for vendor proposals and issue task orders to selected vendors, respectively. GSA established two critical milestones for agencies to complete these acquisition activities: (1) release all fair opportunity solicitations by March 31, 2019, and (2) issue all task orders by September 30, 2019. Regarding the first milestone to release all EIS fair opportunity solicitations by March 31, 2019 five of the 19 selected agencies reported that they released all of their solicitations by this date. The 14 remaining selected agencies reported that they did not release all of their solicitations by this date. Table 4 identifies the 19 selected agencies status in meeting GSA s milestone to release all EIS fair opportunity solicitations by March 31, 2019. Officials from each of the five agencies that met GSA s milestone to finish releasing all of their planned EIS solicitations by March 31, 2019, reported that their agencies released either one or two solicitations. In particular, officials from GSA and the Departments of Justice and Transportation reported that their agencies each released one solicitation, and Commerce and Social Security Administration officials reported that their agencies each released two solicitations. While eight of the 14 other selected agencies had also planned to release either one or two solicitations in total for their transitions, officials from these agencies reported that they did not finish releasing them by March 31, 2019. These agencies were the Departments of Agriculture, Education, Energy, HHS, Housing and Urban Development, Labor, and State; and the Small Business Administration. We asked officials from the 14 selected agencies that did not release all of their planned EIS solicitations by March 31, 2019, to identify the key factors that contributed to their agencies delays in releasing these solicitations. In response, agency officials cited numerous key factors for the delays, including the complexity of their telecommunications requirements, changes to the agency s or GSA s contracting strategy, and insufficient staff availability. Figure 2 identifies the key factors that contributed to delays in releasing all EIS solicitations by GSA s March 31, 2019, milestone, as identified by agency officials. In addition, regarding GSA s second milestone to issue all EIS task orders by September 30, 2019 one of the selected agencies (the Small Business Administration) reported that it issued all of its task orders by this date. The 18 other agencies reported that they did not issue all of their EIS task orders by this date. Table 5 identifies the 19 selected agencies status in meeting GSA s milestone to issue all EIS task orders by September 30, 2019. Officials from the Small Business Administration the only agency that met GSA s September 30, 2019, milestone reported that the agency issued its lone task order on September 27, 2019. We asked officials from the 18 agencies that did not issue all of their EIS task orders by September 30, 2019, to identify the key factors that contributed to their agencies delays in issuing these task orders. In response, agency officials cited 19 key factors that led to the delays. Nine of the identified factors were the same factors that officials cited for their agencies delays in releasing EIS solicitations, including the complexity of requirements and having insufficient staff available. The officials also identified 10 other factors unique to their delays in issuing EIS task orders. For example, officials from two agencies reported that the EIS vendors needed clarification on the agencies requests for proposals. In addition, officials from three agencies reported that they needed clarification from the EIS vendors on the proposals that the agencies received. Figure 3 identifies the key factors that contributed to delays in issuing all EIS task orders by GSA s September 30, 2019, milestone, as identified by agency officials. Several of the identified factors, such as the partial government shutdown and the need for vendors to receive authorities to operate, have subsequently been resolved. For other factors, agencies can leverage GSA s available EIS training and customer support to help minimize delays in meeting GSA s transition milestones. However, given that the majority of the selected agencies did not meet these transition milestones in 2019, it will be important for agencies to meet the remaining transition milestones to ensure that they complete the transition before the current telecommunications contracts expire in May 2023. <4. Selected Agencies Had Taken Steps to Implement Established Transition Planning Practices, but None Had Fully Implemented Them> In a June 2006 report, we identified five transition planning practices that can help agencies reduce the risk of experiencing adverse effects of moving from one broad telecommunications contract to another. Implementing these transition planning practices represents a comprehensive and rigorous management approach that can help agencies make the most of the opportunity for change that such a major telecommunications transition provides. Each of the five transition planning practices that we identified consists of various activities that should be implemented to fully address the planning practices. Table 6 identifies the five established transition planning practices and their associated activities. All five selected agencies Commerce, HHS, NASA, State, and VA had taken steps to implement the five established transition planning practices. However, none of these agencies had fully implemented any of the practices. <4.1. All of the Selected Agencies Had Developed Telecommunications Inventories, but None Were Complete> The five selected agencies had all partially implemented the first established transition planning practice to develop an accurate inventory of telecommunications assets and services. In particular, all of the selected agencies had partially implemented the two activities associated with this practice. Table 7 summarizes the extent to which the selected agencies had implemented the transition practice to develop an accurate inventory of telecommunications services. Identify a complete telecommunications inventory at every site, facility, and component. The five selected agencies had all partially implemented this activity. While all of these agencies had developed inventories of their telecommunications assets and services, none of the inventories were complete. Specifically, the inventories that Commerce, NASA, and VA developed included the enterprise-wide assets and services in use at their agencies; however, the inventories did not include all of the assets and services that individual mission offices ordered for their own use. In addition, HHS s and VA s inventories did not include their assets and services that were associated with commercial contracts not managed by GSA. Moreover, none of the agencies inventories included all of the relevant contractors that were listed on USASpending.gov as having received telecommunications-related contracts from those agencies in fiscal years 2018 or 2019. As such, the inventories also did not include assets and services provided by those contractors. Establish a documented process for updating and maintaining the inventories. All five selected agencies partially implemented this activity by taking steps to document their inventory update and maintenance processes. However, none of the agencies had fully documented these processes. Specifically, Commerce, HHS, NASA, and State had documented and finalized their processes for updating and maintaining certain telecommunications assets and services within their inventories. However, these processes did not apply to all assets and services in use at the agencies. For example, NASA s inventory maintenance processes applied to the agency s enterprise- level assets and services, but did not apply to assets and services ordered by individual mission centers. VA had developed draft procedures for updating its inventories when new service requests were submitted, but it had not finalized these processes. In addition, VA had not documented processes for maintaining its inventories (e.g., removing telecommunications services from the inventories when they are disconnected). Officials from three of the selected agencies Commerce, NASA, and VA cited the same cause for not having complete inventories or associated inventory maintenance procedures. Specifically, the officials from these agencies all of whom were responsible for their agencies transitions to EIS stated that they did not track all of the assets and services ordered by the agencies. The officials added that they were not responsible for maintaining inventories of all of their agencies assets and services. Further, officials in NASA s and VA s offices of the Chief Information Officer did not provide inventories of the assets and services ordered by those agencies individual mission offices, or any documentation of their agencies associated inventory maintenance processes. Commerce officials acknowledged their lack of a complete telecommunications inventory and stated that they were working to identify the agency s assets and services associated with individual mission offices. The officials stated that they planned to complete this identification effort by 2023, but this schedule was not documented. State officials said that their telecommunications inventories did not include all of the relevant contractors that were listed on USASpending.gov as having received telecommunications-related contracts from the agency in fiscal years 2018 or 2019 because some of the contracts listed on USASpending.gov were for telecommunications services that State does not plan to purchase from EIS. State officials said that their initial focus for the EIS transition is to replace their current domestic services that are ordered through GSA s telecommunications contracts before those contracts expire. However, all of the relevant telecommunications contractors used by State and reported at USASpending.gov should be included in State s telecommunications inventory. The lack of a complete inventory that includes these contractors and their associated services will likely limit State s ability to fully identify areas for optimization and the sharing of telecommunications resources across the agency. Officials from the one remaining agency HHS attributed their agency s lack of a complete telecommunications inventory and associated maintenance procedures to the agency s decentralized structure. Specifically, the HHS officials stated that the agency s components are responsible for managing the services that are unique to them, including those associated with commercial contracts not managed by GSA. However, the officials stated that the agency did not have a policy that required its components to maintain an inventory of telecommunications assets and services that they acquired independently. Without complete and accurate telecommunications inventories, the selected agencies may be unable to avoid unnecessary transition delays related to an inability to plan for services not identified in the inventory. The agencies will also likely be limited in their ability to determine areas for optimization and the sharing of telecommunications and IT resources across the agencies. In addition, without documented processes for maintaining inventories of all of their telecommunications assets and services in use, the agencies may not be able to consistently and accurately incorporate into their telecommunications inventories any changes made during and after the transition (e.g., adding new services or removing disconnected services), thus hindering their ability to ensure that they are billed appropriately by the vendor. <4.2. The Selected Agencies Took Steps to Strategically Analyze Their Telecommunications Requirements, but None Used a Complete Inventory to Determine Needs> All of the selected agencies had partially implemented the second established transition planning practice to perform a strategic analysis of telecommunications requirements. In particular, of the four activities associated with this practice, NASA had fully implemented three of the activities and partially implemented one activity; HHS and VA had fully implemented two of the activities and partially implemented the other two activities; State had fully implemented one of the activities and partially implemented the other three activities; and Commerce had partially implemented each of the four activities. Table 8 summarizes the extent to which the selected agencies had conducted strategic analyses of their telecommunications requirements. Identify current and future telecommunications needs using an inventory of existing services. All of the selected agencies had partially implemented this activity by identifying certain current and future telecommunications needs. However, as discussed earlier, none of the agencies had a complete inventory of current services. As a result, the agencies could not use such an inventory to fully identify their needs. Identify areas for optimization or sharing of telecommunications and IT resources. Three agencies HHS, NASA, and VA had fully implemented this activity by completing strategic analyses to identify areas for optimization or sharing of telecommunications resources. The two remaining agencies Commerce and State had partially implemented this activity. Specifically, while Commerce had developed a draft strategic analysis to justify the potential optimization and sharing across the agency of a telecommunications service for how hardware devices connect to the internet, it had not yet finalized this analysis. One Commerce bureau had also conducted a strategic analysis to justify potentially optimizing or sharing multiple telecommunications services and IT resources within that bureau, but Commerce was unable to provide documentation demonstrating that its remaining bureaus had conducted similar analyses. Further, while State had conducted a strategic analysis to identify services that could be optimized across the agency and agency officials had also identified potential areas for sharing of resources, State did not provide a documented analysis to justify the sharing of those resources. Evaluate the costs and benefits of any new technology and alternative options. Four agencies HHS, NASA, State, and VA had fully implemented this activity by evaluating the costs and benefits of various technologies and alternative options for telecommunications services that they could implement as part of the transition. The one remaining agency Commerce had partially implemented this activity. Specifically, while Commerce demonstrated that it had evaluated the costs and benefits of upgrading one service by which hardware devices connect to the internet, and two Commerce bureaus had analyzed the costs and benefits of implementing another type of service for connecting to networks, the remaining Commerce bureaus did not conduct such analyses. Determine that identified telecommunications needs and opportunities are aligned with the agency s mission, long-term IT plans, and enterprise architecture plans. One agency NASA had fully implemented this activity by determining that its telecommunications needs aligned with its mission and plans. The four remaining agencies had partially implemented this activity. Specifically, HHS had determined that its telecommunications needs aligned with its mission and enterprise architecture, but it did not demonstrate a similar alignment with its long-term IT plans. In addition, State had demonstrated that its needs aligned with its mission, but it did not determine and document that these needs aligned with the agency s long-term IT plans and enterprise architecture. Further, one Commerce bureau had determined that its needs aligned with its mission, long-term IT plans, and enterprise architecture. However, the remaining Commerce bureaus did not determine and document that their telecommunications needs were aligned with the agency s long-term IT plans and enterprise architecture. VA also had determined that its identified needs aligned with its mission and enterprise architecture, as they relate to an ongoing telecommunications modernization project. However, while VA officials stated that their telecommunications needs were aligned with the agency s long-term IT plans, the officials did not provide documentation demonstrating this alignment. Agency officials cited several reasons for not fully implementing the activities associated with this practice. For example, NASA did not use a complete inventory of existing telecommunications assets and services to identify its future telecommunications needs because, as discussed earlier, NASA officials stated that the agency s telecommunications inventory included only enterprise-level assets and services, and did not include assets and services ordered by individual mission centers. The officials further explained that they were not responsible for maintaining inventories of those mission offices telecommunications assets and services and, therefore, did not track all of those assets and services. In addition, Commerce officials stated in May 2019 that the majority of the agency s bureaus did not conduct cost-benefit analyses that considered implementing new telecommunications technologies because Commerce was planning to transition its services on a like-for-like basis in order to complete the transition before May 2020, which was when the current telecommunications contracts were previously set to expire. As such, the officials stated that the agency was not planning to implement new technologies and, thus, a cost-benefit analysis of such technologies was not necessary. However, in October 2019, Commerce officials stated that the agency s EIS solicitation included options for vendors to propose the implementation of new technologies. State officials explained that they had not conducted and documented an analysis to identify areas for the sharing of telecommunications resources because they did not believe that there were any additional State telecommunications resources that could be shared. State officials attributed this to the agency s security requirements and regulations, and noted that services on State s classified network may not be shared with services on its unclassified network. Nevertheless, while services may not be able to be shared between these networks, State did not provide documentation that demonstrated that the agency had determined that there were no additional resources that could be shared on State s unclassified network. In November 2019, VA officials stated that they thought their telecommunications needs were aligned with the agency s long-term IT plans. However, the officials did not provide documentation demonstrating this alignment. HHS officials stated that they intend to align the agency s telecommunications needs and IT strategic plans after the agency establishes a centralized transition program management office. Specifically, the agency decided to centralize its transition management approach in March 2019 and, as of December 2019, HHS officials expected the office to be fully established by March 2020. However, the officials did not have documented plans for when they would align the agency s telecommunications needs and IT strategic plans. Agencies that do not use complete inventories of their current telecommunications services to identify their future needs are likely not fully identifying these needs. They may also miss opportunities to optimize or share services by consolidating them on EIS. In addition, by not using a rigorous management approach that includes strategically analyzing, identifying, and documenting areas for optimization and sharing of resources, agencies may miss opportunities to upgrade their telecommunications services or to shift these services to more cost- effective technologies. Further, agencies that do not fully assess the costs and benefits of alternatives for meeting their telecommunications needs may miss the opportunity that the transition provides to optimize their telecommunications services. Moreover, without aligning their telecommunications needs and opportunities with their missions and plans, agencies risk missing opportunities to use the new contract to address their highest priorities, or may make decisions that are not aligned with their long-term goals. <4.3. All of the Selected Agencies Had Begun to Develop a Structured Management Approach, but None Had Fully Implemented It> All of the selected agencies had partially implemented the third transition planning practice to develop a structured management approach for the telecommunications transition. Specifically, of the three activities associated with this practice, NASA had fully implemented two activities and partially implemented one activity; HHS and VA had fully implemented one activity and partially implemented the other two activities, and Commerce and State had partially implemented each of the three activities. Table 9 summarizes the extent to which the selected agencies had established a structured management approach. Establish a transition management team and clearly define responsibilities for key transition roles. One agency VA had fully implemented this activity by establishing a transition management team and defining all key transition responsibilities for the planning and execution phases of the transition, including for project, asset, human capital, and information security management; and contract and legal expertise. The remaining four agencies had partially implemented this activity by establishing transition management teams, but none had defined all key roles and responsibilities for their transitions. Specifically, NASA had not defined a role and related responsibilities for managing human capital throughout the transition, nor for providing legal expertise during the execution phase of the transition. While Commerce had identified the need for managing human capital and telecommunications assets throughout the planning and execution phases of the transition, and for providing legal expertise during the execution phase of the transition, it had not yet assigned these roles and related responsibilities to staff members. In addition, Commerce, State, and HHS had identified the need for an information security management role during the transition. However, Commerce and State had not yet finalized the responsibilities for this role, and Commerce and HHS had not yet assigned this role to a staff member. State and HHS had also not identified roles and responsibilities for managing telecommunications assets throughout the transition, nor for providing legal expertise during the execution phase of the transition. Moreover, while HHS officials stated that a staff member was providing human capital management-related assistance to the agency s centralized EIS program management office, the agency had not documented this role for the transition, nor defined specific responsibilities for this role. Develop transition communications plans in order to facilitate information sharing during transition planning and execution. Two agencies HHS and NASA had fully implemented this activity by developing transition communications plans and identifying all key parties that need to be involved during the agency s transition effort. The remaining three agencies Commerce, State, and VA partially implemented this activity. For example, each of these agencies identified stakeholders responsible for communicating transition information to other stakeholders. While Commerce and VA also identified the frequency with which transition status updates and meetings are to occur, State did not identify this frequency. In addition, State and one bureau within Commerce did not include a description of how changes and disruptions related to the transition would be communicated to end users. Further, Commerce, State, and VA did not identify the key local and regional agency transition officials responsible for disseminating information about the transition to employees and working with the vendor to facilitate transition activities. While VA had identified a potential list of these officials in a previous version of the agency s transition communications plan, the agency removed this list from the latest version of the plan. Use established project, configuration, and change management processes in the agency s transition planning efforts. One agency NASA had fully implemented this activity by demonstrating the use of all established management processes called for in the activity. The four remaining agencies Commerce, HHS, State, and VA had partially implemented this activity by demonstrating the use of project management processes for their transitions, such as tracking transition costs and developing schedules and risk logs. However, VA did not demonstrate that it was applying approved cost and schedule management processes to its transition. In addition, Commerce, HHS, and State did not demonstrate that they were applying established configuration management processes to their transitions. Further, Commerce and HHS did not demonstrate that they had implemented change management processes for their transitions. Officials from four of the selected agencies Commerce, HHS, NASA, and VA generally attributed their lack of full implementation of this practice to the fact that, at the time of our review, the agencies were early in their transition planning processes. For example, NASA officials stated that they had not defined a role or responsibilities related to human capital management because their human capital needs for the transition will depend on the vendors selected (incumbents or new vendors). As such, the officials stated that they had not yet determined whether a human capital management role was needed for the transition. The officials said that they would consider adding such a role after they issue their EIS task orders. However, NASA did not conduct an analysis to determine whether there was a need for a human capital manager during the planning phase of the transition. As a result, NASA is risking delays that could lengthen its transition due to the lack of an assigned staff member to manage its human capital needs during the transition planning phase. In addition, State officials said that they did not identify the key local and regional agency transition officials responsible for working with the vendor to facilitate transition activities because, as part of State s security processes, vendors must work with State s bureau-level points-of-contact to be escorted to State facilities, as necessary. The State officials said that their bureau-level points-of-contact would coordinate with the local and regional agency transition officials, as appropriate. VA officials stated that they removed from their transition communications plan the list of key local and regional agency transition officials because, in part, as of November 2019 it was still early in the agency s transition and they expected the contacts to change as the transition is implemented. As such, VA officials also stated that they only identified key transition positions, rather than individuals, in order to ensure the accuracy of the information in the communications plan. Commerce officials explained that they had not yet implemented all of the key management processes for the transition because they planned to work with their selected EIS vendors to establish those processes. These officials further stated that they planned to implement this activity after they issue their EIS task orders. Moreover, HHS officials attributed their lack of established configuration and change management processes to the agency s previous decentralized management approach, which did not require HHS s components to establish such processes for the transition. As discussed earlier, in March 2019, the agency decided to centralize its transition management approach. HHS officials stated that, as part of the centralized approach, they planned to develop change and configuration management processes for the transition. However, they did not have documented time frames for establishing and implementing these processes. While the selected agencies were early in their transition planning processes at the time of our review, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information that is available. Agencies that do not define all key roles and related responsibilities for their transition management teams risk extending their transition period as they attempt to assign appropriate personnel and update them on transition progress and issues. Further, without identifying all of the key officials that need to be involved with the transition, including the local and regional agency points of contact, agencies may lack the information that is necessary for comprehensive understanding, accountability, and shared expectations among all those with transition responsibilities. Finally, by not using a rigorous management approach that implements established configuration management and change management processes for the transition, agencies risk additional financial costs, extended timelines, and disruptions to the continuity of their telecommunications systems. The limited time available for agencies to complete the transition makes it more important for them to use rigorous management processes in their transition efforts. <4.4. All of the Selected Agencies Had at Least Partially Identified Their Transition Resource Needs, but None Had Fully Determined These Needs> All of the selected agencies had partially implemented the fourth established transition planning practice to identify their transition resource needs. In particular, of the four activities associated with this practice, NASA had fully implemented one of the activities and partially implemented the remaining three activities; and the four other agencies Commerce, HHS, State, and VA had partially implemented each of the activities. Table 10 summarizes the extent to which the selected agencies had identified their transition resource needs. Identify the level of funding needed to support transition planning. One of the selected agencies NASA had fully implemented this activity by identifying the costs needed to support its transition management team and all years of its transition planning efforts. The four other agencies Commerce, HHS, State, and VA had partially implemented this activity. In particular, HHS had developed a cost estimate that partially identified the funding needed for its transition management team, but this estimate did not identify the costs for all transition management staff at each of the agency s components. Commerce had developed a draft analysis that identified the funding needed for government and contractor staff working on the transition, but this analysis was not approved. In addition, one Commerce bureau had not yet identified the funding needed for all years of transition planning support. Further, while State had partially identified the funding needed to support federal and contractor staff working on the transition, it had not identified the funding needed for all transition staff or for all years of transition planning support. Moreover, while VA officials stated that they had identified the costs needed for the transition, the officials did not provide documentation that identified costs for all years of transition planning support. Identify the organizational need for investments and justify resource requests. The five selected agencies had all partially implemented this activity by identifying the need for investments, including funding to obtain GSA transition assistance; however, none of the agencies had fully justified their resource requests for the transition. Specifically, Commerce, State, and VA had not justified their resource requests related to transition program management staff. In addition, HHS lacked justification for its requests for hardware and software upgrades. Moreover, while NASA had identified anticipated cost savings as part of its justification for resource requests related to hardware and software upgrades, it was unable to provide documentation of an analysis to support these identified savings. NASA also did not justify its resource requests related to transition program management staff. Identify human capital needs for the entire transition effort. All of the selected agencies had partially implemented this activity by identifying the need for certain staff to work on the transition, including government and contractor staff. However, none of the agencies had conducted and documented analyses of their human capital needs, to determine the total number of staff required to support their entire transition efforts. Identify and require training for the transition. All of the agencies had partially implemented this activity by identifying training needed by certain transition management staff. In addition, four of the agencies Commerce, HHS, NASA, and State had also provided training to transition support staff. However, Commerce, HHS, NASA, and VA had not conducted and documented analyses to identify all of the training needed for their transitions, including training for staff carrying out the transition or operating and maintaining new equipment or services. In addition, while State had developed a draft analysis to identify training needed by staff carrying out the transition, it had not finalized this analysis. Officials from these agencies cited several reasons for not fully identifying their transition resource needs. In general, Commerce, HHS, and VA officials explained that they were too early in their transition efforts to identify all of the funding, human capital, and training needed for their transitions. NASA and State officials also cited this as the reason for why they had not identified all of their human capital needs. In particular, officials from all five of the agencies stated that they will not be able to determine their complete transition resource needs until after they issue their EIS task orders. For example, officials from all of these agencies explained that their human capital needs will depend on which vendors are selected and what new technology will be implemented, if any. Officials from these agencies also stated that they planned to identify all of their human capital needs after they issue their EIS task orders, but none of the agencies had documented plans for doing so. In addition, Commerce officials said that they did not document a cost- benefit justification for using contractor staff to assist with transition program management because they knew that their existing resources (i.e., government staff) were not sufficient. As such, the officials stated that the agency determined that further analysis for justification of using contractor staff was not necessary. State officials also explained that they had not identified all of the funding needed to support transition planning because, per agency policy, they were not required to do so. In particular, the officials explained that the division responsible for the EIS transition operates under a working capital fund. As part of this, the division provides telecommunications services to State customers and charges those customers for the services provided. In accordance with State policy, the division determines the costs for these services on an annual basis. As such, the officials stated that they were not required by agency policy to determine the total funding needed for the entire transition. However, although State policy does not require the agency to identify all of the funding needed to support transition planning, as part of a comprehensive management approach to the transition State should identify its complete transition funding requirements to ensure that sufficient resources are available when needed during the transition. While these agencies may be early in their transition efforts, there is limited time remaining to complete the transition before the current telecommunications contracts expire. If the agencies do not conduct early planning to identify and justify all of their resources needed for the transition, they may underestimate the complexity and demands of their transition efforts. In addition, without using a rigorous management approach to analyze and document the total number of staff required to support the transition and to identify all of the required training for transition staff, agencies risk having insufficient staff available or may experience gaps in staff competencies. Such gaps may lead to delays and unexpected costs as the agencies try to quickly address the lack of resources during the transition s limited time frame. <4.5. All of the Selected Agencies Had Begun to Develop Transition Plans, but These Plans Were Not Complete> All of the selected agencies had partially implemented the fifth established transition planning practice to develop transition plans. Specifically, of the three activities associated with this practice, three agencies Commerce, NASA, and State had fully implemented two activities and partially implemented the remaining activity; and two agencies HHS and VA had fully implemented one activity and partially implemented the other two activities. Table 11 summarizes the extent to which the selected agencies had developed transition plans. Identify agency-specific transition objectives and measures of success. Three agencies Commerce, NASA, and State had fully implemented this activity by identifying transition objectives and associated measures of success that were based on the transition objectives. The remaining two agencies HHS and VA had partially implemented this activity. In particular, while these agencies had identified transition objectives and measures of success, their measures were unable to be used to assess transition progress. Specifically, HHS and VA had identified measures that could be used to determine success at the completion of the transition (e.g., all planned services have been transitioned to EIS). However, the measures did not enable the agencies to compare expected performance with actual results in order to track progress during the course of the transition (e.g., identifying the expected number of services that would be moved to EIS during each year of the transition). Identify risks that could affect transition success, including information security risks, and evaluate the importance of these risks relative to the agency s mission critical systems and continuity of operations plans. All of the selected agencies Commerce, HHS, NASA, State, and VA had fully implemented this activity. Specifically, each of the agencies had identified transition risks and evaluated the importance of those risks relative to the agencies mission critical priorities. Clearly define transition preparation tasks and develop a time line that takes into account the agency s mission critical systems, contingency plans, and identified risks. All of the selected agencies partially implemented this activity by developing time lines with clearly defined transition preparation tasks. However, none of these time lines accounted for all key priorities identified in the activity. Specifically, while a 2016 version of Commerce s transition time line took into account one of the agency s identified transition risks, Commerce s more recent transition time lines did not account for its transition risks or for priorities related to its mission critical systems and contingency plans. In addition, NASA s time lines took into account its transition risks, but did not account for priorities related to its mission critical systems and contingency plans. State s and VA s transition time lines did not account for any of these priorities. Further, while HHS had developed time lines with clearly defined transition preparation tasks for certain components of the agency, it did not develop time lines that defined such tasks for all of its components. The time lines that HHS had developed also did not account for priorities related to all of HHS s mission critical systems, contingency plans, and identified risks. Agency officials identified several reasons for not yet fully implementing the activities associated with developing a transition plan. For example, HHS officials attributed their lack of transition measures of success that could be used to assess transition progress to the agency s previous decentralized transition management approach. The HHS officials stated that, as part of their new centralized management approach, they planned to develop such measures by the time the agency issues its EIS task order. However, the officials did not have documented plans for developing these measures. In addition, VA officials stated that they had not identified agency-specific transition measures of success that could be used to assess transition progress because these measures will be dependent on the EIS vendors that the agency selects. The officials stated that they expected to define these measures after they issue their EIS task orders. However, as of November 2019, the officials did not have documented plans for finalizing these measures. Moreover, officials from all of the selected agencies generally said that they had not yet developed complete transition time lines because they were focused on activities associated with the acquisition planning phase of the transition, including developing their EIS solicitations. Officials from all of the agencies said that they planned to develop complete transition time lines after they issue their EIS task orders. While agencies lack of issued EIS task orders contributed to delays in developing complete transition plans, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information that is available. In addition, agencies that do not identify transition objectives and measures of success that can be used to assess transition progress may find it difficult to provide those involved in their transitions with clear expectations. Without measurable metrics, managers will also lack information that could be used to track progress toward transition objectives and inform management decisions. Further, agencies that do not assess risks relative to their mission critical systems and do not incorporate agency priorities related to those systems and contingency plans into transition time lines, may encounter problems and delays during the transition because they are not adequately prepared to mitigate such risks. <5. Conclusions> Although the 19 selected agencies reported that they plan to fully transition to EIS before the current telecommunications contracts expire in May 2023, over half of the agencies do not plan to complete the transition by GSA s September 30, 2022, milestone to do so. By waiting until close to the end of the current contracts to finish the transition, these agencies are at risk of experiencing disruptions in service if any issues arise that result in transition delays, such as inadequate human capital resources or the need to transition previously unidentified services. Moreover, given agencies poor performance during the last two transitions which resulted in significant delays and cost increases and their lack of meeting GSA s two critical EIS transition milestones for 2019, agencies are again at high risk of experiencing delays during this transition. Further, agencies will miss out on potential cost savings by delaying their transitions to the new contracts, which generally have lower rates for services. The five agencies we reviewed had taken steps to prepare for the transition of their telecommunications services to EIS contracts. However, these agencies lack of full implementation of established planning practices increases the risk that they will experience adverse effects such as schedule delays or cost increases while transitioning to the new contracts. Several agencies stated that they intend to implement the planning practices after they have issued their EIS task orders. However, limited time remains to complete the transition before the current telecommunications contracts expire. Further, inadequate project planning was a key factor that contributed to delays during the prior transition to Networx. Accordingly, it is critical for agencies to apply a rigorous management approach from the start of the current transition using the information that is currently available, even though changes may be necessary as conditions evolve. Agencies that do not fully adopt the comprehensive approach captured in these planning practices may not make the most of the opportunity for change, and the potential to save costs, that such a major telecommunications transition provides. <6. Recommendations for Executive Action> We are making a total of 25 recommendations to five agencies, which includes five each to Commerce, HHS, NASA, State, and VA. The Secretary of Commerce should ensure that the agency s Chief Information Officer updates the telecommunications inventory to include all telecommunications assets and services in use at the agency, and updates Commerce s process for ongoing maintenance of the inventory to include the complete inventory. (Recommendation 1) The Secretary of Commerce should ensure that the agency s Chief Information Officer completes efforts to identify future telecommunications needs using a complete inventory of existing telecommunications services; conducts and documents a comprehensive strategic analysis at all bureaus to identify areas for optimization and sharing of telecommunications resources; evaluates the costs and benefits of implementing new telecommunications technology and alternative options at all bureaus; and fully aligns Commerce s telecommunications needs with its long-term IT plans and enterprise architecture. (Recommendation 2) The Secretary of Commerce should ensure that the agency s Chief Information Officer finalizes the responsibilities related to the information security management role during the telecommunications transition, and assigns the roles for providing legal expertise during the transition, as well as for managing human capital, telecommunications assets, and information security during the transition, to staff members; describes how changes and disruptions related to the transition will be communicated to end users at all bureaus and identifies the key local and regional agency transition officials responsible for disseminating information about the transition to employees and working with the vendor to facilitate transition activities in Commerce s transition communications plan; and establishes and implements configuration and change management processes for its transition. (Recommendation 3) The Secretary of Commerce should ensure that the agency s Chief Information Officer identifies all of the funding needed to support the telecommunications transition; justifies requests for resources related to transition program management staff; conducts an analysis to identify staff resources needed for the entire transition effort; and analyzes training needs for staff assisting with the transition. (Recommendation 4) The Secretary of Commerce should ensure that the agency s Chief Information Officer takes into account the agency s telecommunications transition risks, mission critical systems, and contingency plans in Commerce s transition time line. (Recommendation 5) The Secretary of Health and Human Services should ensure that the agency s Chief Information Officer develops a policy that requires the agency s components to maintain an inventory of the telecommunications assets and services that they acquire independently from headquarters; updates the telecommunications inventory to include all telecommunications assets and services in use at HHS, and updates the agency s process for ongoing maintenance of the inventory to include the complete inventory. (Recommendation 6) The Secretary of Health and Human Services should ensure that the agency s Chief Information Officer completes efforts to identify future telecommunications needs using a complete inventory of existing telecommunications services; and aligns HHS s telecommunications needs with its long-term IT plans. (Recommendation 7) The Secretary of Health and Human Services should ensure that the agency s Chief Information Officer identifies and documents telecommunications transition roles and responsibilities related to (1) managing assets and human capital during the planning and execution phases of the transition and (2) providing legal expertise during the execution phase of the transition, and assigns the transition information security management role to a staff member; and establishes and implements configuration and change management processes for HHS s transition. (Recommendation 8) The Secretary of Health and Human Services should ensure that the agency s Chief Information Officer identifies all of the funding needed to support the telecommunications transition at each of the agency s components, justifies requests for transition resources related to hardware and software upgrades, conducts an analysis to identify staff resources needed for the entire transition effort, and analyzes training needs for staff assisting with the transition. (Recommendation 9) The Secretary of Health and Human Services should ensure that the agency s Chief Information Officer completes efforts to identify telecommunications transition measures of success that can be used to assess transition progress; and takes into account all of the agency s components, as well as its mission critical systems, contingency plans, and telecommunications transition risks, in HHS s transition time line. (Recommendation 10) The Secretary of State should ensure that the agency s Chief Information Officer updates the telecommunications inventory to include all telecommunications assets and services in use at the agency, and updates State s process for ongoing maintenance of the inventory to include the complete inventory. (Recommendation 11) The Secretary of State should ensure that the agency s Chief Information Officer completes efforts to identify the agency s future telecommunications needs using a complete inventory of existing telecommunications services; conducts and documents a strategic analysis to justify the sharing of telecommunications resources; and aligns State s telecommunications needs with its long-term IT plans and enterprise architecture. (Recommendation 12) The Secretary of State should ensure that the agency s Chief Information Officer identifies telecommunications transition roles and responsibilities related to (1) managing assets during the planning and execution phases of the transition and (2) providing legal expertise during the execution phase of the transition, and finalizes the responsibilities related to the information security management role for the transition; includes in State s transition communications plan the frequency with which transition status updates and meetings will occur throughout the transition, a description of how changes and disruptions related to the transition will be communicated to end-users, and the key local and regional agency transition officials responsible for disseminating information about the transition to employees and working with the vendor to facilitate transition activities; and establishes configuration management processes for the agency s transition. (Recommendation 13) The Secretary of State should ensure that the agency s Chief Information Officer identifies all of the funding needed to support the telecommunications transition, justifies requests for resources related to transition program management staff, conducts an analysis to identify staff resources needed for the entire transition effort, and finalizes its analysis of training needs for staff assisting with the transition. (Recommendation 14) The Secretary of State should ensure that the agency s Chief Information Officer takes into account the agency s telecommunications transition risks, mission critical systems, and contingency plans in State s transition time line. (Recommendation 15) The Secretary of Veterans Affairs should ensure that the agency s Chief Information Officer updates the telecommunications inventory to include all telecommunications assets and services in use at the agency, and updates and finalizes VA s process for ongoing maintenance of the inventory to include the complete inventory. (Recommendation 16) The Secretary of Veterans Affairs should ensure that the agency s Chief Information Officer completes efforts to identify future telecommunications needs using a complete inventory of existing telecommunications services, and determines and documents that VA s telecommunications needs are aligned with its long-term IT plans. (Recommendation 17) The Secretary of Veterans Affairs should ensure that the agency s Chief Information Officer includes in its telecommunications transition communications plan the key local and regional agency officials responsible for disseminating information about the transition to employees and working with the vendor to facilitate transition activities; and establishes and uses cost and schedule management processes in the agency s transition. (Recommendation 18) The Secretary of Veterans Affairs should ensure that the agency s Chief Information Officer identifies and documents all of the funding needed to support the telecommunications transition, including costs for all years of transition planning support; justifies requests for transition resources related to program management staff; conducts an analysis to identify staff resources needed for the entire transition effort; and analyzes training needs for staff assisting with the transition. (Recommendation 19) The Secretary of Veterans Affairs should ensure that the agency s Chief Information Officer completes efforts to identify telecommunications transition measures of success that can be used to assess transition progress; and takes into account the agency s telecommunications transition risks, mission critical systems, and contingency plans in VA s transition time line. (Recommendation 20) The Administrator of the National Aeronautics and Space Administration should ensure that the agency s Chief Information Officer updates the telecommunications inventory to include all telecommunications assets and services in use at the agency, and updates NASA s process for ongoing maintenance of the inventory to include the complete inventory. (Recommendation 21) The Administrator of the National Aeronautics and Space Administration should ensure that the agency s Chief Information Officer completes efforts to identify the agency s future telecommunications needs using a complete inventory of existing telecommunications services. (Recommendation 22) The Administrator of the National Aeronautics and Space Administration should ensure that the agency s Chief Information Officer identifies telecommunications transition roles and responsibilities related to (1) managing human capital during the planning and execution phases of the transition and (2) providing legal expertise during the execution phase of the transition. (Recommendation 23) The Administrator of the National Aeronautics and Space Administration should ensure that the agency s Chief Information Officer conducts an analysis to support the anticipated cost savings identified as part of the agency s justification for its resource requests related to hardware and software upgrades for the telecommunications transition, and justifies its resource requests for transition program management staff; conducts an analysis to identify staff resources needed for the entire transition effort; and analyzes training needs for staff assisting with the transition. (Recommendation 24) The Administrator of the National Aeronautics and Space Administration should ensure that the agency s Chief Information Officer takes into account the agency s mission critical systems and contingency plans in NASA s telecommunications transition time line. (Recommendation 25) <7. Agency Comments and Our Evaluation> We provided a draft of this report to the 19 selected agencies for their review and comment. In response, all five agencies to which we made recommendations (Commerce, HHS, State, VA, and NASA) stated that they concurred with the recommendations. In addition, of the 14 agencies to which we did not make recommendations, one (the Department of the Treasury) provided comments on the report, and one (the Small Business Administration) provided a technical comment via email, which we incorporated into the report, as appropriate. The remaining 12 agencies did not have any comments on the report. The following five agencies concurred with our recommendations: In written comments (reprinted in appendix II), Commerce concurred with our five recommendations to the agency and stated that it will take steps to implement them. In written comments (reprinted in appendix III), HHS concurred with our five recommendations to the agency and described actions it has taken or plans to take to address them. For example, with regard to our recommendation that HHS identify and document key telecommunications transition roles and responsibilities, among other things, the agency stated that it had (1) established an integrated program team to coordinate all telecommunications transition activities, in conjunction with its EIS program management office; (2) assigned two legal counsel staff to support the EIS transition during its current procurement phase, as well as for the transition; and (3) included the agency s Office of Information Security in reviewing and providing input into its EIS solicitation. The agency also stated that it intends to engage the Office of Information Security throughout the lifecycle of the EIS transition, among other things. HHS also provided general comments in response to the findings in the report. Specifically, the agency described actions that it had taken to improve its management of the EIS transition. For example, the agency stated that the Assistant Secretary for Administration decided to centralize HHS s EIS transition efforts in March 2019, after it had conducted a study of risks and costs associated with the decentralized transition approach that the agency had been taking since 2017. HHS further stated that it had identified the issues that we brought up during our review and had proactively worked since March 2019 to establish processes and procedures to manage its transition in a comprehensive manner. In particular, the agency stated that it established a fully funded, centralized EIS program management office to support all of HHS s operating divisions during the transition. Establishing and effectively implementing such management processes will be critical to the agency s successful transition to EIS. In written comments (reprinted in appendix IV), State concurred with our five recommendations to the agency. In written comments (reprinted in appendix V), VA stated that it agreed with our conclusions and concurred with our five recommendations to the agency. VA also stated that it would provide the actions it plans to take to address the recommendations in its 180- day update to the final report. In written comments (reprinted in appendix VI), NASA concurred with our five recommendations to the agency. It also described actions it has taken or plans to take to address each recommendation. For example, the agency described actions it has taken to address our recommendation calling for NASA to update its telecommunications inventory to include all telecommunications assets and services in use at the agency, among other things. Specifically, the agency stated that the NASA communications contractor, under NASA management oversight, maintains an inventory of telecommunications assets and services. The agency added, nevertheless, that unique mission assets are not included in the inventory, are managed by programs and projects, and are available to the NASA Office of the Chief Information Officer. We agree that NASA has established an inventory of certain telecommunications assets and services in use at the agency. However, as discussed earlier in this report, this inventory includes only the enterprise-wide assets and services in use at the agency; it does not include all of the assets and services that individual mission offices ordered for their own use. During our review, we asked NASA s Office of the Chief Information Officer to provide an inventory of the assets and services ordered by the agency s individual mission offices and NASA did not provide such an inventory. We maintain that NASA should have a complete inventory of all of its telecommunications assets and services in order to ensure that it is able to transition all services to EIS, as appropriate, before the current GSA telecommunications contracts expire. A complete inventory is also needed for the agency to be able to strategically plan for the transition, including fully identifying the agency s future telecommunications needs and opportunities to optimize or share services by consolidating them on EIS. In addition, NASA described actions it has taken to address our recommendation calling for the agency to complete efforts to identify its future telecommunications needs using a complete inventory of existing telecommunications services. Specifically, the agency stated, among other things, that it (1) maintains an inventory of telecommunications services that are within the scope of the EIS program, and (2) continually identifies and plans for future NASA telecommunications needs using this inventory. However, as discussed earlier, NASA s inventory of telecommunications assets and services is not complete because it does not include the assets and services ordered by the agency s individual mission offices. Identifying NASA s future telecommunications needs using a complete inventory of telecommunications services, as we recommended, would help to ensure that the agency fully identifies these needs. It would also reduce the likelihood that the agency may miss opportunities to optimize or share services by consolidating them on EIS. In written comments (reprinted in appendix VII), the Department of the Treasury offered additional information intended to clarify our findings regarding the agency s compliance with GSA s milestones to (1) release all EIS fair opportunity solicitations by March 31, 2019; (2) issue all EIS task orders by September 30, 2019; and (3) fully transition to EIS by September 30, 2022. In this regard, the agency stated that it had released four of its six EIS fair opportunity solicitations which the agency said represented the majority of its telecommunications requirements prior to GSA s March 31, 2019, milestone; and had released its two other solicitations in July 2019. issued one of its six EIS task orders in September 2019, prior to GSA s September 30, 2019, milestone and planned to issue its five remaining EIS task orders in March and April 2020. expected to transition all of its telecommunications services associated with its largest EIS solicitation by GSA s milestone date of September 30, 2022. The agency stated that this solicitation is to provide enterprise managed services (e.g., voice and data services) for all Treasury bureaus except the Office of the Comptroller of the Currency. The agency also stated that it believes it will meet its transition goals for its other five solicitations. While the Department of the Treasury did not specify in its written comments a date for completing the transition of services associated with these other five solicitations, agency officials stated during our review that they planned to complete the transition to EIS in March 2023. The additional clarifications provided by the Department of the Treasury did not change our findings that the agency did not (1) meet GSA s March 31, 2019, milestone to release all EIS fair opportunity solicitations; (2) meet GSA s September 30, 2019, milestone to issue all EIS task orders; and (3) plan to fully transition to EIS by GSA s September 30, 2022, milestone. Finally, 12 agencies responded that they did not have any comments on the report. Ten of these agencies responded via email: the Departments of Agriculture, Defense, Education, Energy, Homeland Security, the Interior, Justice, Labor, and Transportation; and the General Services Administration. Two agencies (the Department of Housing and Urban Development and the Social Security Administration) provided written responses, which are reprinted in appendices VIII and IX, respectively. We are sending copies of this report to the appropriate congressional committees, the Administrator of the General Services Administration, Administrator of the National Aeronautics and Space Administration, Secretary of Commerce, Secretary of Health and Human Services, Secretary of State, Secretary of Veterans Affairs, 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 questions about this report, please contact Carol Harris at (202) 512-4456 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 X. Appendix I: Objectives, Scope, and Methodology <8. In particular, as part of this survey, we asked agencies to identify the following:> their plans for the transition to EIS, including the total number of fair opportunity solicitations and task orders planned; their planned schedules for transitioning to EIS contracts; and key factors that contributed to delays, if any, in meeting two critical transition milestones that GSA established for 2019 to (1) finish releasing all EIS fair opportunity solicitations by March 31, 2019, and (2) finish issuing all EIS task orders by September 30, 2019. After receiving the agencies survey responses, we electronically extracted the survey data and examined the results to identify missing data, inconsistencies, and other indications of error. We then addressed such issues, as necessary, including through follow-up communications with the selected agencies. In addition, due to the open-ended responses related to the key factors for delays, we conducted a content analysis of the responses we received in order to identify categories for the reported factors. We also interviewed relevant agency officials for further information regarding their agencies plans for transitioning to EIS. Further, for the seven agencies that reported in their survey responses that they planned to meet GSA s milestone to finish issuing all EIS task orders by September 30, 2019, we asked those agencies in October 2019 to identify whether they actually met that milestone. One of the seven agencies reported that it met the milestone. For the six other agencies that did not meet the milestone, we asked them to identify the key factors that contributed to their delays in issuing the task orders. In November 2019, we also asked all of the 19 selected agencies to provide updated responses regarding their planned dates for fully transitioning to EIS contracts. To address the second objective, we selected for review a nongeneralizable subset of five agencies included in the first objective and assessed those agencies against activities associated with established transition planning practices. To select these five agencies from the 19 agencies included in our first objective, we first excluded the four Chief Financial Officers Act agencies that were included in our most recent prior review of agencies telecommunications transition planning efforts. We then used the telecommunications billing data provided by GSA to categorize the 15 remaining agencies based on the total charges billed to the agencies for fiscal year 2018. Specifically, in order to ensure that we would select agencies with different levels of telecommunications spending, we used the following three cost ranges to categorize the agencies as large, medium, or small: large $100 million or more, medium $25 million to less than $100 million, and small less than $25 million. We also identified whether each agency had a centralized or decentralized structure related to its Chief Information Officer office. Further, we identified the number of fair opportunity EIS solicitations that each agency had released, as of October 31, 2018, and the total number of solicitations each agency planned to release, as reported on GSA s website for tracking agencies EIS transition progress. Based on the above considerations, we selected five agencies that exhibited a variety of sizes and structures, and a range of planned and released fair opportunity EIS solicitations. The selected agencies were Commerce, HHS, NASA, State, and VA. Because we did not review a statistically representative sample of federal agencies, we could not conclude that our results represent the entire federal government s level of preparation. However, the five cases we studied illustrate the levels of planning that these agencies had put into their transitions to EIS. We then obtained and reviewed relevant transition planning documentation from the agencies and assessed it against the following five telecommunications transition planning practices identified in our prior work: 1. develop an accurate inventory of telecommunications assets and services, 2. perform a strategic analysis of telecommunications requirements, 3. develop a structured transition management approach, 4. identify the resources needed for the transition, and 5. develop a transition plan. Specifically, for each of the agencies, we obtained and analyzed documentation, such as EIS transition plans; telecommunications inventories; telecommunications inventory maintenance documentation; EIS fair opportunity solicitations; documentation of strategic analyses completed while the agencies reviewed their telecommunications requirements (e.g., cost-benefit analyses of new technology and alternative options); program management documentation applicable to the transition, including program management plans, communications plans, cost estimates, integrated master schedules, risk logs, and oversight board briefing slides and meeting minutes; agency staffing plans for the EIS transition; and training completion documentation specific to the EIS transition. We also interviewed agency officials including those that were responsible for managing their agencies transitions to EIS regarding their agencies implementation of the established transition planning practices. Regarding our assessments of the agencies implementation of each of the activities associated with the five transition planning practices, we assessed an activity as fully implemented if agency officials provided evidence that they had implemented all of the aspects of the practice activity, or the agency had approved plans and related policies to fully implement the practice activity at a later time during the transition. We assessed an activity as partially implemented if agency officials provided evidence that they had implemented some, but not all, aspects of the practice activity. To assess the reliability of the fiscal year 2018 telecommunications billing data that we used to select the agencies for review, we reviewed the GSA-provided data to identify outliers, missing data, and other potential errors (e.g., components that were not associated with the correct agency). We also interviewed knowledgeable GSA officials about the reliability of the billing data provided. In addition, to assess the reliability of the agency-reported information we used to support the findings in this report, we reviewed relevant program documentation to substantiate evidence obtained through interviews with agency officials. For computer-processed data, such as the telecommunications inventories, we reviewed the data to identify outliers, missing data, and other potential errors; interviewed agency officials regarding the completeness and accuracy of the data; and reviewed related documentation, where available. For example, regarding the telecommunications inventories, we assessed agency documentation of the quality control procedures and practices related to ensuring the accuracy of the inventories. We also interviewed knowledgeable agency officials about the systems and processes in place to collect and verify the inventory data. Further, to determine if the agencies had established complete telecommunications inventories, we searched the data on USASpending.gov to identify the contractors that received telecommunications-related contracts from the selected agencies in fiscal years 2018 and 2019. We then compared the resulting list of contractors to those identified in the agencies inventories and, when the list of contractors identified did not match, we interviewed agency officials about the completeness of their inventories. We determined that the data used to select the agencies for review and to support the findings in this report were sufficiently reliable for the purposes of our reporting objectives, with the exception of agencies telecommunications inventories. Specifically, we determined that the inventory information provided by all five of the agencies was not reliable, due to the lack of documented procedures to ensure the completeness and accuracy of the data. This conclusion was considered during our assessment of the agencies efforts to implement the planning practice to develop an accurate inventory of telecommunications assets and services. We discuss limitations of these data in the report. We have also made appropriate attribution indicating the sources of the data. We conducted this performance audit from November 2018 to April 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. Appendix II: Comments from the Department of Commerce Appendix III: Comments from the Department of Health and Human Services Appendix IV: Comments from the Department of State Appendix V: Comments from the Department of Veterans Affairs Appendix VI: Comments from the National Aeronautics and Space Administration Appendix VII: Comments from the Department of the Treasury Appendix VIII: Comments from the Department of Housing and Urban Development Appendix IX: Comments from the Social Security Administration Appendix X: GAO Contact and Staff Acknowledgments <9. GAO Contact> <10. Staff Acknowledgments> In addition to the contact named above, the following staff made key contributions to this report: James R. Sweetman, Jr. (Assistant Director), Emily Kuhn (Analyst-in-Charge), James Brefo, Chris Businsky, Rebecca Eyler, Javier Irizarry, Amber McCants, and Andrew Stavisky.

Why GAO Did This Study GSA is responsible for contracts that provide telecommunications services for federal agencies. In preparation for the expiration of current telecommunications programs, including one called Networx, GSA has developed a successor program, known as EIS. GSA and agencies now must carry out the task of successfully transitioning to EIS contracts. Previous contract transitions experienced significant delays. Those delays during the transition to Networx resulted in hundreds of millions of dollars in missed savings. GAO was asked to review agencies' EIS transition preparations. This report discusses (1) selected agencies' plans for, and status in, transitioning to EIS; and (2) the extent to which selected agencies were implementing established transition planning practices. GAO administered a survey to 19 selected agencies that spent at least $10 million on telecommunications in fiscal year 2018 regarding their plans for and status in transitioning to EIS. GAO also selected five of these agencies for further review—Commerce, HHS, NASA, State, and VA—based on, among other things, agency size and structure. For these agencies, GAO evaluated documentation to determine the extent to which they had implemented five planning practices identified in a previous GAO report. What GAO Found As of October 2019, the 19 selected agencies were in different stages of transitioning from their soon-to-be-expiring telecommunications contracts to the new Enterprise Infrastructure Solutions (EIS) program. All of these agencies reported that they plan to fully transition to EIS before current contracts expire in May 2023. However, 11 agencies did not plan to fully transition by the General Services Administration's (GSA) September 30, 2022, milestone. The majority of the selected agencies also did not meet GSA's milestones for completing critical contracting actions in 2019 (see table). While transitioning to EIS is a complex undertaking, delaying this transition will cause agencies to miss potential cost savings that would result from the generally lower rates for services on EIS. Five selected agencies—the Departments of Commerce (Commerce), Health and Human Services (HHS), State (State), and Veterans Affairs (VA); and the National Aeronautics and Space Administration (NASA)—had partially implemented established planning practices that can help agencies successfully transition their telecommunications services to new contracts. These practices are to: (1) develop an accurate inventory of telecommunications services, (2) perform a strategic analysis of telecommunications requirements, (3) develop a structured transition management approach, (4) identify the resources needed for the transition, and (5) develop a transition plan. The agencies provided several reasons for partially implementing the practices. For example, transition officials at Commerce, NASA, and VA said that they were not responsible for tracking all of the telecommunications services in use at their agencies; as such, they were unable to provide complete telecommunications inventories. The agencies also planned to implement certain practices after they issue their EIS task orders. However, the limited time remaining to complete the transition makes it critical that agencies conduct early planning with the information available and fully implement these transition planning practices to reduce the risk that the agencies experience the types of delays that occurred in previous transitions. What GAO Recommends GAO is making a total of 25 recommendations to Commerce, HHS, NASA, State, and VA, to fully implement the established transition planning practices. These agencies concurred with all of the recommendations.

gao_GAO-20-374T

gao_GAO-20-374T_0

<1. The Coast Guard Has Taken Actions to Help Mitigate Arctic Capability Gaps but Has Not Yet Systematically Assessed Its Progress in This Effort> The Coast Guard is a multimission, maritime military service that is responsible for maritime safety and security, environmental protection, and national security, among other missions. Given the Arctic region s expansive maritime domain, the Coast Guard plays a significant role in Arctic policy implementation and enforcement. Therefore, as we have reported, as more navigable ocean water has emerged in the Arctic and human activity increases, the Coast Guard has faced, and will continue to face, expanding responsibilities in the region. In June 2016, we found that the Coast Guard assessed its capability to perform its missions in the Arctic in fiscal year 2012 and identified various capability gaps, including the following: Communications: including the lack of communications architecture. Harsh weather conditions, high latitude disturbances, and geomagnetic storms combine to make communications in the Arctic difficult. Arctic maritime domain awareness: including limited nautical charting, inadequate navigation systems, and insufficient surveillance. Extremely limited operational assets and support infrastructure in the Arctic, as well as the harsh operating environment, make achieving maritime domain awareness a challenge. Infrastructure: including limited aircraft infrastructure on the North Slope in northern Alaska and limited logistical support. Facilities located below the Arctic Circle, and even those within Alaska, provide limited capability to support Arctic missions due to the long transits to the Arctic region. No deepwater ports currently exist on the North Slope or near the Bering Strait that are capable of refueling and re- provisioning polar capable cutters. This forces the Coast Guard s polar capable cutters to expend significant time transiting long distances to and from replenishment ports. Development of infrastructure to support operations is challenging, in part, due to the high cost of transporting materials to the Arctic and short construction seasons. Training and exercise opportunities: including a limited pool of Arctic-trained and experienced Coast Guard personnel, and limited training, exercise, and educational opportunities to enhance Arctic skills among staff. According to Coast Guard officials, few opportunities exist to train in the Arctic, in part, because of limited Coast Guard icebreaking capacity. Icebreaking: including limited icebreaking capacity given the Coast Guard s existing active inventory of one medium and one heavy polar icebreaker, as discussed later in this testimony. At the time of our June 2016 review, Coast Guard officials stated that the capability gaps were not the sole responsibility of the Coast Guard to mitigate and did not completely impair or eliminate their ability to perform operations. For example, while communications can be a challenge in remote regions, the risk of lost communications can be mitigated by using multiple assets working together to mitigate risk if lost communications is anticipated. Coast Guard officials also stated that given its activity levels at the time, the mobile and seasonal nature of its Arctic presence, and its ability to leverage partners resources, the Coast Guard has had sufficient resources to fulfill its Arctic responsibilities. However, Coast Guard officials stated they would reassess their approach as Arctic activity and resulting mission requirements change over time. As we reported in June 2016, if Arctic activity continues to increase, as anticipated, the Coast Guard may have insufficient resources to meet expanded Arctic requirements. In June 2016, we also found that the Coast Guard worked with its Arctic partners such as other federal agencies to carry out actions to help mitigate Arctic capability gaps. For example, the Coast Guard took steps to enhance Arctic maritime domain awareness by testing communications equipment belonging to DOD during a 2015 annual operation in the Arctic, extending communications capabilities further north than previously possible. However, we found that the Coast Guard did not systematically assess how its actions helped to mitigate these gaps. Such an assessment which includes developing measures for gauging its progress, when feasible is critical to the Coast Guard s understanding of its progress towards addressing these gaps. By systematically assessing and measuring how its actions have helped to mitigate capability gaps, the Coast Guard will be better positioned to effectively plan its Arctic operations, including its allocation of resources and prioritization of activities to target the gaps. As a result, we recommended in June 2016 that the Coast Guard (1) develop measures for assessing how its actions have helped to mitigate Arctic capability gaps and (2) design and implement a process to systematically assess its progress on this. DHS concurred with our recommendations. As of January 2020, the Coast Guard had not yet taken action to implement these two recommendations, in part because the Coast Guard issued its Arctic strategic outlook in April 2019 and is currently updating its corresponding implementation plan for this strategy. The plan is expected to provide the foundation for systematically assessing efforts to address Arctic capability gaps. Coast Guard officials stated that they are also developing a strategic metrics framework for measuring progress in addressing the capability gaps. Coast Guard officials did not identify when they plan to complete the plan and framework, stating that these are longer-term efforts. The Coast Guard highlighted the Arctic capability gaps in its 2013 Arctic Strategy and again in its 2019 Arctic strategic outlook. The 2019 strategy highlighted the need to elevate the Arctic region s prominence as a strategically competitive space due to (1) the resurgence of nation-state competition from the United States two nearest-peer powers, Russia and China, and (2) reduced ice conditions in the Arctic which have led to increased human and economic activity in the region. In addition, the 2019 Arctic strategy highlighted three overarching goals: enhance capability to operate effectively in a dynamic Arctic domain, strengthen the rules-based order, and innovate and adapt to promote resilience and prosperity. Further, the 2019 Arctic strategy noted that the Coast Guard is the sole provider and operator of the U.S. polar icebreaking fleet a critical component in achieving the Coast Guard s overarching goals in the strategy but currently does not have the capability or capacity to ensure access in the Arctic region. The Coast Guard s polar icebreaking fleet comprises two operational polar icebreakers the Polar Star and Healy of which only the Healy is currently active and operating in the Arctic. The Healy is a medium icebreaker that primarily supports Arctic research, and while it is capable of carrying out a wide range of activities, it cannot ensure timely access to some Arctic areas in the winter given that it does not have the icebreaking capabilities of a heavy polar icebreaker. See figure 1 for photographs of the Coast Guard s active icebreakers. In November 2018, the Coast Guard Assistant Commandant for Acquisition testified that the Coast Guard s current polar icebreaking fleet provides minimal capacity to carry out current icebreaking missions and that the nation must take swift action to rebuild and enhance this critical national capability. To this end, DHS approved the Coast Guard s Polar Security Cutter acquisition program s cost, schedule, and performance baselines in February 2018. <2. The Coast Guard Has Taken Steps to Address Technology, Design, Cost, and Schedule Risks for the Polar Security Cutters> In September 2018, we found that the Coast Guard did not have a sound business case when it established the acquisition baselines for the Polar Security Cutter program in March 2018 due to risks in four key areas: technology, design, cost, and schedule. Our prior work has found that successful acquisition programs start with solid, executable business cases before setting program baselines and committing resources. A sound business case requires balance between the concept selected to satisfy operator requirements and the resources design knowledge, technologies, funding, and time needed to transform the concept into a product, which in this case is a ship with polar icebreaking capabilities. Without a sound business case, acquisition programs are at risk of breaching the cost, schedule, and performance baselines set when the program was initiated in other words, experiencing cost growth, schedule delays, and reduced capabilities. To address the key risks we identified and help establish a sound business case for the Polar Security Cutter program, we made six recommendations to DHS, Coast Guard, and the Navy in our September 2018 report. The agencies concurred with all six recommendations and have taken steps to address some of the risks, as noted below. Technology. The Coast Guard planned to use proven technologies for the program, but did not conduct a technology readiness assessment to determine the maturity of key technologies prior to setting baselines. As a result, the Coast Guard did not have full insight into whether these technologies were mature and was potentially underrepresenting the technical risk of the program. We recommended that the program conduct a technology readiness assessment, which DHS completed in June 2019. DHS determined that two of the three key technologies were mature and the remaining technology was approaching maturity. The Coast Guard now has plans in place to use testing results to increase the maturity and reduce risks for the remaining technology the hull form. Design. The Coast Guard set program baselines before conducting a preliminary design review. This review is a systems engineering event intended to verify that the contractor s design meets the requirement of the ship specifications and is producible. By not conducting this review before establishing program baselines, the program is at risk of having an unstable design, thereby increasing the program s cost and schedule risks. We recommended that the program update its baselines prior to authorizing lead ship construction and after completion of the preliminary design review. DHS and the Coast Guard agreed and plan to take these steps by fiscal year 2022. Cost. The cost estimate that informed the program s $9.8 billion cost baseline which includes life cycle costs for the acquisition, operations, and maintenance of three polar icebreakers substantially met our best practices for being comprehensive, well-documented, and accurate. But the estimate only partially met best practices for being credible. The cost estimate did not quantify the range of possible costs over the entire life of the program, such as the period of operations and support. As a result, the cost estimate was not fully reliable and may underestimate the total funding needed for the program. We recommended that the program update its cost estimate to include risk and uncertainty analysis on all phases of the program life cycle, among other things. Subsequently, in December 2019, we found that while the Coast Guard updated the cost estimate in June 2019 to inform the budget process, the estimate did not reflect cost changes resulting from the contract award two months prior. Coast Guard officials acknowledged these cost risks and plan to address them as part of the next update to the program s cost estimate. Coast Guard officials told us that they plan to update the cost estimate by the end of February 2020. Schedule. The Coast Guard s initial planned delivery dates of 2023, 2025, and 2026 for the three ships were not informed by a realistic assessment of shipbuilding activities. Rather, these dates were primarily driven by the potential gap in icebreaking capabilities once the Coast Guard s only operating heavy polar icebreaker the Polar Star reaches the end of its service life. In addition, our analysis of selected lead ships for other Coast Guard and Navy shipbuilding programs found the icebreaker program s estimated construction time of 3 years to be optimistic. An unrealistic schedule puts the Coast Guard at risk of not delivering the icebreakers when promised. As a result, the potential gap in icebreaking capabilities could widen. We recommended that the program develop a realistic schedule, including delivery dates, and determine schedule risks during the construction phase of the program. In response, the Coast Guard is now tracking additional schedule risks for the program and is in the process of updating its program schedule. Further, in December 2019, we found that the contract delivery date for the lead ship, May 2024, is 2 months after the delivery date in the program s schedule baseline. Coast Guard officials said they plan to address this risk when they update the program s schedule by the end of March 2020. In summary, the Arctic region has increased in strategic importance in recent years, and with the increase comes more responsibility for the Coast Guard. The Coast Guard has emphasized that as the Arctic continues to open and strategic competition drives more actors to look to the Arctic for economic and geopolitical advantages, the demand for Coast Guard leadership and presence will continue to grow. As the Coast Guard embarks on the acquisition of its new polar icebreakers, it faces a number of key acquisition risks. The Coast Guard has begun to take steps to address these risks and must remain committed to executing a sound business case for the program to mitigate capability gaps in the Arctic. To this end, we will continue to monitor the Coast Guard s progress in addressing our recommendations. Chairman Correa, Ranking Member Lesko, 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. <3. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this statement, please contact Marie A. Mak, (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 who made key contributions to this testimony include Rick Cederholm, Assistant Director; Claire Li, Analyst-in-Charge; Peter Anderson; Jay Berman; Tracey Cross; Laurier Fish; Miranda Riemer, and Roxanna Sun. 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.

Why GAO Did This Study The Coast Guard—a component of the Department of Homeland Security (DHS)—is a multimission, maritime military service that is responsible for maritime safety and national security, among other missions. Given the Arctic region's expansive maritime domain, the Coast Guard plays a significant role in Arctic policy implementation and enforcement. The Coast Guard is also the sole provider and operator of the U.S. polar icebreaking fleet—a critical component in ensuring year-round access to the Arctic. The Coast Guard is developing the first of three heavy polar icebreakers—the Polar Security Cutter—it has acquired in over 40 years. This statement addresses (1) the Coast Guard's assessment of capability gaps in the region, and (2) key risks facing the Polar Security Cutter acquisition. This statement is primarily based on GAO's June 2016 report examining capability gaps in the Arctic and its September 2018 report examining the Coast Guard's polar icebreaker acquisition. What GAO Found In fiscal year 2012, the Coast Guard—the primary federal maritime agency in the Arctic—assessed its capability to perform its missions in the region and identified a number of capability gaps. These gaps, which still exist today, include communications, infrastructure, maritime domain awareness, and icebreaking. The Coast Guard has worked to mitigate these gaps with its Arctic partners, such as other federal agencies. For example, during a 2015 annual operation in the Arctic, the Coast Guard took steps to enhance maritime domain awareness by testing the Department of Defense's communications equipment, extending communications capabilities further north than previously possible. However, in June 2016, GAO found that the Coast Guard did not systematically assess the extent to which its actions helped to mitigate these gaps. In response to GAO's recommendation, the Coast Guard is currently developing an implementation plan and corresponding metrics for its April 2019 Arctic Strategy. In September 2018, GAO found that the Coast Guard faced four key risks when it established the Polar Security Cutter program in March 2018: technology, design, cost, and schedule. For example, the Coast Guard's initial planned delivery dates of 2023, 2025, and 2026 for the three ships were not informed by a realistic assessment of shipbuilding activities. The schedule was driven, instead, by the potential gap in icebreaking capabilities once the Coast Guard's only operating heavy polar icebreaker—the Polar Star —reaches the end of its service life (see figure). GAO recommended in September 2018 that the program develop a realistic schedule and determine schedule risks for the program. In response, the Coast Guard is now tracking additional schedule risks for the program and is in the process of updating its program schedule. GAO will continue to monitor the Coast Guard's progress in addressing this recommendation and other recommendations GAO made to address key risks, such as design and cost, facing the Polar Security Cutter program. What GAO Recommends In June 2016, GAO recommended, among other things, that Coast Guard develop measures for assessing how its actions have helped to mitigate Arctic capability gaps. In September 2018, GAO recommended that the Polar Security Cutter program develop a program schedule according to best practices. DHS concurred with all of the recommendations, and the Coast Guard is in the process of addressing them.

gao_GAO-20-402

gao_GAO-20-402_0

<1. Background> The internet is a worldwide network of networks comprised of backbone networks, servers, and routers. Network addresses are used to help send information from one internet-connected device, such as a computer, to another by routing the information to its final destination. The protocol that enables the administration of these addresses is the IP. IP addresses provide a numerical description of the location of networked devices such as computers, routers, and smartphones. These numerical descriptions allow devices to be distinguished from each other over the internet. In some ways, an IP address is like a physical street address. For example, in the physical world, if you want to send a letter from one location to another, the contents of the letter must be placed in an envelope that lists both the sender s and the recipient s addresses. Similarly, if data is transmitted across the internet from one device to another, IP addresses must be placed in an IP header with sender and recipient information. In addition to containing the addresses of the sender and the receiver, the header also contains a series of fields that provide information about what is being transmitted. Figure 1 provides a simplified illustration of this concept. The Internet Engineering Task Force, the principal body engaged in the development of internet standards, developed IPv6 in the 1990s to address IPv4 s limited address space, among other things. Although IPv6 has been available for over 20 years, IPv4, the older IP, is still more widely deployed. Nevertheless, IPv6 deployment is rising worldwide amidst the exhaustion of available IPv4 addresses. However, IPv6 is not backwards compatible with IPv4, which means that organizations such as DOD have to change their network infrastructure and systems in order to deploy IPv6. DOD relies on its current IPv4 networks to fulfill its mission to provide the military forces needed to deter war and ensure our nation s security. According to DOD officials leading the transition to IPv6, the department utilizes IPv4 for enterprise-wide and mission partner wired and wireless communications, including infrastructure, technologies, and devices supporting large-scale globally dispersed command and control systems, naval vessels, aircraft, satellites, and ground operations. Figure 2 presents a simplified depiction of the department s use of IPv4. DOD s mission requires considerable IP address space. The department currently has 300,149,760 IPv4 addresses more than any other organization in the world. These approximately 300 million addresses are divided into blocks; each block contains a series of multiple addresses. DOD has 13 particularly large blocks of addresses, each containing 16,777,216 addresses. Also included in the approximately 300 million addresses are 59,767,040 IPv4 addresses that currently are unused. These addresses are reserved for future use by DOD and its components. DOD has stated that it expects to exhaust its reserve of unused IPv4 addresses by 2030. According to the officials leading the IPv6 transition effort, the department expects to have to support IPv4 after it exhausts its IPv4 address space in 2030 due to mission system modernization and replacement timelines, as well as new emerging technologies that may require IPv4 resources while the department transitions to IPv6. <1.1. IPv6 May Improve Functionality and Provide Benefits> According to prior government reports and DOD documentation, IPv6 s improved functionality would benefit the department in many ways. In addition to the general benefits of eliminating IPv4 address space limitations, enhancing mobility features, and integrating IP security, IPv6 has the potential to enhance DOD battlefield operations, improve decision-making with the increased reliance on the Internet of Things (IoT), support U.S. global technological competitiveness, and enhance mission partner interoperability. IPv6 eliminates address space limitations. As previously mentioned, IPv6 dramatically increases the amount of possible address space from 4.3 billion addresses in IPv4 to approximately 340 undecillion (3.4 10In contrast to IPv4, the massive address space available in IPv6 will allow almost any device to be assigned a unique IP address. This change fosters greater end-to-end communication abilities between devices with unique IP addresses and can better support the delivery of data-rich content such as voice and video. Enhanced mobility improves connectivity. IPv6 improves mobility features by allowing each device to have a unique IP address independent of its current network or connection point to the internet. This enables mobile IPv6 users to move from network to network while keeping the same unique IP address. The ability to maintain a constant IP address while switching networks is cited as a key factor for the success of a number of evolving capabilities, such as telephone technologies, laptop computers, and internet connected automobiles. Added IP security helps to protect data. IP security a means of authenticating the sender and encrypting the transmitted data is better integrated into IPv6 than it is in IPv4. This improved integration, which helps make IP security easier to implement, can help support broader data protection efforts. This extra security is accomplished through the use of two header extensions that can be used together or separately to improve the authentication and confidentiality of data being sent via the internet. These headers serve to provide the receiver with a greater assurance of the sender s identity and provide encryption protection for the transmitted data. Enhanced capabilities could improve DOD battlefield operations. According to the 2014 DOD IG report on DOD s IPv6 transition efforts, use of IPv6 could provide DOD with several potential benefits related to battlefield operations, such as improved communication, warfighter mobility, situational awareness, and quality of service. IPv6 auto- configuration capabilities provide secure ad hoc networking and mobility, as well as improved end-to-end security and simplified network management capabilities. This could potentially enable individuals and entire units to disconnect from military base networks, travel into theater, and quickly establish communications. Additionally, IPv6 capabilities could allow warfighters and commanders to improve situational awareness and mission execution during deployment and battle operations, allowing units to securely move from one wireless network to another. Increased use of the IoT may improve decision-making. The increased address space available with IPv6 enables the increased connectivity necessitated by the proliferation of the IoT. DOD s IoT could include any object for which remote communication, data collection, or control might be useful, such as vehicles, appliances, medical devices, electric grids, transportation infrastructure, manufacturing equipment, or building systems. According to DOD s Digital Modernization Strategy from July 2019, IoT could be significant to the department s decision-making processes because the assortment of connected objects that comprise IoT could enable technology to gain the ability to sense, predict, and respond to DOD s needs. The department could use computers to track, count, and analyze data from these objects in order to reduce waste, loss, and cost. DOD managers could also know whether these objects were running well or needed replacing, repairing, or recalling. IPv6 could support U.S. global technological competitiveness. According to a DOD presentation, the transition to IPv6 could allow the department to remain technologically competitive globally. Interest in IPv6 is gaining momentum around the world, particularly in parts of the world that have limited IPv4 address space to meet their industry and consumer communications needs. Regions that have limited IPv4 address space, such as Asia and Europe, have undertaken efforts to develop, test, and implement IPv6. For example, China has been aggressive at deploying IPv6. Japan has set up an IPv6 Promotion Council, using tax incentives to encourage research and adoption of IPv6 by its private sector. Europe has a task force that has the dual mandate of initiating country and regional IPv6 task forces across European states and seeking global cooperation around the world. Transitioning to IPv6 may preserve mission partner interoperability. According to an August 2017 report from DOD s CIO, deploying IPv6 capabilities is essential to preserve interoperability with mission partners in the private sector and in other countries and to assure future access to technology. Since the pools of unassigned IPv4 addresses are exhausted, DOD s mission partners may increasingly rely on IPv6 addresses in the future, furthering the department s need to increase its IPv6 capabilities. <1.2. Transitioning to IPv6 Could Also Present Challenges> Along with the potential benefits, the National Institute of Standards and Technology (NIST) has indicated that transitioning to IPv6 also could present challenges for organizations such as DOD. These challenges include the complexity added by dual IPv4 and IPv6 operations and the immaturity of IPv6 security products and processes. Complexity added by dual IPv4/IPv6 operations. DOD plans to deploy IPv6 while still supporting IPv4 for legacy applications, services, and clients. This will result in a dual protocol environment and increased complexity. With two protocols, DOD would have to ensure the proper functioning of two separate, but interrelated, networks instead of only one network. Further, hackers and other online adversaries could exploit either the department s IPv4 or IPv6 network connections when launching cyberattacks. Immaturity of IPv6 security processes. While IPv6 could offer enhanced security, NIST states that its deployment could also lead to new challenges with respect to the types of threats facing an organization such as DOD. For example, organizations in the process of transitioning to IPv6 may lack robust IPv6 security controls and may have security staff members who lack an overall understanding of IPv6. This could allow attackers to exploit IPv6 assets or leverage IPv6 access to exploit IPv4 assets. While general security concepts are the same for both IPv4 and IPv6 protocols, it may take time and effort for transitioning organizations such as DOD to acquire the level of operational experience and practical deployment solutions that have been developed for IPv4 over the years. <1.3. OMB Issued Guidance for Federal Agencies IPv6 Transition Planning> In August 2005, OMB issued a memorandum to federal CIOs specifying a series of IPv6 transition planning and implementation requirements and associated due dates for federal agencies to enable the use of IPv6. Specific to planning for the transition, the memorandum required agencies to assign an official to lead and coordinate IPv6 transition planning efforts, complete an inventory of IP-compliant devices and technologies, and complete an impact analysis comprised of a cost estimate and a risk analysis by specific due dates during fiscal year 2006. Table 1 lists the transition planning requirements and due dates defined in the OMB memorandum. <2. DOD Has Engaged in IPv6 Transition Efforts since 2003> Aware of the limitations of IPv4, DOD first began planning for the implementation of IPv6 in June 2003. At that time, the department s CIO issued the memorandum, Internet Protocol Version 6 (IPv6). According to this memorandum, the department s initial goal was to complete its transition to IPv6 by fiscal year 2008. Within a month of the issuance of DOD s June 2003 memorandum, the department designated the Defense Research and Engineering Network (DREN) as the first DOD IPv6 pilot network. DREN, being a research and development network, is not connected to DOD s operational networks, such as the department s nonclassified IP router network, which transmits nonclassified operations traffic. According to a DOD report about the DREN pilot, the entire DREN wide-area network was routinely supporting end-to-end IPv6 traffic by July 2005. According to the department, DREN remains DOD s only IPv6-enabled network. Further, DOD s IG reported that the department had undertaken an initial transition effort that temporarily satisfied OMB s August 2005 implementation requirement to demonstrate IPv6 on its infrastructure by the end of June 2008. Specifically, DOD was able to demonstrate IPv6 within the department s Defense Information Systems Network. However, according to the report, the department s IPv6 transition manager said DOD disabled IPv6 functionality due to a lack of trained personnel and potential security risks. We received additional information about why DOD disabled the IPv6 functionality, but we are not including it in the report due to the information being marked as for official use only. DOD began its next effort to plan and implement IPv6 in response to OMB s subsequent 2010 guidance. In this guidance, OMB gave agencies including DOD requirements intended to further their transitions to IPv6. Two of these requirements stated that agencies were to: upgrade their public-facing IT servers and services (e.g., web and email) to IPv6 by the end of September 2012; and upgrade internal client applications that communicate with public internet servers and supporting enterprise networks to IPv6 by the end of September 2014. According to DOD, the department originally planned to meet the 2010 OMB requirements; however, it decided not to complete the upgrades due to security concerns. Again, we received additional information about the department s security concerns; however, we are not including those details in this report because they were marked as for official use only. <3. DOD Had Not Completed Most of the Selected OMB Planning Requirements> OMB s IPv6 transition guidance requires federal agencies, such as DOD, to perform specific tasks as part of their IPv6 planning efforts. These tasks include: (1) assigning an official to lead and coordinate agency planning, (2) completing an inventory of existing IP-compliant devices and technologies, (3) developing a cost estimate (as part of an impact analysis), and (4) developing a risk analysis (as part of an impact analysis). Although these requirements were originally due in 2005 or 2006, they are still applicable; OMB has not replaced or rescinded them. Assigning an official to lead and coordinate agency planning can help agencies better manage their transition to IPv6. Specifically, a senior- level focal point to lead IPv6 transition efforts can provide assurance that the program is based on a coherent strategy and is well coordinated. A lead official may also help an agency avoid duplicative, overlapping, and fragmented efforts, which can result in avoidable additional costs. According to NIST, having an inventory of IP-compliant assets is crucial to IPv6 transition planning because it helps determine transition requirements and give an agency a clear understanding of the IP capabilities of the devices on the network. Specifically, an inventory helps determine which assets will transition to IPv6, the order in which assets will transition, the transition methods selected, and the security controls that would need to be implemented. Further, cost estimates are critical to decision-makers not only because they help establish budgets, but also because they are integral to determining and communicating a realistic view of likely cost and schedule outcomes that could be used to plan the work necessary to develop, produce, install, and support a program. As we have previously reported, without the ability to generate reliable cost estimates, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. In addition, a risk analysis enables an agency to assess the significance of potential threats to the success of its transition to IPv6, as well as assess how those threats could be mitigated or avoided. Further, without a risk analysis to help the agency understand the potential threats and obstacles facing the IPv6 transition initiative, agencies run the risk of creating goals and plans that are too optimistic. According to DOD, the department began its most recent effort to transition to IPv6 in April 2017. As part of this effort, in November 2019, the department released its IPv6 implementation strategy, which articulates DOD s overarching vision for its IPv6 transition initiative: to provide secure and reliable IPv6 services that enable innovation for competitive advantage. According to the strategy, DOD s goals for the effort include implementing an interim solution of using both IPv4 and IPv6 and then planning for an eventual IPv6-only environment. As of March 2020, DOD had not yet completed three of the four selected transition planning requirements. Specifically, the department had completed the requirement of appointing an agency lead for its IPv6 transition efforts. However, it had not yet completed the three other requirements: complete an inventory, develop a cost estimate, and develop a risk analysis. Table 2 summarizes the status of DOD s completion of the four selected OMB IPv6 transition planning requirements. DOD completed OMB s requirement to have an official lead the IPv6 planning efforts by first assigning its Joint Information Environment Executive Committee responsibility for overseeing the department s transition to IPv6 in August 2017. The committee, in turn, established the DOD IPv6 Working Group in November 2017 to coordinate and manage department-wide IPv6 planning, implementation, and testing. An official in the Office of the CIO serves as the chair of the working group, and, according to the group s charter, is responsible for leading meetings, soliciting and prioritizing issue topics for review, and overseeing the coordination of working group activities supporting the department-wide transition to IPv6. However, DOD did not complete the requirement to develop an inventory of existing IP-compliant devices and technologies. In November 2005, DOD provided a memorandum to OMB that indicated that the department would not complete the inventory of IP-compliant devices and technologies; instead, DOD would continue following its existing transition plan, which did not require an inventory. Further, the DOD officials leading the IPv6 transition effort informed us that the department had not developed such an inventory and that it still does not plan to do so. The officials said that conducting a task of this size would be impractical given DOD s size and the number of IP-compliant devices in the department. The officials leading the IPv6 transition also said that DOD has been mitigating the risk of not having an inventory by ensuring that the department has only been acquiring IPv6-capable IT devices since December 2009. However, while only acquiring IPv6-capable devices and applications could help the transition move forward, it would not be as complete as an inventory, given that an inventory would include technology purchased before December 2009. DOD also did not complete a cost estimate or a risk analysis. According to the DOD officials leading the IPv6 transition effort, the initiative was not a top priority until the CIO released the Internet Protocol Version 6 Implementation Direction and Guidance memorandum in February 2019. This memorandum, which was developed to guide the department s IPv6 transition planning and implementation efforts, gave the transition initiative greater attention in the department. Prior to the issuance of the memorandum, the officials stated that they did not have sufficient resources to conduct the cost estimate and did not have enough understanding to complete the risk analysis. DOD officials leading the IPv6 transition effort explained that the department plans to develop these requirements by the end of May 2020; however, we have not received any documentation confirming this deadline. Until DOD develops an inventory of IP-compliant technologies and devices, a cost estimate, and a risk analysis, the department s IPv6 transition initiative may have an increased likelihood of cost overruns, schedule delays, and security vulnerabilities. Specifically, not having an inventory of IP-compliant devices and technologies may lead to the department developing plans without being aware of all the system and infrastructure requirements necessary to successfully transition a large organization such as DOD to IPv6. Further, without a cost estimate, DOD may be making decisions without the benefit of relevant information on the initiative s potential cost and schedule outcomes, thereby introducing unnecessary risk into the implementation process. Finally, by moving forward without a risk analysis, DOD increases the probability that it is not proactively managing potential threats that could disrupt the transition or introduce new IT security vulnerabilities. <4. DOD Had Not Completed Most of Its Own Required Transition Activities> DOD s February 2019 memorandum lists 35 required activities for transitioning to IPv6 that DOD s various components or offices, such as the Office of the CIO, are to complete or work on during fiscal years 2019 through 2021. Of these 35 activities, 18 were to be completed prior to March 2020. However, DOD had not completed most of the required activities. Specifically, of the 18 activities that were to be completed by March 2020, the department had completed six and had not completed 12. In addition, the department had completed one of eight other activities that did not have specific due dates. Table 3 outlines the department s seven IPv6 transition activities that had been completed as of March 2020. (See appendix I for a full list of DOD s transition activities and their completion status.) One notable required activity that DOD completed was to develop a CIO- approved strategy to implement its transition to IPv6. DOD s strategy outlines, among other things, the overall goals for the IPv6 transition initiative. These goals include implementing a network that is both IPv4 and IPv6 capable; planning for an IPv6-only environment; and establishing and optimizing training for IPv6. In addition, DOD s Defense Information Systems Agency leveraged online training providers to offer on demand IPv6 training courses for network engineers and cybersecurity personnel. In addition to basic familiarization training for those new to IPv6, select training courses are labeled as being at the advanced level. However, the department had not completed 12 of 18 activities that were due prior to March 2020. Notably, DOD missed its original September 2019 deadline to enable IPv6 on all commercially hosted public facing unrestricted services. According to the department officials leading the IPv6 transition, DOD expects to be able to complete this task by the end of July 2021. The department also missed its original June 2019 deadline for identifying the public facing unrestricted services hosted by DOD. The officials leading the IPv6 transition initiative stated that DOD currently plans to complete this activity by May 2020. Other activities that were past due in March 2020 include: developing supplemental guidance for the acquisition of IPv6-capable products, updating and maintaining IPv6 standards and implementation profiles, and determining DOD s cybersecurity architecture and posture impacts, among others. DOD officials leading the IPv6 transition effort stated that the department had not yet completed its required activities because the original time frames that the department had established were unrealistic. Although the activities were initially thought to have been reasonable, DOD adjusted the activities due dates after the department began executing the tasks and realized that it would take a large amount of work to accomplish their goals and complete the activities. One contributing factor for the unrealistic due dates is that DOD developed this list of required activities without the benefit of an inventory of IP-compliant devices and technologies, a cost estimate, or a risk analysis. Without completing these basic planning requirements, DOD significantly reduced the probability that it could have developed a realistic transition schedule. Addressing requirements would supply DOD with sources of meaningful information that would enable the department to develop realistic, detailed, and informed transition plans and time frames. <5. Conclusions> While DOD s current IPv6 transition effort is showing progress, the department has not completed most of OMB s planning requirements. Notable signs of progress include the appointment of an official to lead the initiative and the development of an overarching strategy document that outlines the transition s scope and goals. Nevertheless, DOD had not completed an inventory of IP-compliant technologies, a cost estimate, or a risk analysis before moving ahead with developing its February 2019 guidance and working against the guidance s list of transition activities. The lack of an inventory is problematic due to the role that it should play in developing transition requirements. In addition, without a cost estimate to guide decision-makers, DOD s current IPv6 transition plans could be based on unrealistic assumptions about costs and resource demands. Further, by moving forward without a risk analysis, DOD increases the probability that it is not proactively managing potential threats that could either disrupt the transition or introduce new IT security vulnerabilities. Completing these longstanding planning requirements would enable DOD to develop realistic plans with accurate transition requirements and proactive risk mitigation strategies, among other things. <6. Recommendations for Executive Action> We are making three recommendations to DOD. The Secretary of Defense should direct the DOD CIO to complete a department-wide inventory of existing IP-compliant devices and technologies to help with planning efforts and requirements development for the transition to IPv6. (Recommendation 1) The Secretary of Defense should direct the DOD CIO to develop a cost estimate as described in OMB memorandum M-05-22 for the department s transition to IPv6. (Recommendation 2) The Secretary of Defense should direct the DOD CIO to develop a risk analysis as described in OMB memorandum M-05-22 for the department s transition to IPv6. (Recommendation 3) <7. Agency Comments and Our Evaluation> We provided a draft of this report to DOD and OMB for review and comment. In response, DOD agreed with two recommendations and disagreed with one recommendation that we made to the department. OMB did not state whether it agreed or disagreed with the report s findings. In written comments, DOD stated that it agreed with our recommendations to develop a cost estimate and risk analysis for the department s transition to IPv6 (Recommendations 2 and 3). The department said that it plans to complete both the cost estimate and the risk analysis by the end of May 2020. However, DOD stated that it did not agree with our recommendation to complete a department-wide inventory of existing IP-compliant devices and technologies (Recommendation 1). Specifically, the department referred to the draft IPv6 guidance that OMB developed in March 2020, stating that the draft guidance will rescind OMB s fiscal year 2005 IPv6 guidance, which includes the inventory requirement. DOD also said that creating such an inventory would be impractical given the department s size. It added that it has been mitigating the risk of not having an inventory by only acquiring IPv6-capable devices since December 2009. We acknowledge that OMB s March 2020 draft IPv6 guidance, once finalized, would rescind its fiscal year 2005 IPv6 guidance. However, the draft guidance focuses on completing the operational deployments of IPv6, not on the initial key transition step of completing an inventory, as required in the 2005 guidance. The draft guidance also requests information on agencies completion of certain milestones using the percentage of IP-enabled devices that are IPv6-only as the metric. DOD s completed inventory would be essential to accurately responding to OMB s draft requirement. In addition, NIST s current IPv6 transition guidance cites an inventory of IP devices as a key step in transitioning to IPv6 since such information would help identify requirements for transitioning, including which assets would transition and what security controls would be needed. As DOD has acknowledged, however, it has not yet completed an inventory. Accordingly, we believe that our recommendation that DOD complete a department-wide inventory of its existing IP-compliant devices and technologies is warranted. In addition, DOD provided a technical comment, which we incorporated as appropriate. DOD s comments are reprinted in appendix II. In comments provided via email on May 8, 2020, an Associate General Counsel in OMB s Office of General Counsel expressed OMB s appreciation for the opportunity to review and comment on our draft report. The official did not state whether OMB agreed or disagreed with the report s findings. OMB also provided a technical comment, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of DOD, and the Acting Director of OMB. In addition, the report is available at no change on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6240 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. Appendix I: DOD s IPv6 Implementation and Planning Activities In February 2019, the Department of Defense s (DOD) Chief Information Officer (CIO) released Internet Protocol Version 6 Implementation Direction and Guidance, a memorandum containing guidance and a list of required implementation and planning activities for the department s transition to Internet Protocol version 6 (IPv6). For each activity, the memorandum included information such as the component or office responsible for completing the work and a description of the work to be completed. Out of 35 total activities, seven were completed and 12 were past due as of March 2020. One key contributing factor behind the activities unrealistic deadlines was that the department developed this list of required activities without having completed key planning efforts, such as an inventory of IP-compliant devices and technologies, a cost estimate, or a risk analysis. Table 4 shows the status of the completion of the required transition activities as called for in the department s guidance. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Larry Crosland (Assistant Director), Meredith Raymond (Analyst in Charge), Amy Apostol, Chris Businsky, West Coile, Kristi Dorsey, Vernetta Marquis, and Evan Rapson made key contributions to this report.

Why GAO Did This Study An internet protocol provides the addressing mechanism that defines how and where information moves across interconnected networks. Increased use of the internet has exhausted available IPv4 address space, spurring the adoption of its successor protocol, IPv6. OMB has required that agencies plan for transitioning from IPv4 to IPv6. Senate and House reports accompanying the 2020 National Defense Authorization Act included provisions for GAO to review DOD's IPv6 transition planning efforts. This report (1) identifies past DOD attempts to transition to IPv6, (2) examines the extent to which DOD has completed OMB's planning requirements for its current transition effort, and (3) identifies DOD's progress in completing its own IPv6 transition activities. To do so, GAO assessed DOD's IPv6 transition plans and documentation against OMB's requirements, reviewed DOD's planned IPv6 transition activities, and interviewed agency officials. What GAO Found The Department of Defense's (DOD) current initiative to transition to Internet Protocol version 6 (IPv6), which began in April 2017, follows at least two prior attempts to implement IPv6 that were halted by DOD. In one effort that began in approximately 2003, DOD initially did make progress implementing IPv6 on its systems, but then the department ended the effort due to security risks and a lack of personnel trained in IPv6. DOD initiated another attempt in response to 2010 OMB guidance. However, this initiative was terminated shortly thereafter, again due to security concerns. For its current initiative, DOD has not completed three of four longstanding OMB requirements (see table). Without an inventory, a cost estimate, or a risk analysis, DOD's plans have a high degree of uncertainty about the magnitude of work involved, the level of resources required, and the extent and nature of threats, including cybersecurity risks. In February 2019, DOD released its own IPv6 planning and implementation guidance that listed 35 required transition activities, 18 of which were due to be completed before March 2020. DOD completed six of the 18 activities as of March 2020. DOD officials acknowledged that the department's transition time frames were optimistic; they added that they had thought that the activities' deadlines were reasonable until they started performing the work. Without an inventory, a cost estimate, or a risk analysis, DOD significantly reduced the probability that it could have developed a realistic transition schedule. Addressing these basic planning requirements would supply DOD with needed information that would enable the department to develop realistic, detailed, and informed transition plans and time frames. What GAO Recommends GAO is making three recommendations to DOD to develop an inventory of IP compliant devices, an estimate of the IPv6 transition costs, and an analysis of IPv6 transition risk. DOD agreed with the recommendations to develop a cost estimate and risk analysis, but disagreed with the recommendation to develop an inventory of IP-compliant devices. Nevertheless, GAO believes the recommendation to develop an inventory is warranted.

gao_GAO-20-282

gao_GAO-20-282_0

<1. Background> The Bureau is charged with counting every person in the decennial census once, only once, and in the right place. To ensure fairness and consistency in where people are counted, for the first decennial in 1790, Congress established the concept of counting people where they usually reside. The Bureau has relied on that concept ever since. Building on the concept of usual residence, the Bureau subsequently established criteria, which it refers to as residence criteria, to determine where people should be counted during each decennial (see text box). Residence criteria 1. Count people at their usual residence, which is the place where they live and sleep most of the time. 2. People in certain types of group facilities on Census Day are counted at the group facility. 3. People who do not have a usual residence, or who cannot determine a usual residence, are counted where they are on Census Day. For most people, applying the concept of usual residence and the Bureau s associated residence criteria is straightforward. For others who may be more mobile, like members of the military, college students, migrant farm workers, and people living in group quarters, determining where to count them can be more complicated. Therefore, for each decennial the Bureau issues guidance describing how the criteria should be applied to certain complex living situations for which people commonly request clarification. The guidance is intended to inform the public about how to respond and to assist enumerators and other Bureau staff in administering a proper count. In addition to counting the nation s population accurately, the Bureau must complete the count and tabulate it against a backdrop of immutable deadlines. The Bureau is required by law to count the population as of April 1, 2020 (Census Day); deliver state apportionment counts to the President by December 31, 2020; and provide redistricting data to the states by April 1, 2021. To meet these deadlines and ensure an accurate count, the Bureau carries out thousands of interrelated activities before, during, and after data collection (see figure 1 for a timeline of selected key activities). <2. The Bureau Has Refined its Residence Guidance to Help Ensure More People Are Counted in the Right Place> <2.1. The Bureau Has Updated Its Guidance on Where to Count People in Six Complex Living Situations> The Bureau plans to use its concept of usual residence and its associated residence criteria to determine where to count people in the 2020 Census generally as it did in 2010, but in 2018 the Bureau updated its guidance on how to apply that concept to count people in six complex living situations (see figure 2 for an overview of these changes). In developing the guidance for 2020, the Bureau sought input from external stakeholders on needed changes and solicited public comments on the draft guidance through the Federal Register. In response, the Bureau received input and comments from a variety of entities including federal, state, local, and tribal governments, as well as civil rights and other advocacy organizations. Military and civilian employees of the United States deployed overseas. In 2010, overseas military and civilian employees of the United States who were U.S. citizens were counted at their home state of record for apportionment purposes only. For 2020, the Bureau decided to count these personnel differently depending on whether their permanent duty station was in the United States. Personnel assigned or stationed overseas will continue to be counted as they were in 2010. Personnel stationed in the United States while deployed overseas, however, will instead be counted at their usual home address in the United States for both apportionment and redistricting purposes. According to Bureau documentation, this change resulted from Bureau analysis of data from the Department of Defense which found that personnel deployed overseas were there for shorter periods and were likely to return to their prior usual place of residence, whereas personnel assigned or stationed overseas generally remained overseas for greater periods and often did not return to their prior stateside location. Military and civilian employees of the United States deployed, stationed, or assigned overseas who are legal U.S. residents but not citizens. For 2020, the Bureau plans to count this population the same way it counts U.S. citizens working for the federal government overseas, as described above. According to a Bureau assessment of how it counted personnel overseas in 2010, its guidance for federal agencies that provide the Bureau with data on overseas personnel was unclear on the treatment of non-citizens. According to Bureau officials, it is therefore likely that other federal agencies following that guidance generally excluded non-citizens from the 2010 count. Based on the Bureau s assessment, the Bureau plans to make clear in its 2020 guidance that U.S.-resident non-citizens working for the federal government overseas are to be counted the same way as U.S. citizens. Bureau officials stated that this change should ensure that U.S.-resident non-citizens are counted more consistently with other U.S. residents. Crews of U.S. maritime and merchant vessels sailing between a U.S. and a foreign port. In 2010, if a U.S. maritime or merchant vessel was sailing between a U.S. and a foreign port on Census Day, then the crewmembers were not counted. For 2020, the Bureau plans to count these crewmembers at their onshore usual residence in the United States or, if they have none, then at the vessel s U.S. port of departure or arrival. This matches how the Bureau counts crewmembers if their vessel is at a U.S. port or sailing between two U.S. ports. According to Bureau documentation, this change resulted from Bureau analysis and consultation with stakeholders (including the Maritime Administration) which found that crewmembers in each of these situations usually retain an onshore residence in the United States where they live and sleep most of the time so they should be counted in the same way. Juveniles in non-correctional residential treatment centers. For 2020, the Bureau plans to count this population at the U.S. residence where they live and sleep most of the time or, if they have no usual home address, then at the facility. In 2010, they were counted at the facility. The Bureau made this change after concluding that these juveniles typically only stay at residential treatment center facilities temporarily and generally have a usual home elsewhere to which they return after treatment is completed. Religious group quarters residents. For the 2020 Census, the Bureau will count this population at the religious group quarters facility. In 2010, this population was counted at their usual home address or, if they had no usual home address, then at the facility. The Bureau made this change after concluding that this population typically does not have a place of usual residence elsewhere. According to Bureau officials, the Bureau expects the updated guidance will provide greater clarity and result in more informed responses and, thus, higher quality data. Among other things, Bureau officials stated that the data will more accurately reflect the composition of local communities. <2.2. The Bureau Will Continue to Count People in Other Living Situations as It Did in 2010> For the 2020 Census, the Bureau did not change its guidance regarding where to count people in other complex living situations. For example, the Bureau did not make changes to where it will count college students, who will continue to be counted at their parents or guardians home if they live and sleep there most of the time or, if they live away from their parents or guardians home, then at their on- or off-campus residence. See table 1 for an overview of where the Bureau will count people in complex living situations the same as it did in 2010. In addition, the Bureau s guidance includes examples of situations in which people should not be counted in the census, such as the following: people living outside the United States on Census Day who are not military or civilian employees of the U.S. government and are not dependents living with military or civilian employees of the U.S. government; babies born after Census Day or people who die before Census Day; college students living at and attending college outside the United States; and citizens of foreign countries visiting the United States, such as on vacation or a business trip. To help census respondents understand who and where to count household members and others, the Bureau is translating key terms from its census form for 2020 into 59 languages and making it available to community partners and others who may be in a position to help linguistically isolated groups provide accurate responses. It is translating scripted responses to questions about complex living situations into 12 foreign languages to be used by staff who will help answer questions about and take responses over the telephone. <2.3. The Bureau Will Continue to Count Prisoners at the Correctional Facility but Plans to Offer States Supplemental Tools for Redistricting with Prisoners Pre- Incarceration Addresses> The Bureau reports that stakeholder feedback on where to count prisoners largely urged the Bureau to count them at their pre- incarceration addresses to avoid shifting political power to the prison locations at the expense of the prisoners home communities. However, the Bureau concluded that counting prisoners anywhere other than the correctional facility would be less consistent with the concept of usual residence, since the majority of people in prisons live and sleep there most of the time. Therefore, for 2020, the Bureau decided that it will continue to count prisoners at the correctional facility as it did in 2010. However, the Bureau will make available to states two tools to allow them to move their prisoner population to the prisoners pre-incarceration addresses for redistricting purposes. The tools are intended to support such movement within but not across state boundaries. The Bureau is providing states with an online tool that will identify the census geographical block that the population would be tabulated in for any state-provided addresses. If a state wants to move the tabulation of specific prisoners within its boundaries, this information will let state officials know which block tabulations to adjust. On November 4, 2019, the Bureau launched the web page that will support states in using this tool. The Bureau plans to update it with 2020 Census geographic data in February 2021, before the Bureau is required to provide redistricting data to the states. The Bureau also plans to provide states with data on group quarters, which will contain a separate count of their prisoner populations, as part of each state s redistricting file. By including group quarters data in the redistricting file, the Bureau plans to provide these group quarters data to users 1 to 2 months earlier than it did in 2010 when it provided group quarters data separately from the redistricting file. According to the Bureau, this earlier release will benefit many users, including state officials who must consider whether to include or exclude certain populations when redrawing boundaries as a result of state legislation. <3. The Bureau Is Planning Additional Changes to Improve Count Accuracy, Completeness, and Consistency Following Data Collection> Once the Bureau has completed its decennial data collection efforts, it generally finds that a small proportion of responses have data quality issues that were not resolved during preceding operations. In these cases, (1) some addresses have multiple responses, (2) some households are missing responses altogether, or (3) some responses include answers that are incomplete or conflict with one another. The Bureau has a variety of plans to resolve these issues (see figure 3). <3.1. Determining Whom to Count at Addresses with Multiple Responses> The Bureau may receive multiple census responses from a household for various reasons. For example, different members of the same household could each respond by mail or over the internet, or one member could mail a response and another answer a census worker s questions in person during the Bureau s non-response follow-up operation. The Bureau assessed its response processing in 2010, and identified about 14 million responses for households that already had another response (roughly 10 percent of the total number of households included in the final 2010 count). The widespread option to respond over the internet is new for 2020, and while having included it in multiple census tests, Bureau officials have not set expectations on the extent to which it may increase the number of addresses at which it gets multiple responses. To guard against overcounting, as it has in prior decennials, for 2020 the Bureau plans to use an automated routine referred to as the Primary Selection Algorithm to determine whom to count at addresses for which it has received multiple responses once data collection is complete. According to Bureau officials, in making this determination, the algorithm takes into account a wide range of information, including results from its fraud detection efforts. We did not examine the algorithm for this review. In addition, to help ensure the integrity of these determinations, the Bureau does not disclose the details of the algorithm publicly and permits only Bureau officials with an operational need to know to access the algorithm. According to Bureau documentation, the Bureau has updated the algorithm for 2020 based on its review of various response scenarios and data from past censuses and census tests. <3.2. Filling in Missing Household Responses> When the Bureau, after its data collection efforts are completed, has been unable to reach anyone able and willing to respond at a particular address or to obtain information about the address and its potential occupants in other ways such as through neighbors or a building manager it may be left not knowing whether a housing unit even exists at the address or whether it is occupied, and, if so, by how many people. As it did in 2010, for 2020 the Bureau plans to use a statistical technique it refers to as count imputation to fill in missing data about the existence and number of people living at an address in question. Count imputation has three types. Residence status. This is used when the Bureau does not know whether an address is a real and livable residence. In contrast, it could be a business or in such disrepair that no one could live there. Occupancy status. This is used when the Bureau knows that an address is a real housing unit, but not whether it is vacant or occupied. Household size. This is used when the Bureau knows an address is a real, occupied home, but not how many people live there. To carry out each of these types of count imputation, the Bureau uses a technique referred to as hot-deck imputation which employs continually updated census data from similar nearby households as the basis for filling in the missing statuses and household size. The Bureau has been using some form of hot-deck imputation since at least the 1960 Census. According to Bureau reporting, in 2010, about 500,000 of 137 million addresses counted in the decennial (0.4 percent) were missing an entire response and the Bureau therefore used count imputation to determine a combination of their residence and occupancy status and household size. The Bureau s count imputation in 2010 added about 1.2 million people to the final census count. For 2020, however, some of the missing responses which otherwise would have required count imputation will instead be resolved through the use of administrative records in conjunction with the Bureau s door-to-door non-response follow-up effort. Specifically, the Bureau plans to draw on relevant data from records of sufficient quality thereby reducing the amount of follow-up field work needed and the number of households in need of count imputation. According to Bureau officials, they plan to finalize a decision memorandum in December 2019 specifying the Bureau s thresholds for determining whether administrative records are of sufficient quality for such uses. According to Bureau officials, tests and evaluations performed during the preceding decade demonstrate that these uses of administrative records will provide more accurate results than traditional methods of seeking information about the address from neighbors and others or from count imputation alone. Bureau testing and evaluation also identified improvements to its count imputation technique for 2020, including enhanced use of administrative records in its hot-deck imputation, which it expects will generate results better aligned with actual data for those addresses where it had been missing. <3.3. Resolving Incomplete and Conflicting Answers within a Household Response> Once the Bureau has determined the total number of households and people as of Census Day for apportionment purposes, it resolves incomplete and conflicting information within individual household responses for redistricting and final tabulation purposes. Specifically, for 2020, the Bureau plans to ensure that each household response includes complete and consistent information regarding, for occupied housing units, the age, date of birth, sex, race, and ethnicity (Hispanic or non- Hispanic origin) of each household resident; their relationship to the householder; whether the housing unit is rented or owned by a member of the household; for group quarters, the type of such quarters, such as federal detention center or in-patient hospice facility; and, if the unit is vacant, why (see figure 4). These characteristics (which the Bureau refers to as person and housing characteristics) may be incomplete or conflicting for various reasons, including intentional or accidental omissions or errors by the person filling out the form. According to Bureau data, in 2010, responses for 13 percent of the people counted in the decennial (about 40 million of the about 300 million counted) contained incomplete or conflicting person characteristics that the Bureau had to resolve. For 2020, as it did for 2010, the Bureau plans to use a technique it refers to as edit and characteristic imputation to fill in incomplete and reconcile conflicting information in individual household responses. As summarized in table 2 and described below, it does so using one of three methods, depending on which characteristics are incomplete or conflicting and on what other information the Bureau has about those characteristics. The Bureau has been using some form of characteristic imputation since at least the 1940 Census. Use existing information about same person or household. This method is used when some, but not all, person and household characteristics are incomplete or conflicting and those characteristics can be filled in or reconciled using other information about the same person or household reported within the 2020 response or in prior census or other administrative records. For example, if a person s date of birth is reported but not his or her age, the Bureau will fill in the age based on the date of birth. If neither age nor date of birth is reported, the Bureau will look to the 2010 Census to fill in both characteristics, adjusting for the intervening years. Use existing information about other people or households. As with the prior method, this method is used when some, but not all, person and household characteristics are incomplete or conflicting. However, unlike the prior method, the incomplete or conflicting characteristics cannot be filled in or reconciled using other information about the same person or household reported within the 2020 response or in prior census or other administrative records. Therefore, the Bureau will look instead to information about other people included in the same 2020 response or to nearby people or households from other 2020 responses. For example, if race is reported for a parent but not a child, the Bureau will fill in the child s race using the race provided for the parent. If there is no information within the household response that can be used to fill in the child s race, the Bureau will use a hot-deck imputation method. As discussed earlier, this method employs continually updated census data from similar nearby households as the basis for filling in the needed information. Use existing information about same or other households. This method is used when all person characteristics are incomplete. In this instance, the Bureau will first look to prior census and other administrative records. If the household size reflected in those records matches the household size reflected in the 2020 response, the Bureau will use those records to fill in all person characteristics available in previous census and administrative records. Remaining characteristics not filled in by previous census and other administrative records will be filled in using the methods discussed above. If the household size totals do not match, the Bureau will use a hot-deck imputation method, drawing the missing information from continually updated census data from similar nearby households. As with other areas of the 2020 Census, the key change in the Bureau s plan for resolving incomplete and conflicting information is the enhanced use of prior census and other administrative records. Specifically, in 2010 the Bureau relied on such records to fill in only race and ethnicity. In contrast, as discussed above, for 2020 the Bureau plans to use prior census and other administrative records as an integral part of its edit and characteristic imputation methods. The Bureau believes this will result in improved data quality and more accurate results. <4. Agency Comments> We provided a copy of this draft report to the Department of Commerce. The Census Bureau provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Commerce, the Director of the U.S. Census Bureau, and the appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report please contact me at (202) 512-2757 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 I. Appendix I: GAO Contact and Staff Acknowledgments <5. GAO Contact> <6. Staff Acknowledgments> In addition to the contact named above, Ty Mitchell (Assistant Director), Karen Cassidy and Emmy Rhine Paule (Analysts-in-Charge), Mark Abraham, Joy Booth, Ann Czapiewski, Brenda S. Farrell, Robert Gebhart, Gretta Goodwin, Amalia Konstas, Lisa Pearson, Cynthia Saunders, Andrea Starosciak, Jon Ticehurst, and Peter Verchinski made significant contributions to this report. <7. GAO s Mission> 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. <8. Obtaining Copies of GAO Reports and Testimony Order by Phone> The fastest and easiest way to obtain copies of GAO documents at no cost is through our website. Each weekday afternoon, GAO posts on its website newly released reports, testimony, and correspondence. You can also subscribe to GAO s email updates to receive notification of newly posted products. The price of each GAO publication reflects GAO s actual cost of production and distribution and depends on the number of pages in the publication and whether the publication is printed in color or black and white. Pricing and ordering information is posted on GAO s website, https://www.gao.gov/ordering.htm. Place orders by calling (202) 512-6000, toll free (866) 801-7077, or TDD (202) 512-2537. Orders may be paid for using American Express, Discover Card, MasterCard, Visa, check, or money order. Call for additional information. <9. Connect with GAO> Connect with GAO on Facebook, Flickr, Twitter, and YouTube. Subscribe to our RSS Feeds or Email Updates. Listen to our Podcasts. Visit GAO on the web at https://www.gao.gov. <10. To Report Fraud, Waste, and Abuse in Federal Programs> <11. Congressional Relations> <12. Public Affairs> <13. Strategic Planning and External Liaison> James-Christian Blockwood, Managing Director, [email protected], (202) 512-4707 U.S. Government Accountability Office, 441 G Street NW, Room 7814, Washington, DC 20548 Please Print on Recycled Paper.

Why GAO Did This Study The decennial census produces data vital to the nation. The data are used for congressional apportionment and redistricting; to allocate billions each year in federal funds; and to provide a social, demographic, and economic profile of the nation to guide policy decisions at all levels of government. Given census data's importance, it is incumbent upon the Bureau to ensure their quality. If people are counted in the wrong place, some states and localities may unduly lose or gain political power through apportionment and redistricting disproportionate to their actual population. Poor outcomes can also result if some households are over counted due to multiple responses, not counted due to missing responses, or miscounted due to incomplete or conflicting responses. GAO was asked to describe the Bureau's plans for the 2020 Census to resolve multiple, missing, incomplete, and conflicting responses. This report describes how, for 2020, the Bureau plans to (1) determine where to count people, including those in complex living situations, and how this differs from 2010; and (2) resolve multiple, missing, incomplete, and conflicting responses after data collection, and how this differs from 2010. GAO reviewed relevant Bureau documents and interviewed officials responsible for the 2020 Census. GAO provided a draft of this report to the Bureau. The Bureau provided technical comments, which were incorporated as appropriate. What GAO Found To determine where people should be counted during each decennial census, the Census Bureau (Bureau) has established residence criteria (see figure). For most people, applying these criteria is straightforward. For others who may be more mobile, like members of the military, college students, migrant farm workers, and people living in group quarters such as federal detention centers or in-patient hospice facilities, it can be more complicated. Therefore, for each decennial the Bureau issues guidance describing how the criteria should be applied to certain complex living situations. For the 2020 Census, the Bureau has updated its guidance on where to count people in six complex living situations, such as U.S. employees deployed overseas. The Bureau plans to count people in other living situations in the same manner as it did in 2010. As in 2010, the Bureau will count prisoners at the correctional facility where they are housed, but also plans to make other resources available to states that want to use prisoners' in-state, pre-incarceration addresses for redistricting purposes instead of their prison addresses. To resolve multiple responses for a single address, for 2020 the Bureau plans to use a longstanding automated routine—its Primary Selection Algorithm—to determine who to count at the address. For 2020, Bureau documents indicate it updated the algorithm after reviewing various response scenarios and data from past censuses and tests. To resolve missing household responses following data collection, as it did in 2010, the Bureau plans to use for 2020 a technique it refers to as count imputation, which draws data from similar nearby households to determine whether a housing unit exists, whether it is occupied, and, if so, by how many people. However, for 2020, the Bureau will also try to reduce the number of households which otherwise would have required count imputation and help reduce follow-up field work by drawing on relevant data from administrative records of sufficient quality in conjunction with its non-response follow-up field work. To resolve incomplete and conflicting information within a household response, the Bureau plans to use a technique it refers to as edit and characteristic imputation. This technique involves drawing data from the same household response, prior census and other administrative records or similar nearby households, which the Bureau believes will improve data quality and produce more accurate results.

gao_GAO-19-541

gao_GAO-19-541_0

<1. Background> Traditionally, federal surface-transportation funding has been primarily delivered through formula grant programs based on distributions prescribed by statute. Discretionary grant programs, such as INFRA, represent an alternative approach for directing federal funding toward national priorities. Through a discretionary grant program, Congress or federal agencies establish desired goals or outcomes such as improving the condition of critical infrastructure, enhancing economic competitiveness, or reducing fatalities. Generally, federal agencies review grant applications against published selection criteria and statutory and regulatory requirements before selecting projects to receive awards. This approach can help assure accountability for federal investment by more clearly linking program funds to desired outcomes and can support projects of national or regional significance that cross state lines. In prior work, we have recommended that a merit-based competitive approach like INFRA be used to direct a portion of federal funds to transportation projects of national and regional significance. The FAST Act authorized over a dozen discretionary transportation-grant programs, and Congress may consider additional programs as it considers reauthorizing DOT s surface transportation programs in 2020. State, local, and tribal governments, as well as multistate or multijurisdictional groups, are among the entities eligible to receive INFRA funding. Freight or highway projects must meet the statutory requirements outlined in the FAST Act to receive INFRA funding. Notable statutory requirements regarding the distribution of awards include: Ten percent of available funds are reserved for small projects each fiscal year. At least 25 percent of available funds are reserved for rural areas each fiscal year unless DOT does not receive enough qualified rural project applicants. No more than $500 million, in aggregate, over fiscal years 2016 through 2020 may be used to fund freight rail, water (including ports), or other freight intermodal projects. The Secretary must consider geographic diversity during the selection process. Large projects have to meet seven additional statutory requirements to be eligible for selection by the Secretary. Specifically, the Secretary must determine that the project: will generate national or regional economic, mobility, or safety will be cost-effective; will contribute to one or more of the national goals for the transportation system: improved safety, infrastructure maintenance, congestion reduction, system reliability, freight movement, economic vitality, environmental sustainability, and reduced project delivery delays; is based on the results of preliminary engineering; for related non-federal financial commitments, has stable and dependable funding and financing sources to construct, maintain, and operate the project, and contingency amounts to cover unanticipated cost increases; cannot be easily and efficiently completed without other federal funding or financial assistance; and is reasonably expected to begin construction no later than 18 months after the date of obligation of funds for the project. In the July 2017 NOFO for the INFRA program, DOT established four new criteria for INFRA outlining how projects would be evaluated (see table 1). DOT did not require that projects address every criterion. DOT noted that in addition to these criteria, called merit criteria, it would also evaluate a project s readiness, meaning the likelihood of a project s successful delivery and that the project will meet statutory deadlines for certain milestones. In December 2018, DOT issued a NOFO in which it called for applications for grants of fiscal year 2019 INFRA funds, and made some changes to the program s criteria. However, that process is ongoing and is outside the scope of this review. <2. DOT Evaluated Projects against Statutory and Merit Criteria Using a Multiphase Review Process> In reviewing applications submitted in response to the July 2017 NOFO, DOT evaluated proposed projects against the statutory and merit criteria using a multiphase review process involving technical and senior management teams. The process had three phases application intake, technical evaluation, and senior review each supported by different teams. The process also included a Quality Control and Oversight Team (QCO) that was involved throughout the process and responsible for ensuring consistent reviews and documentation. QCO consisted of team leads from each of the seven technical evaluation teams as well as liaisons from FHWA, MARAD, and FRA (see fig. 1). <2.1. Application Intake> The application intake phase consisted of two sequential steps performed by two different teams. First, the intake review team assessed each of the projects to: 1. verify that the applicant type, project type, and cost-sharing met the statutory requirements; 2. determine the project s size as being either small or large; 3. identify the highway and non-highway cost components; 4. determine whether the project is in an urban or rural area; 5. identify which technical evaluation teams should review the 6. which modal administration should perform the Operating Administration screen (described below). DOT received 258 applications for projects in November 2017 and determined that 24 projects did not qualify for INFRA funding. The remaining 234 projects then moved to the Operating Administrations screen. <2.2. Operating Administrations Screen> As part of the Operating Administrations screen, staff from the appropriate modal agency provided input on: 1. the applicant s history with delivering projects on time; 2. whether the applicant had previously received federal funding from 3. whether the applicant contacted the agency about their INFRA project, the nature of the contact, and the level of technical and financial assistance provided by the agency; 4. whether the project is on the Transportation Improvement Program or the Statewide Transportation Improvement Program; and, 5. any specific issues with the project that evaluators should be aware of. The 234 projects then advanced to the Technical Evaluation phase of the process. <2.3. Technical Evaluation> The seven technical evaluation teams, made up of experts from across the agency, assessed and rated projects against the merit criteria. Each team was responsible for rating a different merit criterion (as noted in figure 1, the innovation criterion was split into three factors, so there were three innovation teams). Since DOT did not require projects to address all the criteria, teams only reviewed the projects that related to their criterion. The teams used the factors outlined in DOT s INFRA evaluation plan to assess and rate the projects and documented their rating and a narrative justification for the assigned rating in DOT s tracking spreadsheet. Generally, raters assigned scores of high, medium, or low for each criterion, with some exceptions. For example, the economic vitality team calculated the project s benefit-cost ratio and net present value, while also noting whether the uncertainty associated with the rating was high, medium, or low. Similarly, the leveraging team assigned a rating score of high, medium, or low, but also calculated the percentage of non-federal funding, and noted whether the project included private-sector funding. Technical teams did not provide an overall rating of projects (such as not recommended, recommended, or highly recommended), an approach that differs from prior DOT discretionary grant programs we have reviewed. For detailed information about the evaluation factors and possible scores for each criterion, see appendix I. Each technical review team was assigned a team lead, who was responsible for ensuring that the projects were evaluated consistently and per the plan that governed that team s criterion. All 234 projects received technical evaluation ratings for their merit criteria and then advanced for further review. <2.4. Quality Control and Oversight> According to DOT s evaluation plan, the Quality Control and Oversight Team (QCO) was responsible for ensuring the consistency of reviews and documentation throughout the INFRA process. QCO consisted of team leads from each of the seven technical evaluation teams and liaisons from FHWA, MARAD, and FRA. QCO was also responsible for performing a large project determination, in which QCO assessed whether projects met each of the seven statutory requirements for large projects. QCO used information from the technical evaluations and the information provided in the application to determine whether projects met the statutory requirements. In cases where QCO could not definitively determine whether a large project met a statutory requirement, it would note additional information is necessary in DOT s tracking spreadsheet. After QCO recorded its assessment, it submitted the projects to the Senior Review Team for review. <2.5. Senior Review> The Senior Review Team was responsible for assembling a list of projects for consideration by the Secretary, and consisted of senior officials from the Office of the Secretary, and the Administrators of FHWA, FRA, FTA, and MARAD. The Senior Review Team, with QCO present to answer questions, met to review the projects and their technical evaluation scores for each criterion. The evaluation plan stated the Senior Review Team could, at its discretion, request that QCO seek additional information from applicants to help QCO determine if a large project met the statutory requirements. The final list of projects for consideration developed by the Senior Review Team contained 165 projects (all of the small projects and all of the large projects that QCO and the Senior Review Team determined met the statutory requirements). <2.6. Project Selection> At the end of the review process, the Secretary received a series of spreadsheets ranking each of the 165 projects according to how well they scored on each merit criteria. According to a member of the Senior Review Team, the Secretary formally met twice with her chief of staff, deputy secretary, and other senior advisors to discuss the projects, first to analyze all of the projects on the list and second to finalize the award decisions. In June 2018, DOT announced it had awarded approximately $1.54 billion in INFRA funding to 26 projects (see fig. 2). For the 26 awarded projects, 44 percent of funds went to rural projects and 5 percent of funds went to small projects. In addition as shown in figure 2, highway projects received the largest percentage of funding (85 percent), and rail projects received the smallest percentage (1 percent). <2.7. Despite Progress in Some Areas, the INFRA Evaluation Process Lacked Consistency and Transparency DOT Took Steps to Improve Its Application Evaluations and Better Communicate with Unsuccessful Applicants> In designing its process for evaluating INFRA applications submitted in response to the July 2017 NOFO, DOT took steps to address issues that we found led to inconsistencies in DOT s review of FASTLANE applications. Specifically, we reported that technical teams were divided by modal administrations (FHWA, MARAD, and FRA) and lacked clear guidance on how to score applications. This led to inconsistent scoring practices among the FASTLANE teams because one team applied a higher standard than the others. We recommended that DOT develop an evaluation plan for INFRA that clearly defined how all review teams should apply criteria, assess applications, and assign ratings to ensure that all applications are consistently reviewed. In response, DOT developed an INFRA evaluation plan that provided guidance on how to evaluate and assign a rating for each criterion, and in some cases, provided discrete numeric rating categories, allowing for less interpretation by technical review teams when assigning a score. In addition, DOT organized technical review teams by merit criteria and selected staff with the relevant expertise to serve on each team for example, economists from the various modal agencies served on the economic vitality team. DOT also took steps to improve the transparency of its process by better communicating with unsuccessful applicants. Specifically, DOT formally notified unsuccessful INFRA applicants of selection decisions via email, addressing a concern we raised regarding the FASTLANE process. In our review of FASTLANE, we recommended that DOT notify unsuccessful applicants of DOT s decision and that the notification should include a brief explanation of the decision. For INFRA, DOT emailed unsuccessful applicants notifying them of its decision. While the email did not include a brief explanation of the decision, it did offer applicants the chance to schedule a debriefing with DOT officials. Some of the selected applicants and consultants we spoke to said that the debriefing was helpful. For example, one applicant told us that during the debriefing, DOT shared how the project was rated by criterion. One applicant we met with said the debriefing was not helpful because the applicant did not receive a substantive answer about why they did not receive an award. Another applicant said he requested a debriefing but did not receive one. A DOT official told us that prior to issuing the fiscal year 2019 INFRA NOFO, DOT contacted all previous applicants to notify them of the upcoming round and again offer debriefs. <2.7.1. The INFRA Evaluation Process Lacked Consistency and Transparency DOT Gave Some Applicants the Opportunity to Provide More Information to Meet Requirements, Potentially Giving These Applicants an Advantage over Others> We found that DOT s process for following up with applicants lacked consistency and transparency, due to a lack of guidance and documentation. Specifically, DOT followed up with some applicants and not others to request additional information about their projects, and the rationale behind which applicants were selected for follow-up is not clear. We identified similar issues in our review of FASTLANE. As discussed earlier, for large projects to be eligible for an award, DOT must determine that the project meets several statutory requirements, such as generating benefits and demonstrating cost-effectiveness, among others. Our review of DOT documents revealed that DOT staff originally determined that 97 (of 116) applications for large projects did not include sufficient information for DOT to assess if the projects met each of the statutory requirements. At the request of officials on the Senior Review Team, QCO requested more information from 42 of those 97 applicants to help DOT determine if their projects met the requirements. Of the 42 applicants that DOT followed up with, 28 provided information that QCO determined was sufficient to ensure that they met the statutory requirements, and 13 of the projects received an award. Similarly, at the request of officials on the Senior Review Team, DOT staff reduced the scope of a number of projects. QCO staff split 9 projects into components, to scope out pieces of projects that could not meet a statutory requirement (for example, cost-effectiveness). Four of these component projects received an award. OMB guidance states that the intent of a NOFO is to make the application review process transparent so applicants can make informed decisions when preparing their applications to maximize fairness of the process. The guidance also states that federal agencies should make clear whether an applicant s failure to meet an eligibility criterion by the time of an application deadline will result in the awarding agency returning the application without review or, even though an application may be reviewed, will preclude the awarding agency from making an award. Similarly, internal control standards note that federal agencies should communicate with external entities and enable these entities to provide quality information to the agency that will help it achieve its objectives. DOT s NOFO states that the applications must include sufficient information for DOT to determine whether projects meet the statutory requirements, but also notes that DOT may seek additional information from applicants. The NOFO does not provide information on the basis for why DOT would follow up with one applicant and not another. After reviewing DOT s documentation, we found that the rationales for following up with specific applicants were insufficient to explain why DOT followed up with certain applicants over others. The documentation, with few exceptions, included generally vague statements that additional information from the applicant could help DOT determine whether the project met the statutory requirements. We asked two officials from the Senior Review Team about several specific projects for which those officials requested additional information. These officials both stated they could not recall their rationale, given that roughly a year had elapsed and the large number of projects reviewed. However, they did provide some reasons why they might have requested additional information, such as the need for more clarity on a project, a high score on a criterion of interest to that official, or the desire to ensure that the list provided to the Secretary included a diverse array of projects (in terms of location, urban or rural status, and project type). Further, one official noted that there was insufficient time to follow up with every applicant. We have previously identified recommended practices for evaluating and selecting discretionary grant awards and noted that in order to align with these practices, it is important to document decisions, including decisions regarding which projects should have the opportunity to advance in the process. When we identified similar issues related to a lack of consistent and transparent follow-up with FASTLANE applicants, we recommended DOT develop an INFRA evaluation plan that clearly defines how all review teams should apply criteria, assess applications, and assign ratings to ensure that all applications are consistently reviewed. DOT s INFRA evaluation plan states that if QCO has been unable to make an affirmative determination with respect to whether a large project meets a statutory requirement, a Senior Review Team member may direct QCO to seek clarifying information from the applicant or provide the necessary clarifying information themselves to support a determination. However, DOT s evaluation plan does not require documentation of the reasons why the Senior Review Team asked QCO to follow up with certain projects over others. Without clearly outlining in the NOFO and the evaluation plan the situations in which certain applicants may be asked to provide additional information, as well as clear documentation for why follow-up does occur with specific projects over others, the process lacks transparency and the assurance of fairness. For example, we found examples in which reviewers noted that additional information could help them determine whether a project met the statutory requirements (such as whether the project was cost-effective) but less than half of the projects had the chance to provide such information. Of the 26 awarded projects, half of those projects (13 large projects) were afforded the opportunity to provide additional information to demonstrate that their projects met the statutory requirements. <2.8. DOT Provided Inconsistent Messages and Limited Transparency Regarding Its Award-Making Decisions> We were unable to determine the rationale for the selection of projects for INFRA awards; an issue we also found with the FASTLANE process. This is due to: inconsistency in the NOFO regarding how merit criteria would be used to select awardees; a large number of applications forwarded for potential award regardless of merit scoring; and limited documentation regarding why 26 projects were ultimately selected out of 165 for award. <2.8.1. Inconsistency Regarding the Use of Merit Criteria for Selection> In the NOFO for INFRA, DOT provided inconsistent and unclear messages regarding the extent to which the merit criteria should be addressed to be competitive for an award, which also reduced transparency and caused confusion for some applicants. OMB guidance states that the intent of a NOFO is to make the application review process transparent so applicants can make informed decisions when preparing their applications to maximize fairness of the process. In the NOFO, DOT stated it would evaluate applications against four merit criteria, but also stated, The Department is neither weighting these criteria nor requiring that each application address every criterion, but the Department expects that competitive applications will substantively address all four criteria. In some cases, this approach led to confusion among applicants, as several of the selected applicants and consultants we interviewed noted that it was difficult to address the innovation merit criterion, with some stating the criterion was confusing or unclear and others stating that they faced difficulties adapting their projects to meet the criterion. Compounding this issue, several applicants and consultants also expressed uncertainty as to how DOT determined which projects should receive awards and which factors affected a project s ability to get an award. For example, representatives for one applicant noted that they spent a considerable amount on a consultant for the benefit-cost analysis (which was common among most of the applicants we interviewed), but it was not clear how the benefit-cost analysis affected DOT s decision-making. <2.8.2. Large Number of Applications Moved Forward Regardless of Their Merit Scores> Despite the language in the NOFO, DOT did not use the merit scores which reflect the extent to which projects addressed all four criteria when it determined which projects should be provided to the Secretary for consideration. While DOT reviewers did score applications on all four merit criteria, all of the 165 projects that QCO found to be statutorily eligible 47 large projects and 118 small projects were sent to the Secretary for potential award, regardless of merit criteria scores or whether the applicant substantively addressed all four merit criteria. DOT officials told us that DOT sought a portfolio approach in which the Secretary selected projects that scored highly on at least one criterion. Thus, the Secretary received a 25-page spreadsheet showing 14 different lists (7 for small projects and 7 for large projects) sorting all of the projects against the merit criteria, with each list arranged from highest to lowest score for that criterion. This method of presenting information on projects (and the volume of information presented) would make it challenging for any decision maker to compare projects and readily see how 165 projects scored across all criteria and whether all criteria were substantively addressed. In addition, projects were provided to the Secretary for consideration and in some cases awarded despite concerns raised by technical reviewers and regardless of whether projects addressed all of the merit criteria. For example, we found instances in which awarded projects had: Low cost-effectiveness scores. Over 50 percent (14 of 26) of all awarded projects received a high uncertainty rating related to their benefit-cost ratio and net present value score, meaning that the technical team had a low degree of confidence in the assigned score. Only 38 percent of all projects had this uncertainty rating. Moreover, of the 14 awarded projects with this rating, 11 had benefit-cost ratios of 1.0 to 1.5, which, when combined with the high uncertainty rating, raises the risk that the project would not be cost-effective. For example, for one large project, a technical reviewer noted, we conclude that the benefits of this project are reasonably likely to exceed its costs, though the case is very marginal and highly uncertain, as even a small change in some of the key assumptions and parameters could result in a negative finding. Uncertainty regarding projects benefit-cost ratios is particularly important as DOT used these scores to assess whether large projects met the FAST Act requirement to be cost-effective. While comments from technical reviewers were not included in the spreadsheets provided to the Secretary, an official stated that the Senior Review Team reviewed each project in-depth with the Secretary, and other DOT officials noted that the spreadsheet provided to the Secretary included the uncertainty ratings for each project. Low scores on multiple criteria, or did not address all criteria. Two awarded small projects had a benefit-cost ratio of less than one, and one of those projects did not address the innovation criteria at all. Three of the 26 awarded projects (11.5 percent) did not address the innovation criteria at all. In addition, several of the selected applicants and consultants we interviewed expressed confusion regarding how DOT reviewed the applications and moved them forward within DOT. Some of the applicants and consultants thought that DOT used the project scores to determine which projects should move forward to the Secretary (similarly to previous rounds of other DOT grant programs in which projects were sorted into categories such as highly recommended, recommended, and not recommended ). One applicant noted that it is important to know how many projects make it to the Secretary in order to understand the extent to which decisions are based on technical scores versus other considerations. <2.8.3. Limited Documentation of Rationale for Award Decisions> DOT s guidance states that grant recipients should be selected based on technical merit and those projects most likely to achieve the intended purpose. In addition, we have identified recommended practices for awarding discretionary grants, one of which includes documenting the rationale for award decisions. Documenting the rationale for award decisions becomes even more important in light of DOT s decision to provide every eligible INFRA application to the Secretary, rather than providing the Secretary a list of the projects most likely to achieve the intended purpose. However, DOT s documentation on the final selection of projects states the anticipated benefits of the projects but does not indicate why these projects, according to DOT s guidance, best address program requirements and, therefore, are most worthy of funding. In our review of the FASTLANE process, we also noted that due to limited documentation, we could not determine how DOT selected which projects should receive awards. We recommended that DOT require program teams to document their decision-making rationale throughout all levels of review in the application selection process. DOT agreed with this recommendation; however, it has not yet been implemented. Therefore, it remains unclear whether DOT is awarding discretionary grants on the basis of merit principles or other considerations. An absence of documentation can give rise to challenges to the integrity of the evaluation process and thus the decisions made. <2.9. Limitations in the INFRA Process Reflect Recurring Issues in DOT s Discretionary Grant Programs> Since 2011, we have found similar issues with DOT s management of other competitive discretionary grant programs, including a lack of documentation of key award decisions, and have made recommendations aimed at increasing consistency and transparency. In some cases, DOT implemented our recommendations for one program, but we subsequently found similar or recurring problems in other DOT programs. In 2011, we reviewed DOT s Transportation Investment Generating Economic Recovery (TIGER) program and FRA s High Speed Intercity Passenger Rail program two discretionary grant programs funded through the American Recovery and Reinvestment Act of 2009. For both programs, we found, among other things, limitations in the agencies documentation of the rationale for award decisions. With respect to TIGER, we noted that a lack of documentation could subject DOT to criticism that projects were selected for reasons other than merit. However, we also noted that documenting key decisions could help build confidence in DOT s ability to administer competitive discretionary grant programs. We recommended that DOT and FRA improve their documentation of key decisions for both programs. DOT implemented these recommendations by updating its TIGER and FRA guidance to require additional documentation. Despite the steps DOT took to address our prior recommendations, in 2014, we found continued issues in the TIGER program and made more targeted recommendations. Specifically, we found that DOT did not document key decisions to, among other things, (1) advance projects with lower technical ratings instead of more highly rated projects, and (2) change the technical ratings of lower-rated projects that had been selected for an award. We recommended that the Secretary of Transportation establish additional accountability measures for management of the TIGER program, to include using a decision memorandum or similar mechanism to document a clear rationale for decisions to: change the technical evaluation rating of an application, not advance applications rated as highly recommended, and advance for senior review applications other than those rated as highly recommended. Subsequently, DOT revised its guidance for the TIGER program to prohibit changes to the technical ratings, require that all highly rated projects be advanced, define the conditions through which lower rated projects may be advanced, and require that all such decisions be fully documented. DOT did not require that these decisions be documented through a decision memorandum or similar mechanism, as we had recommended. However, taken together, we determined DOT s actions were sufficient to address our recommendation for the TIGER program. In December 2016, we found similar problems during our review of the Hurricane Sandy transit-resilience grant program administered by the Federal Transit Administration (FTA). For example, we found that FTA did not document rationales for changes to project ratings nor did it document how it addressed high-level project concerns raised by reviewers in their evaluation comments. In addition, we found that DOT lacked clear department-wide requirements for what should be documented when evaluating and selecting discretionary grant awards. We noted that internal control standards state that all transactions and significant events need to be clearly documented, and that a recommended practice for evaluating and selecting discretionary grant awards is documenting the rationale for awards decisions, including reasons individual projects were selected or not selected. We also found that FTA did not develop an evaluation plan prior to calling for applications, despite the fact that this was a requirement in DOT s Financial Assistance Guidance Manual and that recommended practices for administering discretionary grant programs note the importance of having an evaluation plan that describes a method for overseeing the technical review panels to ensure a consistent review. Finally, we found that FTA did not assess projects against the policy priorities it outlined in its notice of funding availability, despite an OMB directive to provide sufficient information to help an applicant make an informed decision about whether to submit a proposal. At this time, we noted a pattern of problems occurring across DOT and its modal administrations discretionary grant programs and determined that a department-wide action was needed to address these issues. Specifically, we recommended that the Secretary issue a department- wide directive that should include requirements to: develop a plan for evaluating project proposals in advance of issuing a notice of funding availability that defines the stages of the process, including how the process will be overseen to ensure a consistent review of applications; document key decisions, including the reason for any rating changes and the officials responsible for those changes, and how high-level concerns raised during the process were addressed; and align stated program purpose and policy priorities with the evaluation and selection process. DOT concurred with our 2016 recommendation to develop a department- wide directive and initially stated that it would address it by updating its Financial Assistance Guidance Manual by September 2018 (DOT recently extended this to December 2019). In response, we noted that in order to address our recommendation, DOT needed to issue a directive that incorporates all of the elements identified in our recommendation. In addition, it remains unclear whether updating the manual would have the same effect as issuing the department-wide directive that we recommended. Specifically, we have found that DOT has not always followed its own guidance despite clear language that certain actions are required. For example, in our 2017 review of the FASTLANE program, we noted that the Financial Assistance Guidance Manual required finalization of the evaluation plan prior to soliciting applications for grants, but this guidance was not followed. Since 2017, we have sent letters to the Secretary of Transportation noting that this is a high-priority recommendation that warrants her attention. In March 2019, DOT issued a one-page memo to all offices and departments that administer discretionary grants. This memo directed the offices to update their policies and procedures to implement our 2016 recommendation and to send the updated policies to DOT s Office of the Senior Procurement Executive by June 30, 2019. DOT officials told us that DOT believes this action has addressed the recommendation. Due to a number of issues, however, it is unclear how this action will address our recommendation to create clear department-wide requirements aimed at improving transparency and consistency. Specifically, we found that the memo was essentially limited to a repetition of our recommendation. That is, DOT did not take steps to ensure that the various affected offices consistently interpret and implement the recommendation. For example, DOT did not define key terms such as high level concerns, or key decisions. In addition, DOT did not communicate to offices how they should sufficiently document their decisions to ensure that the rationale for those decisions including the reasons individual projects were selected or not selected is clear. DOT officials told us they wanted to provide the affected offices flexibility to implement the recommendation and would assess the need for additional guidance based on the completion of the Financial Assistance Guidance Manual. However, the lack of information regarding how offices should implement the memo raises significant questions about whether various offices will interpret and implement the recommendations differently, and enhances the risk that DOT will continue to lack a department-wide approach to ensure that discretionary grant programs are consistently and transparently administered. As DOT continues to try to address these long-standing issues with its discretionary grant programs, Congress has an opportunity through reauthorization legislation, scheduled for 2020, to build requirements for enhanced consistency and transparency into these programs. This is particularly important as DOT has two additional rounds of INFRA funding to award under the FAST Act, and the President s Budget proposal proposed providing an additional $1 billion to INFRA. Moreover, the FAST Act also authorized over a dozen discretionary transportation grant programs, and Congress may consider additional programs during the reauthorization of DOT s surface transportation programs. Through legislation, Congress could craft requirements around the administration of DOT s discretionary grants to improve the processes for awarding grants. Absent effective action by DOT going forward, the recurring and long-standing issues we have identified could continue to affect DOT s discretionary grant programs. <3. Conclusions> While DOT has taken some steps to improve its reviews of INFRA grant applications since we reviewed the FASTLANE program, issues related to consistency and transparency remain. Specifically, without clear communication from DOT regarding (1) the situations in which DOT may provide certain applicants the opportunity to supplement their applications with additional information, and (2) how merit scoring is used, if at all, to determine whether projects advance to the Secretary for selection and which projects are selected, applicants lack the information needed to make informed decisions about whether to apply. In addition, without documentation outlining why DOT decided to request additional information from certain applicants over others, the process lacks transparency. Since the FAST Act was enacted in 2015, we have been unable to determine the basis for the resulting awards of about $2.3 billion through the FASTLANE and INFRA program. This lack of clarity is significant and is the product of long-standing issues that we have identified with DOT s discretionary grant programs since 2011. We have previously noted that competitive discretionary grant programs have promise in better targeting federal transportation spending to areas of national and regional significance; however, this promise cannot be fulfilled if DOT s process and rationale for making awards remains unclear. In 2019, DOT issued a department-wide memo aimed at addressing our 2016 recommendation, but it is unclear how DOT s approach will improve consistency and transparency in its management of grant programs. We will continue to monitor DOT s efforts to address our recommendation. However, given the long-standing nature of the issues we identified and the potential that they could continue to affect DOT s discretionary grant programs, the reauthorization of DOT s surface transportation programs scheduled for 2020 provides Congress the opportunity to require DOT to take additional action to ensure consistency and transparency in the management of its discretionary grant programs. <4. Matter for Congressional Consideration> During the next reauthorization for surface transportation programs, Congress should consider including language in the reauthorization bill that would require DOT to develop and implement transparency measures for DOT s review and selection process for discretionary grants. Such measures should, at a minimum, help to ensure that the evaluation process is clearly communicated, that applications are consistently evaluated, and that the rationale for DOT s decisions are clearly documented. Such measures should be developed in line with OMB guidance, federal internal control standards, and recommended practices for evaluating and selecting discretionary grant awards (Matter for Consideration 1) <5. Recommendations for Executive Action> We are making the following three recommendations to DOT: The Secretary of Transportation should ensure that DOT, in its notice of funding opportunity and evaluation plan for each remaining INFRA- funding cycle, clarify the circumstances under which DOT may select applicants to receive requests for additional information. (Recommendation 1) The Secretary of Transportation should develop procedures for each remaining INFRA-funding cycle to ensure that when additional information is requested from an applicant, the specific rationale behind the request is documented (for example, to promote geographic diversity among projects), as well as to ensure that DOT documents the rationale if similar projects were not afforded an opportunity to provide additional information. (Recommendation 2) The Secretary of Transportation should ensure that DOT provides information to applicants in its notice of funding opportunity for each remaining INFRA-funding cycle regarding: (1) how scores on merit criteria are used, if at all, to determine whether projects advance to the Secretary for selection, and (2) how, if at all, DOT plans to use merit scores to determine which projects should receive an award. (Recommendation 3) <6. Agency Comments> We provided a draft of this report to DOT for review and comment. In comments, reproduced in appendix II, DOT concurred with our recommendations. DOT noted its efforts to improve the INFRA process for the 2019 round of funding and stated that it looks forward to assisting Congress in addressing the matter for congressional consideration in a manner that is feasible within DOT s timing and resource constraints. DOT also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Transportation, 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 have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Summary of the Department of Transportation s Rating Guidelines for the Infrastructure for Rebuilding America Program <7. Criteria> Likely NEPA status/type of action required, based on available information (such as expecting the project to be found to have no significant impact on the environment or that the project would be required to be reevaluated) The likelihood the project will be able to be delivered by its obligation timeframe High risk = high likelihood that the project will not be obligated on time Medium risk = some possibility the project will not be obligated on time Low risk = highly likely the project will be obligated on time The Special Experimental Project authorities (SEP 14/15 waiver) is a program that identifies and tests innovative project-delivery methods (such as non-traditional contracting techniques). Appendix II: Comments from the Department of Transportation Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact> Susan Fleming, (202) 512-2834 or [email protected]. <9. Staff Acknowledgments> In addition to the contact named above, Steve Cohen (Assistant Director); Crystal Huggins (Analyst in Charge); Amy Abramowitz; Melissa Bodeau; Michelle Everett; Geoffrey Hamilton; Joshua Ormond; Oliver Richard; Kelly Rubin; and Charles Truxillo made key contributions to this report.

Why GAO Did This Study The cost to repair and upgrade the nation's surface transportation system to meet current and future demands is estimated in the hundreds of billions of dollars. In December 2015, Congress established a DOT discretionary grant program to fund nationally significant freight and highway projects. DOT awarded $1.54 billion for such projects for fiscal years 2017 and 2018. GAO was asked to review DOT's process for evaluating and selecting applications for awards. This report discusses the consistency and transparency of DOT's process for evaluating and awarding INFRA grants for the fiscal-year 2017–2018 round of funding, among other objectives. GAO reviewed DOT's documentation of its evaluation process, and interviewed DOT staff and officials, as well as 11 INFRA applicants selected to ensure diversity in projects' size, type, location, and award status, as well as type of applicant. What GAO Found The Department of Transportation's (DOT) process for reviewing applications for grants to fund projects under the Infrastructure for Rebuilding America (INFRA) program lacked consistency and transparency in aspects related to following up with applicants and evaluating applications. Following up with applicants. DOT must determine that an applicant's project meets statutory requirements in order for the project to be eligible for an INFRA award. DOT initially found that 97 applications had insufficient information for an eligibility determination. DOT followed up with 42 of the 97 applicants to request additional information. DOT did not sufficiently document why it followed up with certain applicants over others. If DOT does not clearly communicate and document its process regarding applicant follow-up, the process lacks transparency and the assurance of fairness. Evaluating applications. In addition to the statutory requirements, DOT established merit criteria (e.g., economic vitality) to evaluate projects against, and stated that competitive projects would substantively address all of the criteria. DOT teams scored the projects on how well they addressed each criterion. However, DOT forwarded the information on all 165 projects that were found to be statutorily eligible to the Secretary for potential award, regardless of how well they scored on the merit criteria. In the end, DOT awarded some projects that did not address all of the criteria. Several applicants told GAO they were uncertain how DOT determines which projects should receive awards. In addition, DOT's documentation does not provide insight into why projects were selected for awards, an issue GAO has previously noted and recommended DOT address. The above limitations reflect long-standing issues GAO has identified in DOT's discretionary grant programs. Specifically, since 2011, GAO has recommended actions to increase consistency and transparency. In some cases, DOT implemented the recommendations for one program, but GAO later found similar problems in other programs. After finding repeated issues, GAO recommended in 2016 that DOT develop a department-wide directive that would, among other things, require that key decisions be documented. DOT agreed with the recommendation. In a March 2019 memo, DOT directed offices to implement GAO's recommendation by June 2019. However, it is unclear how this action will improve transparency and consistency because, among other things, DOT did not communicate how offices should sufficiently document decisions to ensure that the rationale for decisions is clear. The next reauthorization of surface transportation programs provides Congress the opportunity to build requirements for greater consistency and transparency into DOT's grant programs. This is particularly important as DOT has two additional rounds of INFRA funding to award under the FAST Act, and the President's Budget proposal proposed providing an additional $1 billion to INFRA. Absent effective action by DOT going forward, the recurring and long-standing issues GAO has identified could continue to affect DOT's competitive discretionary grant programs. What GAO Recommends GAO is making three recommendations, including that DOT should communicate and document the rationale for asking specific applicants for more information and provide information to applicants on how, if at all, DOT uses merit criteria scores to advance projects through its evaluation and selection process. Also, Congress should consider directing DOT to develop and implement transparency measures in the next surface-transportation reauthorization bill. DOT concurred with GAO's recommendations and provided technical comments that GAO incorporated as appropriate.

gao_GAO-19-341

gao_GAO-19-341_0

<1. Background> DOD began the F-35 development program in October 2001 with plans to produce next-generation aircraft to replace aging aircraft in the military services inventories. Figure 1 shows the F-35 in flight. The program has developed and is delivering three variants of the F-35 aircraft; the F-35A conventional takeoff and landing variant for the Air Force, the F-35B short takeoff and vertical landing variant for the Marine Corps, and the F-35C carrier-suitable variant for the Navy. The characteristics of the services variants are similar, but each service s variant also has unique operating requirements. For example, the Marine Corps requires that the F-35B be capable of operating from aircraft carriers, amphibious ships, and main and austere operating bases alike, requiring the ability to conduct short take offs and vertical landings. In March 2005, we found that the F-35 program had started development without adequate knowledge of the aircraft s critical technologies or a solid design. Further, DOD s acquisition strategy called for high levels of concurrency between development and production, which runs counter to best practices for major defense acquisition programs. In our prior work, we identified the F-35 program s lack of adequate knowledge and high levels of concurrency as the major drivers of the program s significant cost and schedule growth, and other performance shortfalls. Since the development program began in 2001, it has been restructured three times with revised cost and schedule estimates. The most recent restructuring was initiated in 2010 when the program s cost estimates exceeded certain thresholds established by statute a condition known as a critical Nunn-McCurdy breach. DOD subsequently certified to Congress in June 2010 that the program was essential to national security and needed to continue. DOD then established a new acquisition program baseline in 2012 that added $162.7 billion to the program s cost estimate and extended the original delivery schedule by 5-6 years. Since then, the program s cost and schedule estimates, as well as the expected number of aircraft to be delivered, have remained relatively stable, as shown in table 1. Of the F-35 s $406 billion estimated acquisition cost, DOD needs a majority of the funding ($270.3 billion) to purchase aircraft over the next 26 years. Of that future funding, the program plans to spend between $9.6 billion and $14 billion each year through fiscal year 2031. In addition, the program s sustainment costs to operate and maintain the F-35 fleet over the next 52 years are estimated to be $1.12 trillion. Though the program s total planned quantities have been relatively stable, the program s timeframes for procuring these aircraft have changed multiple times. Since the start of development, the program has pushed the procurement of more than half of the total aircraft planned into the future, mostly due to significant concurrency between development and production. Specifically, the program office had originally planned to procure almost 2,000 aircraft by fiscal year 2019. However, according to the current plan, by the end of 2019, the program will have procured just over 500 aircraft. The F-35 baseline aircraft development program was complete in April 2018, when developmental testing concluded. As we reported in June 2018, the program office reported it had met all nine of its capability thresholds or the minimum acceptable value for each capability and delivered three of those nine capabilities. However, we also reported that the program has to complete operational testing before DOD can determine if the six remaining capabilities have been delivered. The purpose of operational testing is to assess the effectiveness, suitability, survivability, lethality, and mission capability of the F-35, including the information systems and the air vehicle, in an operationally representative environment. Operational testing includes cyber security assessments, some of which have been conducted. Production of the F-35 began in 2007 while development was in its early stages and before developmental flight testing had started. As a result of this concurrent development, the 357 aircraft delivered through 2018 will need retrofits to fix deficiencies and design issues found during testing. The program s total estimated cost of concurrency is $1.4 billion. The program office plans for over 500 aircraft to be procured by the time operational testing is completed. Until operational testing is complete, there is a risk that additional problems with the aircraft may be identified. As a result, the concurrency costs of retrofitting delivered aircraft could increase. <2. Operational Testing Has Started> The F-35 program started formal operational testing in December 2018 after a 3-month delay. This testing was delayed for two main reasons: (1) to resolve critical deficiencies and (2) to accommodate an unexpected grounding following the crash of an F-35B in September 2018. According to a test official, the program expects to complete testing in December 2019, about three months later than planned due to delays with the simulator that is used for more complex testing. Figure 2 shows the program s planned end to developmental testing and planned timeframes for operational testing for 2012 and the past four years and the delays the program has realized each year since the program was re-baselined in 2012. The operational testing was delayed for the following two main reasons. Resolution of deficiencies: First, before the program could begin operational testing, it had to resolve critical deficiencies with the aircraft that were identified during development testing. The program categorizes deficiencies according to their potential impact on the aircraft s performance. Category 1 deficiencies are considered critical and could jeopardize safety, security, or another requirement. Category 2 deficiencies are those that could impede or constrain successful mission accomplishment. In January 2018, the F-35 program had 966 open deficiencies 111 category 1 and 855 category 2. At that time, the program planned to move forward before resolving all of them. In June 2018, we recommended that the Secretary of Defense direct the F-35 program to resolve all these deficiencies before the program s October 2019 full-rate production decision. According to DOD officials, over the past year, the program has made progress in reducing the number of open deficiencies by resolving, re-categorizing, closing, or combining them. For example, in 2018, the program resolved nearly 50 category 1 deficiencies and re- categorized over 50 others to category 2. As a result, the program received approval from the Under Secretary of Defense for Acquisition and Sustainment to begin formal operational testing with 13 category 1 deficiencies and almost 900 category 2 deficiencies. According to the Program Executive Officer, none of the open category 1 deficiencies are a safety of flight concern, and all of them have operational workarounds. A current example of an open category 1 deficiency is with lines on the F- 35 s landing gear, which can rupture when a tire blows, potentially causing loss of a major aircraft system such as the brakes. Such an event requires some repair work to the landing gear, but contractor officials explained that it is not a safety concern. According to the program office, it is not a safety concern because the current workaround for this deficiency is pilot training to avoid braking on the side of the blown tire. Program test officials said that testing with deficiencies is not uncommon and they will continue to work to address them, but some may not be fully resolved for several years. Unexpected grounding: In October 2018, the F-35 fleet was grounded after the program identified a manufacturing fault with an engine fuel tube a component in the F-35 engine produced by Pratt & Whitney. The fault was found in an inspection that stemmed from an F-35B crash in September 2018. This was the first crash of an F-35. Of the 23 operational test aircraft, the program replaced the fuel tubes on 18 aircraft by the start of operational testing in December 2018, which contributed to the 3-month delay. This and other key technical risks are described in more detail in appendix III. In addition to starting operational testing and the unexpected grounding, the program and the airframe contractor Lockheed Martin experienced other major events over the past year, as shown in figure 3. For example, the United States completed its first F-35 combat mission in September 2018 when an F-35B successfully hit a target in Afghanistan. The program took steps to mitigate delays to the start of operational testing. For example, the program office, in coordination with DOT&E, received approval to conduct some preoperational testing events starting in January 2018, before the official start date in December. According to DOT&E officials, the outcome of these preoperational test events should count towards the completion of operational testing. This included cold weather testing in Alaska, which took advantage of appropriate weather conditions. Despite the 3-month delay, program officials stated that they consider the F-35 operational test schedule to be adequate for addressing schedule risks, which pertain to unresolved deficiencies and potential problems with the availability of test and support aircraft, ground systems, test ranges, and necessary test models and simulations. According to a test official, as of April 2019, some of these risks have been realized, such as the delay with the simulator, and as a result, the end of operational testing is now planned for December 2019. In addition, there is the possibility of new deficiencies emerging from operational testing. Unresolved deficiencies: Existing or new deficiencies could negatively affect test results. According to DOT&E officials, since the start of operational testing, four new category 1 deficiencies have been identified, bringing the total to 17. According to DOD officials, it would not be unexpected during the course of operational testing for the program to discover additional deficiencies that may require resolution and re-testing. Availability of test and support aircraft: According to test officials, F-16s and F-18s are needed to represent adversaries during F-35 operational tests. These assets may not be available because they also support other test programs. According to officials, the F-35 program does not have control over the availability of these aircraft and must work with the Navy and Air Force to negotiate their use. In addition, the limited availability of F-35 test aircraft, in part due to R&M issues and shortages of replacement parts, may also pose a challenge to completing test events, according to officials. Availability of ground systems: Ground systems required for operational testing, such as the DOT&E developed Radar Signal Emulators, are late in development and may not be available when required. According to DOT&E officials, the emulators imitate modern threat radar capabilities of adversarial nations but their integration with the test range is approximately a year behind schedule. The program is currently using other threat simulators. DOT&E officials stated that they are working to have the radars ready by the spring of 2019, when needed. Availability of test ranges: Test officials at Edwards Air Force Base expressed concern about the availability of test ranges, which the F- 35 program shares with other programs. According to test officials, the F-35 was the fifth in line, in terms of priority, to use the range at Edwards Air Force Base, as of October 2018. DOT&E officials, however, stated that they did not observe any range availability issues during the F-35 s first month of operational testing. Availability of test models and simulations: According to program officials, the program s testing simulator, which runs the F-35 s mission systems software and provides test scenarios that cannot be replicated in a real-world environment, will not be complete until at least November 2019. Completion of the testing simulator was originally scheduled for the end of 2017. Any additional delays in operational testing could affect another upcoming program decision: DOD s decision to begin full-rate production in December 2019. This decision is typically made after operational testing is completed. <3. The F-35 Program Is Still Not Meeting All Reliability and Maintainability Targets> The F-35 program has made slow, sustained progress in improving the F- 35 s R&M. R&M determines the likelihood that the aircraft will be in maintenance rather than available for operations. Each F-35 aircraft variant is measured against eight R&M metrics, four of which are in part of the contract. All F-35 variants are generally performing near or above targets for half of the R&M metrics while the other four are still falling short, which is the same as last year. While the program is on track to meet the targets for half of the metrics, the program has not taken adequate steps to ensure the targets for the others will be met. While DOD has an action plan to improve R&M, its guidance does not define specific, measurable objectives for what the desired goals for the F-35 s R&M performance should be. Furthermore, the program office has not prioritized funding for projects that will improve the R&M metrics that are not meeting their targets. <3.1. The F-35 Program Is Meeting, or Close to Meeting, Half of Its Targets> All F-35 variants are measured against eight R&M metrics targeted performance levels, and all variants are generally performing near or above targets for four of the eight R&M metrics. This represents little change from their overall performance last year. All eight R&M metrics are described in the program s Operational Requirements Document (ORD) the document that outlines the requirements DOD and the military services agreed the F-35 should meet. However, in December 2018, DOT&E reported that, although performance for the four under- performing metrics has shown slow growth over the years, none of these metrics were meeting interim goals needed to reach requirements at each variant s maturity. Each F-35 variants R&M performance against these metrics targets is shown in table 2. Since the program began tracking R&M performance in 2009, the program has seen small, annual improvements. Over the past year, all variants showed a slight improvement in targeted performance levels for one metric, the mean flight hours between failures (design controlled), but saw little or no discernable improvement for the four metrics not meeting targets. However, based on current performance, the program does not expect to meet those targets by full aircraft maturity. According to F-35 program officials, the ORD R&M metrics should be re-evaluated to determine more realistic R&M performance metrics, but they have not yet taken actions to do so. Until it does so, the program office remains accountable for ensuring those ORD R&M metrics are achieved. In June 2018, we recommended that the F-35 program identify what steps it needs to take to ensure the F-35 aircraft meet R&M requirements before each variant reaches maturity and update its R&M Improvement Program (RMIP) DOD s action plan for prioritizing and funding R&M improvement projects with these steps. DOD concurred with our recommendation but has yet to take substantive actions to address it. It did, however, complete 16 improvement projects since we last reported on this. Despite completing these projects, there were not significant gains in the R&M metrics not meeting targets. Program officials advised, however, that measurable improvements in R&M can take time to manifest. To speed this process, the program is accelerating planned upgrades to older aircraft where appropriate, which officials stated should translate to an overall improvement in the program s R&M performance. <3.2. The F-35 Program Office s Improvement Plan Does Not Address Under- Performing Metrics> The F-35 program office has estimated that implementing all of the identified improvement projects currently contained in its RMIP could result in potential life cycle cost savings of over $9.2 billion by improving the F-35 s R&M. As of December 2018, the guidance the F-35 program office has used to implement the RMIP does not define specific, measurable objectives for what the desired goals for the F-35 s R&M performance should be or align improvement projects with R&M goals. Furthermore, the RMIP has not been a funding priority. Federal internal control standards state that programs should define objectives when implementing programs such as the RMIP. Although the F-35 program RMIP s guidance has a general goal of improving R&M, it does not identify achieving the targets for the eight R&M metrics the program tracks as an objective. Program officials acknowledged that the RMIP s guidance does not include such an objective. Instead, officials are using the RMIP to prioritize and fund projects that will improve aircraft availability and mission capability neither of which are included in the eight R&M metrics, but are necessary and important initiatives. Officials stated that by prioritizing these projects, they will eventually improve performance under all R&M metrics, including the four that are not meeting targets. The RMIP s guidance, however, does not discuss these priorities or align improvement projects with the eight R&M metrics. In our prior work on weapon system acquisitions, we have identified a number of best practices for improving program outcomes, such as clearly establishing well-defined requirements and securing stable funding that matches resources to requirements. The F-35 program office has not prioritized or dedicated funding in its budget to improve R&M in part because program officials explained that they have been focused on initiatives intended to lower the cost of the aircraft. Further, any current funding for R&M improvement projects comes from the program s operation and maintenance funds, which are only available for one fiscal year. Officials further explained that, if such funding runs out or is used by the program for other efforts, then R&M projects will go unfunded or be suspended until new funding is available. In fiscal year 2018, for example, while some R&M improvement projects were completed, several other projects were suspended when that year s funding ran out. According to officials, these projects may not be started back up until fiscal year 2019. In addition, most of the R&M improvement projects that were approved in fiscal year 2018 were not funded. For example, as of December 2018, according to a contractor representative, all of the identified improvement projects currently unfunded in the program s RMIP would cost about $30 million to implement, but are on hold and waiting to be funded. Program officials stated that they are in the process of revising the RMIP and have considered including more specific objectives, such as a focus on improving aircraft availability and mission capability and a focus on improving R&M performance where the ORD R&M metrics targets are not being met. Additionally, in its 2019 annual lifecycle sustainment plan, the program office noted that a dedicated annual budget for R&M improvement projects would benefit the program. According to the program, any revisions to the RMIP and changes to how it will be funded, however, will not be complete until April 2019 or later. Without defining measurable objectives in its RMIP guidance for meeting all eight R&M metrics and aligning which improvement projects will ensure those metrics are met, the program is at risk of not fully meeting its R&M goals. Further, without prioritizing funding for improving R&M, projects may continue to be either prematurely suspended or never get underway. As a result, the warfighter may accept aircraft that (1) are less reliable than originally described in the program s ORD, and (2) have operation and sustainment costs that may raise affordability questions. <4. The F-35 Program Will Start Block 4 Modernization without a Complete Business Case> With development of the baseline program complete, the program is transitioning to early development and testing for modernization efforts known as Block 4, which are expected to cost about $10.5 billion. The F- 35 program plans to award Block 4 development contracts starting in May 2019, before completing a business case a baseline cost and schedule estimate to track the program s performance going forward. In doing so, the program will commit resources without adequate knowledge of Block 4 s full cost, schedule, and level of technology maturity, putting Block 4 at risk of experiencing cost and schedule overruns similar to those experienced by the baseline program during its development. <4.1. The F-35 Program Is Transitioning to Early Block 4 Development and Testing> The National Defense Authorization Act for Fiscal Year 2017 required DOD to submit a report containing certain elements of an acquisition program baseline in essence, a full program business case to include the cost, schedule, and performance information for Block 4. In 2018, we found that DOD s report to Congress was incomplete but included information on some elements of the Block 4 acquisition program baseline. In its report, DOD stated that the acquisition program baseline would continue to be refined over the next year. As a result, we presented a matter for congressional consideration to restrict Block 4 funding until the program established a complete business case. DOD s report to Congress also outlined the F-35 program office s new development approach to deliver Block 4 capabilities new requirements beyond the baseline aircraft capabilities to address evolving threats. As we reported in June 2018, this new approach, meant to deliver capabilities to the warfighter faster, is referred to as Continuous Capability Development and Delivery (C2D2). This approach consists of 6-month development cycles in which small groups of capabilities will be developed, tested, and delivered as they are matured. In January 2018, the F-35 program started using this C2D2 approach to develop and test software updates to address deficiencies identified during testing. According to the contractor, the first two software updates also established a foundation for new Block 4 capabilities to be fully developed later. According to program officials, as of December 2018, the program has executed contract actions valued over $1.4 billion to establish testing facilities and support early Block 4 development of capabilities the program plans to deliver through 2024. According to DOD s January report, results from this work will help the program inform its Block 4 business case. <4.2. The F-35 Program Will Start Block 4 Development without a Full Business Case> The F-35 program plans to award Block 4 development contracts without knowledge of the effort s full cost or the maturity of critical technologies. Over the past year, the program has been working to complete its business case for Block 4, including incorporating Block 4 activities into its acquisition strategy which was approved in October 2018. However, three key Block 4 business case documents will not be ready before the program s planned May 2019 contract awards for development efforts. Independent technology readiness assessment: Although the contracts for Block 4 development efforts are planned to be awarded in May 2019, the program will not conduct an independent technology readiness assessment by that time. A technology readiness assessment is a systematic, evidence-based process that evaluates the maturity of hardware and software technologies critical to the performance of a larger system or the fulfillment of the key objectives of an acquisition program. According to a program official, the program will conduct its own assessments on a rolling basis as initial capabilities are developed. The official stated that technologies will not be integrated into the aircraft until they are adequately mature. The program office plans to conduct a partial assessment of initial capabilities sometime between October and December 2019 with additional assessments to follow. However, without an independent technology readiness assessment, the program has not identified potential critical technology elements and as a result, may be at risk of delaying the delivery of new capabilities. Test and evaluation master plan: Although the F-35 program has begun testing Block 4 capabilities, it does not have an approved test and evaluation master plan. The test and evaluation master plan documents the overall structure, strategy, and objectives of the test program as well as the associated resources needed for execution. It provides a framework for the program office to provide detailed test plans and subsequently determine the resources needed. Test officials have expressed concerns about the lack of an approved test plan, uncertain funding, the number of test aircraft available, and the draft test schedule, among other things. Officials were also concerned as to whether the Block 4 test aircraft would be in the same configuration as fielded aircraft, which are in earlier configurations than the test fleet. Further, DOT&E stated in its annual report that it considers the current Block 4 schedule to be high risk due to the large amount of planned capabilities that will be developed and tested in 6- month development cycles. An approved, properly resourced test plan is essential for planning and preparing for adequate testing of the Block 4 capabilities. Without an approved test and evaluation master plan, the F-35 program is providing the test authorities with capabilities to be tested without giving them the necessary direction on how to adequately prepare to conduct the tests. Specifically, test officials stated the F-35 program office has not provided details on which capabilities are planned for each testing development cycle making it difficult to execute testing. While this is still a concern, F-35 program officials explained that over the past 3 months they have been providing the test authorities with the direction needed to conduct testing. Independent cost estimate: The Block 4 independent cost estimate, which details the program s total estimated life cycle cost, is not complete. In August 2017, we reported that DOD estimated the development funding needed for the first phase of modernization for Block 4 to be over $3.9 billion through 2022. Since then, the program incorporated more scope and fidelity into the Block 4 cost estimate, which has increased to $10.5 billion for Block 4 capabilities planned through 2024. The program office has provided its Block 4 cost estimate to the Cost Assessment and Program Evaluation office (CAPE) for an independent cost estimate. According to CAPE officials, they will provide the independent cost estimate between October and December 2019 to support the program s full-rate production decision, but this would occur several months after the program plans to award the Block 4 development contracts. Without an independent cost estimate, Congress does not have insight into the full potential cost of the Block 4 effort. The expected completion dates for these documents are between October and December 2019, at the earliest. Figure 4 shows key Block 4 dates, the planned development contract awards, and planned completion dates for the remaining business case documents. Major defense acquisition programs generally follow DOD acquisition policy, which states that prior to the release of a development contract request for proposal, program officials should have confidence that program requirements are firm. Program officials should also clearly state that the risk of committing to development has been reduced or will be adequately reduced prior to contract award. According to best practices identified by GAO, without several of the business case documents completed, program officials cannot have a high level of confidence that the requirements are firm and that the risk to committing an estimated $10.5 billion in funding to Block 4 has been adequately reduced. According to program officials, business case documents have not been completed because they took a step back to re-examine their approach and the cost estimate for Block 4 that DOD established in 2017. Counter to acquisition best practices, the program plans to initiate additional development work before they acquire the requisite knowledge of the necessary levels of technology maturity and funding. Program officials have reported the planned modernization contracting efforts shown in table 3. If program officials move ahead with awarding Block 4 contracts without gaining the knowledge that a full business case could would provide, Block 4 modernization efforts will be at risk of experiencing the same kind of cost and schedule growth the baseline development program experienced. <5. The F-35 s Unit Cost Has Decreased and Its Production Rate Has Increased> With a few exceptions, the negotiated prices for all F-35 variants have generally been decreasing with each production lot, and more aircraft are being procured in each lot. In particular, the F-35A s price has decreased in each subsequent production lot, with the most recent price per aircraft at $89 million in lot 11, as shown in figure 5 below. In 2018, we reported that while the F-35 program faces affordability challenges, it was investing in several projects to reduce production and sustainment costs. According to DOD, to improve production affordability, the F-35 program office is continuing to make investments to lower the price of an F-35A to below $80 million by lot 13. To realize this goal, the F-35 program office and the prime contractor are increasing the production rate and investing in various initiatives to lower production costs. For example: According to the program office, it has invested a total of $320.3 million in efforts to improve manufacturing processes that it estimates could result in up to $7.9 billion in savings over the life of the program. In addition, the prime contractor has invested $90 million and plans to invest an additional $25 million to lower its production costs. DOD issued a contract announcement for economic order quantity purchases for use in production lots 13-14. This approach involves making large purchases of components that will be used across multiple procurement lots of aircraft to reduce production costs by buying components in bulk and achieving economies of scale. The program had expected $1.2 billion in cost savings from this effort, but according to estimates from the CAPE, cost savings will more likely be $595 million. In addition, according to program officials, once the program achieves full-rate production, it plans to utilize a multi-year procurement strategy, beginning in fiscal year 2021. This strategy is intended to have similar benefits as the economic order quantity purchases by providing industry with a stable, long-term demand. According to Pratt & Whitney, the cost of the engine is also declining. For example, the price of the F-35A and C engine dropped by $100,000 per engine over the past year. The most recent negotiated price is $11.9 million per engine. The F-35 airframe and engine contractors saw a significant increase in their production rates in 2018, but faced some production challenges as well. The airframe contractor Lockheed Martin increased its production rate by 50 percent and delivered a total of 91 aircraft in 2018, with a total of 267 aircraft on its production floor or in contract negotiations as of December 2018, as shown in figure 6. In addition, Lockheed Martin delivered more aircraft on time. In 2012, none of the planned aircraft deliveries were on time whereas in 2018, 58 percent were on time. To incentivize the contractor to improve on-time deliveries, the program office has added a performance incentive fee to the lot 11 production contract. Table 4 shows some improvements in Lockheed Martin s production metrics since 2012 and over the past 2 years. Between 2012 and 2017, Lockheed Martin saw some improvement for all variants production metrics, with the F-35A showing improvements through 2018. However, over the past year, several metrics for the F- 35Bs and F-35Cs saw a decline. According to Lockheed Martin, it faced several challenges with the increased production rate which led to these declines. For example, since January 2018, the contractor hired around 900 new personnel, nearly 30 percent of its workforce, all of whom needed training. According to officials, this influx of new personnel led to an increase in the average labor hours for the F-35C and the number of hours required for scrap, rework, and repair of the F-35B and F-35C. According to the contractor, as the newly hired personnel gain more experience in the production processes, the average labor hours it takes to build an F-35C should start decreasing again. The contractor faced several production quality issues and parts delays, which it worked to address over the past year. For instance, we reported last year that due to a fault in the production process, Lockheed Martin halted deliveries after the Air Force identified corrosion between the aircraft s surface panels and the airframe because Lockheed Martin did not apply primer when the panels were attached. The program office stated that Lockheed Martin and the F- 35 Program Executive Officer reached a mutual agreement on the cost to resolve this issue, the details of which have not been disclosed publicly. With the production rate increase, the supply chain was strained to deliver parts on time, which led to increases in material shortages for key components, such as the radar. Pratt & Whitney has also increased production over the past year and has shown similar manufacturing performance for the F-35 engine as in past years; however, it had fewer on-time deliveries in 2018 due to the challenges it faced, including an increase in the average number of quality issues per engine. Pratt & Whitney s production rate increased by 10 percent over the past year, with 81 engines delivered in 2018. Table 5 shows the trends in Pratt & Whitney production metrics performance. According to Pratt & Whitney, its late engine deliveries increased in 2018 partially due to a subcontractor that did not have all of the needed tooling in place to produce more F-35B engines. To address this and other issues causing the late deliveries, Pratt & Whitney is taking lessons learned from its other production facilities and applying them to the F-35 s engine production. <6. Conclusions> The F-35 program has overcome significant hurdles in its 18 years of development of the baseline aircraft, which was completed last year. One recent hurdle that it overcame was resolving many critical deficiencies found during developmental testing, which allowed the program to begin operational testing this past December. Other hurdles remain, including with the F-35 s reliability and maintainability (R&M). Four of the eight R&M metrics continue to fall short of meeting performance targets. Program officials stated that the Operational Requirements Document (ORD) R&M targets need to be re-evaluated to determine more realistic R&M performance metrics but have not yet taken actions to do so. Until the program re-evaluates the targets, it is accountable for achieving those requirements. Furthermore, funding improvement efforts have not been a priority for the program. As a result, over the past year, some projects were started, several were halted while underway, and others are on hold, waiting for funding. As long as targets under all of the R&M metrics continue to fall short, the U.S. military services and the taxpayer will have to settle for aircraft that are less reliable and more costly to maintain than originally planned. Also, with continuing concerns about the program s long-term affordability, the program is missing a prime opportunity to infuse affordability into the aircraft s future with better R&M performance. As the program is considering revisions to its R&M Improvement Program (RMIP), it is in a good position to clearly define and communicate its R&M objectives for the aircraft to meet the targets under all of its eight R&M metrics. Until it does so, the program office will not know whether the steps it is taking now are sufficient to ensure each F-35 variant achieves its R&M requirements in the future. As we have reported in the past, the F-35 program started its development before it was ready. It is now at risk of doing the same thing with the Block 4 modernization effort. Since we last reported in June 2018, the program has still not established a solid business case to commit funding and other resources to developing new capabilities for the aircraft. This could result in the program delivering technologies late and over cost estimates. Finally, the program has committed a significant amount of funding to support Block 4, but it has not completed an independent cost estimate of the life-cycle cost. Consequently, Block 4 may follow in the footsteps of the F-35 s baseline program which saw significant cost and schedule growth during its development. This approach leaves the F-35 program, DOD, Congress, and the U.S. military services without key information to make decisions regarding Block 4. <7. Recommendations for Executive Action> We are making the following five recommendations to the Department of Defense: The Secretary of Defense should ensure that the F-35 program office assesses whether the ORD R&M targets are still feasible and revise the ORD accordingly. (Recommendation 1) The Secretary of Defense should ensure that the F-35 program office, as it revises its RMIP, identifies specific and measurable R&M objectives in its RMIP guidance. (Recommendation 2) The Secretary of Defense should ensure that the F-35 program office, as it revises its RMIP, identifies and documents which RMIP projects will achieve the identified objectives of the RMIP guidance. (Recommendation 3) The Secretary of Defense should ensure that the F-35 program office prioritizes funding for the RMIP. (Recommendation 4) The Secretary of Defense should ensure that the F-35 program office completes its business case, at least for the initial Block 4 capabilities under development, before initiating additional development work, to include: an independent cost estimate; an approved test and evaluation master plan which addresses resources, aircraft shortfalls, and funding; and an independent technology readiness assessment. (Recommendation 5) <8. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. Our initial draft report contained only recommendations 2 through 5 above. During the comment period, DOD officials provided additional information about the program s R&M performance concerning whether the ORD targets continue to be feasible and should be re-examined. As a result, we added our first recommendation above that the F-35 program office assess whether the ORD R&M targets are still feasible and revise the ORD accordingly. DOD provided written comments on our report, which are reprinted in appendix IV. DOD concurred with our four recommendations on R&M but did not concur with our last recommendation on the Block 4 modernization. DOD also provided technical comments, which were incorporated as appropriate. In concurring with our four R&M recommendations, DOD stated that it would review its R&M requirements and possibly revise them, update its RMIP guidance, and plan for R&M funding going forward. DOD officials did not concur with our recommendation that the F-35 program office complete its business case before initiating additional development work. DOD stated that the F-35 program office has adequate cost, schedule, and technical maturity knowledge to begin the development of initial Block 4 capabilities. DOD also outlined when some of the remaining Block 4 business case documents would be complete. As we stated in our report, these documents will not be complete until after the contracts to initiate additional Block 4 development work will be awarded. We maintain that completing its business case before initiating additional development work would put DOD and the program in a better position to effectively and successfully develop Block 4 capabilities. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Acquisition and Sustainment, the Secretary of the Air Force, the Secretary of the Navy, and the Commandant of the Marine Corps. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Prior GAO Reports and DOD Actions Key program event Start of system development and demonstration approved. Primary GAO conclusions/recommendations Critical technologies needed for key aircraft performance elements are not mature. We recommended that the program should delay start of system development until critical technologies are matured to acceptable levels. DOD response and actions DOD did not concur with our recommendation. DOD did not delay the start of system development and demonstration stating technologies were at acceptable maturity levels and that it will manage risks in development. Program sets in motion plan to enter production in 2007 shortly after first flight of the non-production representative aircraft. The program was entering production with less than 1 percent of testing complete. We recommended that the program delay investing in production until flight testing shows that the Joint Strike Fighter performs as expected. DOD partially concurred but did not delay start of production because it believed the risk level was appropriate. The program was restructured to reflect findings from a recent independent cost team and independent manufacturing review team. As a result, development funds increased, test aircraft were added, the schedule was extended, and the early production rate decreased. Costs and schedule delays inhibited the program s ability to meet needs on time. We recommended that the program complete a comprehensive cost estimate and assess warfighter and initial operational capability requirements. We suggested that Congress require DOD to tie annual procurement requests to demonstrated progress. DOD continued restructuring, increasing test resources, and lowering the production rate. Independent review teams evaluated aircraft and engine manufacturing processes. Cost increases later resulted in a Nunn- McCurdy breach. Military services completed the review of capability requirements, as we recommended. The program incorporated positive and more realistic restructuring actions taken since 2010, including more time and funding for development and deferred procurement of more than 400 aircraft to future years. The program was moving in the right direction but needed to fully validate design and operational performance and at the same time make the system affordable. We did not make recommendations to DOD in this report. DOD agreed with GAO s observations. <9. Year, GAO report 2014 GAO-14-322> Key program event The services established initial operational capabilities dates in 2013. The Marine Corps and Air Force planned to field initial operational capabilities in 2015 and 2016, respectively, and the Navy planned to field its initial capability in 2018. Primary GAO conclusions/recommendations Delays in developmental flight testing of the F-35 s critical software may hinder delivery of the warfighting capabilities to the military services. We recommended that DOD conduct an assessment of the specific capabilities that can be delivered and those that will not likely be delivered to each of the services by their established initial operational capability dates. DOD response and actions DOD concurred with our recommendation. On June 22, 2015, the Under Secretary of Defense for Acquisition, Technology, and Logistics issued a Joint Strike Fighter software development report, which met the intent of GAO s recommendation. DOD planned to begin what it refers to as a block buy contracting approach that was anticipated to provide cost savings. In addition, DOD planned to manage the follow-on modernization program under the current F-35 program baseline and not as its own separate major defense acquisition program. The terms and conditions of the planned block buy and managing follow-on modernization under the current baseline could present oversight challenges for Congress. We recommended that the Secretary of Defense hold a milestone B review and manage follow-on modernization as a separate major defense acquisition program. DOD did not concur with our recommendation. DOD viewed modernization as a continuation of the existing program and the existing oversight mechanisms, including regularly scheduled high-level acquisition reviews, would be used to manage the effort. The DOD F-35 program office was considering contracts for economic order quantity of 2 years worth of aircraft parts followed by a separate annual contract for procurement of lot-12 aircraft with annual options for lot-13 and lot-14 aircraft. However, as of January 2017, contractors stated they were still negotiating the terms of this contract; therefore, the specific costs and benefits remained uncertain. Program officials projected that the program would only need $576.2 million in fiscal year 2018 to complete baseline development. At the same time, program officials expected that more than $1.2 billion could be needed to commit to Block 4 and economic order quantity in fiscal year 2018. GAO recommended DOD use historical data to reassess the cost of completing development of Block 3F, complete Block 3F testing before soliciting contractor proposals for Block 4 development, and identify for Congress the cost and benefits associated with procuring economic order quantities of parts. DOD did not concur with the first two recommendations and partially concurred with the third while stating that it had finalized the details of DOD and contractor investments associated with an economic order quantity purchase and would brief Congress on the details, including costs and benefits of the finalized economic order quantity approach. <10. Year, GAO report 2018 GAO-18-321> Key program event The program office determined that it could not resolve all open deficiencies found in developmental testing within the development program, and they would need to be resolved through post-development contract actions. DOD provided a report to Congress outlining preliminary plans to modernize the F-35. It stated it planned to develop a full acquisition program baseline for the modernization effort in 2018 and provide a report to Congress by March 2019. Primary GAO conclusions/recommendations The program office plans to resolve a number of critical deficiencies after full-rate production. We recommended that the F-35 program office resolve all critical deficiencies before making a full- rate production decision, and identify steps needed to ensure the F-35 meets reliability and maintainability requirements before each variant reaches maturity. We also suggested that Congress consider providing in future appropriations that no funds shall be available for obligation for F-35 Block 4 until DOD provides a report setting forth its complete acquisition program baseline for the Block 4 effort to the congressional defense committees. DOD response and actions DOD concurred with both recommendations and identified actions that it would take in response. The National Defense Authorization Act for fiscal year 2019 included a provision limiting DOD from obligating or expending more than 75 percent of the appropriations authorized under the Act for the F-35 continuous capability development and delivery program until 15 days after the Secretary of Defense submits to the congressional defense committees a detailed cost estimate and baseline schedule. Appendix II: Objectives, Scope, and Methodology The National Defense Authorization Act for fiscal year 2015 included a provision for GAO to review the F-35 acquisition program annually until the program reaches full-rate production. This is the fourth report under that provision. In this report, we (1) provide information on the program s progress toward completing testing of the baseline aircraft; (2) assess the aircraft s current reliability and maintainability (R&M) status; (3) assess the program s modernization efforts (to add new aircraft capabilities), known as Block 4; and (4) provide information on the program s production costs and efficiency initiatives. To provide information on progress in the F-35 s development, we reviewed the program s costs, schedule, and performance plans and compared the actual progress in each area with the goals established in its 2012 baseline to identify any significant trends. We also reviewed the F-35 s selected acquisition report and its fiscal year 2019 budget request. To assess progress in testing, we reviewed test results and associated reports, program briefings, and internal DOD program analyses. We interviewed officials from the program office, military test authorities, and contractors Lockheed Martin (airframe) and Pratt & Whitney (engine) on key aspects of F-35 development progress, including flight testing, future test plans, and recent findings from test events. We also interviewed the Director, Operational Test and Evaluation office and F-35 program developmental and operational test pilots. To assess the program s progress in achieving its R&M targets, we obtained and analyzed its monthly reports on R&M performance from January 2018 through December 2018. We compared these to the program s R&M targets documented in the F-35 Operational Requirements Document and the Joint Contract Specification. We examined program data for the metrics performance across 12 months to identify any trends. We assessed the reliability of this data by reviewing supporting documentation and interviewing program office officials who track reliability metrics and other knowledgeable DOD officials. We also reviewed the program s Reliability and Maintainability Improvement Program s guidance to determine if it contained specific and measurable objectives and the projects needed to meet those objectives. We determined that the R&M metric data were sufficiently reliable for our purposes of determining whether the program will meet its targets. To assess the program s Block 4 modernization plans, we reviewed documents that GAO best practices identify should be completed prior to awarding a development contract. We interviewed DOD and program office officials, and contractor representatives regarding the program s Block 4 activities to date and future plans. We compared the program s accomplishments over the past year and its future plans to the product development best practices identified by GAO. We reviewed the fiscal year 2019 budget request to identify costs associated with the Block 4 effort. We obtained contract documents for Block 4 activities between March 2014 and December 2018 to determine the total amount of funding that has been obligated to Block 4 and the scope of work that has been contracted. To provide information on ongoing manufacturing performance and the program s plans to achieve full rate production, we obtained and analyzed the prime contractor s production metrics and its aircraft delivery rates and from 2012 through 2018. We compared this performance to the program s procurement plans from its selected acquisition reports since 2003. We reviewed metrics and briefings provided by the program office, Lockheed Martin, Pratt & Whitney, and the Defense Contract Management Agency to identify progress in improving manufacturing processes. We analyzed changes in delivery dates for lot 10 aircraft delivered in 2018. We discussed reasons for any delivery delays and plans for improvement with officials from Lockheed Martin and Pratt & Whitney. We obtained cost investment and savings estimates and discussed cost and manufacturing efficiency initiatives, such as the economic order quantity purchases, with the contractors and program office officials to understand potential cost savings and plans. We also obtained and analyzed metrics on parts and aircraft quality through December 2018 and discussed steps taken to improve quality and deliveries with Lockheed Martin and Pratt & Whitney officials. We determined that the contractor s production metrics and delivery dates were sufficiently reliable for our purposes of determining production efficiency and deliveries. We conducted this performance audit from June 2018 to April 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: Status of Selected F-35 Technical Risks The F-35 program continues to address technical risks discovered in testing. Since our 2018 report, the program identified new risks with the canopy, fuel tubes, and cockpit, described below. The program has also incorporated design changes that have mitigated technical risks that we previously highlighted. The status of the Department of Defense s (DOD) efforts to address these issues follows. <11. Newly Identified Technical Risks> Canopy Coating De-laminations and Corrosions: The F-35 fleet has experienced approximately 20 incidents of the canopy transparencies delaminating after less than 100 flight hours. The contractor is currently testing numerous solutions for the de-laminations, with intentions of completing testing by January 2019. F-35 aircraft are also experiencing canopy corrosion resulting from moisture intrusion due to the aircraft s adhesive cracking under pressure and insufficient tape adhesion. The program has identified the need to modify over 173 canopies over 4 years. The contractor has begun to incorporate alternative material and tape into production, and released standardized repair procedures to mitigate this issue. Engine Fuel Tubes: In September 2018, a manufacturing fault in an engine fuel tube caused an in-flight failure, which resulted in an F-35B crash. The investigation identified several other life-limited fuel tubes in each F-35 variant. The fleet was grounded while all aircraft were inspected, and any fuel tubes identified were replaced or will be replaced by June 2019. Cockpit Display: In November 2018, operational test pilots experienced the cockpit display freezing and blanking, and identified the problem as a category 1 deficiency. The display issues occurred after a software update. The start of operational testing was delayed until the contractor could provide a software update to correct the problem, which was accomplished with a work-around in December 2018. <12. Technical Risks Identified In Our Previous Reports> Helmet Mounted Display: During low-light flights, the Helmet Mounted Display s technology cannot display pure black, causing a green glow on the screen which makes it difficult to see the full resolution of the night vision video feed. The contractor is developing a new system to avoid this effect, and the contractor delivered this system to the test fleet in September 2018 with final flight testing planned through January 2019. Figure 7 is a photograph of the Helmet Mounted Display. Aerial refueling probes: The F-35B and F-35C variants use a hose and drogue system in which an aerial refueling tanker aircraft extends a long, flexible refueling hose and a parachute-like metal basket that provides stability, the receiving aircraft then connects to the drogue basket with its extendable refueling probe, as shown in figure 8. The refueling probe tips are meant to break in the event there is a stress occurring during refueling. However, the breaking is occurring more often than expected. Since April 2014, more than 20 incidents have occurred where the F-35 s aerial refueling probes broke off while conducting aerial refueling, leading to a restriction of aerial refueling operations. Tire service life: We reported in June 2018, the average service life of tires on the F-35B is below 10 landings. Lockheed Martin is currently working with three tire manufacturers to develop a new design with the goal of 20 landings. Testing of the new tires will occur throughout 2019. Figure 9 shows an F-35B during a landing. Life support system: The program has identified over 35 pilot physiological events, of which nearly 30 occurred in-flight. An action team made of government officials, contractors, and doctors completed their work by May 2018. A root cause investigation did not identify any F-35 system deficiencies, but reported it was difficult to fully determine the problem due to a lack of real-time data. Contracting officials stated that this is partially because the technology has not yet been developed to monitor pilot s health in flight, in real time. The prime contractor continues to try to develop a means to monitor pilot health. Appendix IV: Comments from the Department of Defense Appendix V: GAO Contact and Staff Acknowledgments <13. GAO Contact> <14. Staff Acknowledgments> In addition to the contact named above, the following staff members made key contributions to this report: Justin Jaynes (Assistant Director), Jennifer Baker, Emily Bond, Brandon Booth, Erin Butkowski, Matthew T. Crosby, Desir e E. Cunningham, R. Eli DeVan, Laura Jezewski, Jennifer Leotta, Meghan Perez, Hai Tran, Abby Volk, Mary Weiland, Alyssa Weir, and Robin M. Wilson. Related GAO Products F-35 Joint Strike Fighter: Development is Nearly Complete, but Deficiencies Found in Testing Need to Be Resolved. GAO-18-321. Washington, D.C.: June 5, 2015. Warfighter Support: DOD Needs to Share F-35 Operational Lessons Across the Military Services. GAO-18-464R. Washington, D.C.: April 25, 2018. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. F-35 Joint Strike Fighter: DOD s Proposed Follow-on Modernization Acquisition Strategy Reflects an Incremental Approach Although Plans Are Not Yet Finalized. GAO-17-690R. Washington, D.C.: August 8, 2017. F-35 Joint Strike Fighter: DOD Needs to Complete Developmental Testing Before Making Significant New Investments. GAO-17-351. Washington, D.C.: April 24, 2017. F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans to Begin Development of New Capabilities. GAO-16-390. Washington, D.C.: April 14, 2016. F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016. F-35 Joint Strike Fighter: Preliminary Observations on Program Progress. GAO-16-489T. Washington, D.C.: March 23, 2016. F-35 Joint Strike Fighter: Assessment Needed to Address Affordability Challenges. GAO-15-364. Washington, D.C.: April 14, 2015. F-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.: September 23, 2014. F-35 Joint Strike Fighter: Slower Than Expected Progress in Software Testing May Limit Initial Warfighting Capabilities. GAO-14-468T. Washington, D.C.: March 26, 2014. F-35 Joint Strike Fighter: Problems Completing Software Testing May Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322. Washington, D.C.: March 24, 2014. F-35 Joint Strike Fighter: Restructuring Has Improved the Program, but Affordability Challenges and Other Risks Remain. GAO-13-690T. Washington, D.C.: June 19, 2013. F-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March 11, 2013. Fighter Aircraft: Better Cost Estimates Needed for Extending the Service Life of Selected F-16s and F/A-18s. GAO-13-51. Washington, D.C.: November 15, 2012. Joint Strike Fighter: DOD Actions Needed to Further Enhance Restructuring and Address Affordability Risks. GAO-12-437. Washington, D.C.: June 14, 2012. Joint Strike Fighter: Restructuring Added Resources and Reduced Risk, but Concurrency Is Still a Major Concern. GAO-12-525T. Washington, D.C.: March 20, 2012.

Why GAO Did This Study In 2018, DOD sent an F-35 aircraft to its first combat mission and started initial operational testing. DOD now plans to spend over $270 billion to buy more than 2,000 F-35 aircraft over the next 26 years. Since 2011, GAO has found the need for more attention to the F-35's R&M performance to achieve an operationally suitable system. The National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to review the F-35 acquisition program until it reaches full-rate production. This is GAO's fourth report under this provision. This report assesses, among other objectives, (1) the program's progress in meeting R&M requirements (such as mission reliability) and (2) its plans for spending on new capabilities. GAO reviewed and analyzed management reports and historical test data; discussed key aspects of F-35 development with program management and contractor officials; and compared acquisition plans to DOD policies and GAO acquisition best practices. What GAO Found The F-35 program has made slow, sustained progress in improving the aircraft's reliability and maintainability (R&M). The F-35 aircraft (see figure) are assessed against eight R&M metrics, which indicate how much time the aircraft will be in maintenance rather than operations. Half of these metrics are not meeting targets. While the Department of Defense (DOD) has a plan for improving R&M, its guidance is not in line with GAO's acquisition best practices or federal internal control standards as it does not include specific, measurable objectives, align improvement projects to meet those objectives, and prioritize funding. If the R&M requirements are not met, the warfighter may have to settle for a less reliable and more costly aircraft than originally envisioned. In 2019, the F-35 program will start modernization efforts—estimated to cost $10.5 billion—for new capabilities to address evolving threats, without a complete business case, or a baseline cost and schedule estimate. Key documents for establishing the business case, such as an independent cost estimate and an independent technology assessment, will not be complete until after the program plans to award development contracts (see figure). Without a business case—consistent with acquisition best practices—program officials will not have a high level of confidence that the risk of committing to development has been reduced adequately prior to contract awards. Moving ahead without a business case puts F-35 modernization at risk of experiencing cost and schedule overruns similar to those experienced by the original F-35 program during its development. What GAO Recommends GAO is making five recommendations to DOD, including that it identify specific and measurable R&M improvement objectives, align improvement projects, and prioritize resources to meet them. In addition, DOD should complete its business case for modernization before beginning additional development efforts. DOD did not concur with this recommendation, but did concur with the R&M recommendations and plans to take action to address them.

gao_GAO-20-468

gao_GAO-20-468_0

<1. Background> Mobile devices, such as smartphones and tablets, use wireless networks to enable voice and data communications. These wireless networks comprise several components. For example, cell sites a base station equipped with an antenna receive and transmit radio signals to mobile devices. In addition to traditional macro cells, 5G networks also use smaller wireless infrastructure, known as small cells, which can be installed on existing structures, including macro towers, buildings, utility poles, or streetlights. Base station controllers manage communications between the cell site and the mobile switching center, or the core network. The core network then directs the communication to landline phones, other cell phones, or the internet. Finally, backhaul facilities, such as fiber optic cables or microwaves, transport the communications (See fig. 1.). Cell sites use radio frequency spectrum to receive and transmit radio signals to and from mobile devices. Spectrum is a finite natural resource used to provide a variety of communication services to businesses and consumers, as well as federal, state, and local governments. Businesses and consumers use spectrum for a variety of wireless services including mobile voice and data, Wi-Fi- and Bluetooth-enabled devices, broadcast television, radio, and satellite services. Federal, state, and local governments uses of spectrum include national defense, law enforcement communication, air traffic control, weather services, military radar, and first responder communications. The frequency bands have different characteristics that make them more or less suitable for specific purposes. For example, different bands have different limits to the amount of information that they can carry, known as data capacity, and different levels of ability to effectively penetrate or bend around physical obstacles and cover distances, known as propagation. Regarding wireless communication: Low-band spectrum (generally defined as under 1 gigahertz (GHz)) typically has relatively low data capacity but has propagation characteristics that enable transmission over longer distances and penetration of buildings and other physical barriers better than higher bands. Mid-band spectrum (generally defined as between 1 GHz and 6 GHz) tends to provide greater data capacity than low bands and has better propagation qualities than higher bands. High-band spectrum (generally defined as those above 24 GHz) allows for high data capacity but has relatively limited propagation, to the point that bands at higher frequencies (according to FCC, those above 95 GHz) are most prone to obstruction by natural or manmade objects, such as trees or glass. In the United States, two federal agencies are primarily responsible for managing spectrum. FCC is the federal agency responsible for allocating spectrum for consumer and commercial purposes (as well as state and local government uses), assigning spectrum licenses to those entities, and making spectrum available for use by unlicensed devices. Licensing assigns frequencies of spectrum, in a specific area, and generally speaking, according to FCC officials to a specific entity, such as a telecommunications company. NTIA is responsible for establishing policy on regulating federal spectrum use. NTIA assigns frequencies to government agencies, maintains federal spectrum use databases for those assignments, and oversees, in cooperation with other relevant federal agencies, which spectrum bands reserved for federal government use might be made available for commercial use. Approximately every 10 years since around the early 1980s, wireless carriers have deployed a new generation of technology, and each development has changed how people and businesses use mobile communication. These technologies can bring greater speed and capabilities to mobile networks and can provide new revenue streams for carriers and economic gains for national economies. For example, a trade organization representing carriers reported that U.S. leadership in developing and deploying 4G brought in significant economic benefits, adding billions of dollars to the U.S. economy. The carriers we spoke with are currently developing and deploying 5G networks, which will allow for enhanced mobile broadband, offering greater speed and higher data capacity than previous generations of mobile wireless networks. Carriers in the United States are currently deploying 5G as hybrid 5G, which uses 5G technologies in combination with existing 4G networks to improve the networks speed by enhancing the technology that connects a user device to a core network. In the future, carriers that want to deploy standalone 5G will have to replace their existing 4G network infrastructure with new 5G equipment to enhance the core network. The new, standalone 5G networks will allow for additional enhanced capabilities, such as lower latency, and will be better able to support other advanced use cases (see fig. 2). Carriers have thus far deployed limited 5G services as hybrid 5G networks in the United States, and are taking different approaches with regard to spectrum use for 5G. For example, some carriers told us that they are relying on low-band spectrum for their 5G network. Other carriers are using high-band spectrum in limited locations. In both cases, customers need to purchase new 5G-capable smartphones to use these hybrid 5G networks. In general, telecommunications networks, including mobile networks, provide important economic and educational opportunities to communities, but different socioeconomic groups and groups in different geographic areas have historically received different levels of access to telecommunications services, leading to a disparity called the digital divide. A number of factors explains the digital divide. For example, as we have reported in the past, rural areas tend to have conditions such as low population density or difficult terrain that can increase the costs for carriers to deploy and maintain networks. Furthermore, lower-income households may have access to the necessary infrastructure for service but may not be able to afford the service. <2. FCC Lacks Comprehensive Strategic Planning to Guide Spectrum Policy for 5G Deployment> <2.1. Experts Identified Availability of Mid-Band Spectrum as a Key Deployment Challenge> Experts we convened told us that the lack of sufficient access to mid- band spectrum is a key challenge to deploying 5G, noting that mid-band spectrum is particularly important for 5G deployment because of its network characteristics and potential to be interoperable with other 5G networks worldwide. Experts stated that the availability of mid-band spectrum to carriers in the United States is not yet sufficient to meet carriers needs for 5G network deployment because of existing congestion within the band. Experts stated that carriers will need a mix of low-, mid-, and high-band spectrum when deploying 5G networks because of the network characteristics unique to each spectrum band. For example, one expert noted that mid-band spectrum provides 5G network characteristics that cannot be achieved using solely low- or high-band spectrum. Signals using mid-band spectrum have better propagation (i.e., ability to effectively penetrate or bend around physical obstacles and cover distances) than signals using high-band spectrum (see fig. 3) and carry more data than low-band spectrum. Global harmonization of spectrum, or the use of the same spectrum bands among countries around the world, helps ensure that 5G devices will work across countries. Countries that harmonize spectrum for 5G may benefit by making international travel and communication more convenient. For example, consumers from countries that deploy 5G using the same spectrum bands will have the benefit of roaming across networks. Spectrum harmonization also creates economies of scale that can reduce the costs of manufacturing wireless devices and deploying network equipment. Countries, including the United States, have identified specific frequencies in mid-band spectrum that may be used for 5G. However, experts told us that, as currently allocated, mid-band spectrum is highly congested, leading to an insufficient amount available for carriers to deploy 5G networks in the United States. According to NTIA officials, current mid-band spectrum users known as incumbents include federal government users that have primary access rights to the spectrum and face challenges in readily transitioning to new or less favorable spectrum bands. For example, agencies existing technologies may be designed specifically for their existing spectrum bands. Additionally, according to FCC officials, it is becoming increasingly challenging to relocate federal users out of a spectrum band entirely and into a new band due to a variety of factors, including concerns about potential interference as well as greater spectrum use in recent years. According to experts, large consecutive portions of spectrum will be necessary for commercial users deploying 5G networks. Using smaller or non- consecutive portions of spectrum may limit the capability of the network. <2.2. FCC Has Taken Actions to Increase Spectrum Availability> According to FCC officials, FCC has taken several actions to make additional spectrum available for carriers planning to deploy 5G networks. Some examples of FCC s actions to make low-, mid-, and high-band spectrum available for 5G deployment include: Low-Band: FCC concluded an auction in 2017 for low-band 600 megahertz (MHz) spectrum licenses, assigning 70 MHz for licensed wireless operations. Such spectrum auctions allow FCC to use competitive bidding to choose from among two or more applications for a spectrum license. Mid-Band: FCC issued a Report and Order in July 2019 that made spectrum licenses within the 2.5 GHz band accessible to nonfederal users. High-Band: FCC held its first auctions for high-band 5G spectrum in the 24 GHz and 28 GHz bands in 2018 and 2019. FCC also began an auction of 3,400 MHz of spectrum in the upper 37, 39 and 47 GHz bands in December 2019; bidding in this auction concluded on March 5, 2020. FCC officials told us that they are aware that mid-band spectrum will be particularly important for 5G deployment despite congestion amongst federal users in this spectrum range. FCC is taking steps to make some additional mid-band spectrum available. For example, in February 2020, FCC announced that it had adopted new rules to auction 280 MHz of mid- band spectrum, which can be used for 5G purposes. This spectrum, (3.7 to 3.98 GHz) is currently being used primarily by satellite operators. In March 2020, FCC released a public notice seeking comment on procedures to be used for the auction of this spectrum, which is currently scheduled to begin on December 8, 2020. As another example, according to FCC, in April 2020 FCC provided for expanded Wi-Fi use in 1,200 MHz of spectrum in the 6 GHz band. Such advanced Wi-Fi networks, FCC told us, will be capable of working hand-in-hand with commercial networks to enable robust 5G device broadband connectivity and may be able to help alleviate commercial wireless network congestion. Other activities, according to FCC, include: (1) opening a proceeding in the 3.1 to 3.55 GHz band to consider potential shared use between federal operations and flexible use commercial services; and (2) authorizing a private entity to deploy a low-power terrestrial nationwide network in certain frequencies that will make available additional spectrum for advanced wireless services, including 5G. FCC and NTIA also developed a spectrum-sharing framework in the 3.5 GHz band that will increase the availability of this mid-band spectrum targeted globally for 5G. This framework separates users into three hierarchical tiers, giving differing priority access to the spectrum (3.55 GHz to 3.7 GHz, also known as the Citizens Broadband Radio Service ) depending on the user s tier. The first tier includes incumbents, such as federal users (e.g., U.S. Navy radar systems) and a number of commercial users. These users receive first priority and protection from all other users. Tier two users referred to as Priority Access Licensees are, according to FCC, wireless users that obtain licenses at auction or, following the auction, via secondary markets. These users, which can include wireless carriers, have access to the same mid-band spectrum when a tier one user is not using the spectrum, but FCC officials said these users will need to move to another frequency when a nearby tier one user accesses the same frequency. Third tier users access the band as available. FCC officials stated that this spectrum-sharing framework will allow for increased spectral utilization of mid-band spectrum in a band like 3.5 GHz and that individual users (e.g., the public using mobile devices) will not notice any difference in their network connection. According to FCC officials, the technology supporting this spectrum-sharing framework is now authorized for full commercial deployment. They also said that FCC certified administrators in January 2020 to coordinate this framework, which will allow for full commercial operation, and that FCC has scheduled to begin auctioning licenses for tier two users on July 23, 2020. Other federal agencies are also involved with managing spectrum in the United States. For example, NTIA, which manages federal spectrum use, is working with FCC on the technical design and implementation of the spectrum-sharing framework discussed above. NTIA is also seeking to identify additional spectrum for 5G, in conjunction with FCC. According to FCC, some of the most useful portions of mid-band spectrum are already occupied by a federal incumbent and FCC is limited in its ability to make this spectrum available for commercial use. According to NTIA officials, the agency is focused on meeting the spectrum requirements set forth in the Making Opportunities for Broadband Investment and Limiting Excessive and Needless Obstacles to Wireless Act (MOBILE NOW Act) of 2018, which requires NTIA and FCC to prepare a report by 2022 identifying potential spectrum for future use. For example, NTIA is currently studying the feasibility of spectrum sharing in the 3.45 to 3.55 GHz band. Overall, FCC s efforts, in conjunction with NTIA, to date have primarily made more high-band spectrum available for 5G purposes. According to the Department of Commerce s 2019 Annual Report on the Status of Spectrum Repurposing, 84 percent (4,950 MHz out of 5,863 MHz) of the spectrum made available by FCC and NTIA has been within high-band. According to the report, 12 percent (709 MHz of 5,863 MHz) of the spectrum FCC and NTIA have made available has been within mid-band. NTIA officials said there has been more of a focus on repurposing high- band spectrum because there is a far greater amount of this spectrum available for use and fewer incumbent users within this spectrum. Further, NTIA officials stated that these amounts are a snapshot as of the time the 2019 report was issued and the ratios will change, as additional spectrum is made available. Other recent FCC actions, including those described above, may make more mid-band spectrum available in the future. For example, FCC told us that it has a number of active proceedings that could make additional mid-band spectrum available to commercial users. <2.3. FCC s Plan to Guide 5G- Related Efforts Is Missing Key Elements of Strategic Planning> To guide its 5G-related efforts, including spectrum management, FCC has developed its Facilitate America s Superiority in 5G Technology Plan (5G FAST Plan). This Plan includes three key components: (1) pushing more spectrum into the marketplace; (2) updating infrastructure policy; and (3) modernizing outdated regulations. According to FCC officials, the 5G FAST Plan represents FCC s strategy for supporting 5G, and these key components are FCC s broad strategic goals for 5G. However, FCC has not laid out in the 5G FAST Plan how it will implement and assess progress toward the three key components. Our past work on strategic planning has identified related leading practices. These include identifying: (1) specific and measurable performance goals to show progress toward broad strategic goals; (2) the activities (also known as strategies) the agency will take to make progress toward its goals; and (3) related performance measures to assess actual progress made toward the performance goals. Although FCC s 5G FAST Plan notes actions or strategies FCC has taken regarding managing spectrum for 5G, it does not clearly identify specific and measurable performance goals and related measures for spectrum management related to 5G deployment. For example, the plan notes that FCC s actions on the 2.5 GHz, 3.5 GHz, and 3.7 - 4.2 GHz bands could make up to 844 MHz available for 5G, but these strategies are not related to any identified performance goals or measures. Without such strategic planning efforts, it is unclear if these actions will be sufficient to address the challenges experts raised about the lack of mid-band spectrum for 5G. Additionally, establishing performance goals and measures would allow FCC to assess its spectrum management strategies and track the progress it is making toward its goals. Further, according to FCC officials, the priorities noted in the 5G FAST Plan were not developed with outside entities, such as NTIA or other relevant stakeholders, including carriers. Leading practices, as identified in our previous work, show that successful organizations base their strategic planning, to a large extent, on the interests and expectations of their stakeholders, which could include other federal agencies, Congress, and others. Thus, involving stakeholders in the strategic planning process helps ensure that the agency s efforts are targeted at the highest priorities. According to FCC officials, it can be difficult to set goals for specific amounts of spectrum to be made available because of, in part, the fast- changing nature of the telecommunications industry. While we recognize that setting such goals, measures, or strategies may be difficult, our past work on strategic planning has found that there is no more important element in results-oriented management than an agency s strategic planning effort. This effort is the starting point and foundation for defining what the agency seeks to accomplish, identifying the strategies it will use to achieve desired results and then determining how well it succeeds in reaching results-oriented goals and achieving objectives. Proactively developing performance goals, strategies and measures with the involvement of relevant stakeholders to manage spectrum demands associated with 5G deployment would help ensure that sufficient amounts of spectrum in consecutive portions are made available to avoid delaying the deployment and limiting the capabilities of 5G networks. Additionally, by incorporating these key elements into its strategic planning for 5G, FCC would be able to assess its progress in managing spectrum, particularly the congested mid-band spectrum that is important to 5G deployment. <3. FCC Lacks Comprehensive Strategic Planning to Mitigate the Likelihood of 5G to Widen the Digital Divide> <3.1. Experts Warned That 5G Deployment Would Likely Widen the Digital Divide> Experts we convened told us that 5G deployment, especially high-band 5G networks, will likely widen the existing digital divide, particularly between urban and rural areas, as well as within urban areas. Experts and stakeholders told us that 5G using high-band spectrum is likely to be first deployed in areas already equipped with much of the necessary infrastructure (i.e., fiber and power). Experts said these areas are generally more urban, densely populated, high-income areas as opposed to rural or low-income areas. Stakeholders told us that rural areas will see 5G deployed mostly on lower frequencies, on which signals can propagate further but which cannot carry the same bandwidth (i.e., data throughput) as higher frequencies can. Within urban settings, experts said that high-band 5G networks are more likely to be deployed in commercially viable areas, including those parts of a city that already are equipped with fiber and power and, presumably, already benefit from the most advanced mobile broadband services available. For example, an expert representing the wireless industry stated that only about 10 percent of the District of Columbia would receive 5G services using high- band spectrum, as it would be cost-prohibitive for the carriers to install 5G using this spectrum beyond that 10 percent of the city. Experts told us that individuals without access to 5G networks will not be able to take advantage of the use cases that 5G promises, including the high-speed connections offered by enhanced mobile broadband. Experts stated that this situation will greatly affect, among other things, the economic and educational opportunities that 5G promises to make possible. We have previously reported on the digital divide, or the varying levels of access to technologies such as internet and wireless services among different socioeconomic groups, as well as groups in different geographic areas. For example, as we have reported in the past, rural areas tend to have conditions such as low population density or difficult terrain that can increase the costs for carriers to deploy and maintain networks in those areas. Furthermore, lower-income households may be located in areas with access to the necessary infrastructure for certain services but may not be able to afford them. The challenge for some households to afford the most advanced mobile communications services would become worse if carriers charge more for 5G services. An Expert s Perspective on the Digital Divide Employers who want to ensure that their workforce has access to 5G, or their factory floor has access to 5G, won't locate in communities that don't have those services, thereby exacerbating the existing digital divide. <3.2. FCC Has Efforts to Close the Digital Divide but Has Not Developed Specific and Measurable Performance Goals and Related Strategies and Measures> FCC has taken steps to address digital divide issues, with some of these efforts potentially affecting the digital divide as it relates to 5G deployment. For example, according to FCC officials, FCC issued a recent order approving a merger between two mobile carriers that included certain service requirements to increase 5G access nationwide. FCC told us that the merged company will face significant financial penalties if it fails to meet these requirements. Additionally, FCC has established financial support that may be used for 5G-related efforts. The Universal Service Fund provides financial support to carriers through different programs, each targeting a particular group of telecommunications carriers or consumers. For example, one of these programs, the High Cost Program, provides support in rural or remote areas where the customer base is relatively small and the cost of installing infrastructure is high. According to FCC officials, the support provided by the Universal Service Fund can evolve over time to address emerging technologies, including 5G. For example, the officials stated that in response to recent hurricanes in the Caribbean, the Universal Service Fund is currently being used to support deployment of fiber and power in parts of Puerto Rico and the U.S. Virgin Islands, which will help support future deployment of 5G in those areas. Further, in December 2019, the FCC Chairman announced his intention to establish the 5G Fund, which would make up to $9 billion in Universal Service Fund support available to carriers to deploy 5G services in rural areas of the United States. In April 2020, FCC issued a Notice of Proposed Rulemaking and Order seeking comments on the framework for the 5G Fund and on approaches to identifying eligible areas for support. Although FCC s actions could help address the digital divide, its existing planning documents for 5G do not include key elements that would allow FCC to understand the effects of these efforts as they relate to 5G deployment. Neither FCC s strategic plan for 2018 through 2022 nor its 5G FAST Plan include specific performance goals or related strategies and measures that would allow FCC to assess the effectiveness of its efforts to close the digital divide associated with 5G deployment. For example, FCC s strategic plan for 2018 through 2022 includes a strategic goal and performance goals to close the digital divide, but the performance goals are not specific or measurable. Further, neither the strategic plan nor the 5G FAST Plan include specific performance measures regarding the effects of 5G on the digital divide. Moreover, while FCC s strategic plan states that a strategy to help close the digital divide is that it will set rules to encourage and facilitate the development of 5G networks, the strategy is not associated with specific performance goals or measures regarding the effects of 5G on the digital divide. Additionally, the 5G FAST Plan identifies a number of current and future strategies for FCC but does not include specific performance goals or measures that would allow it to understand what those strategies are intended to achieve and the effects those strategies are having on the digital divide as 5G networks are deployed. These omissions are contrary to leading practices of results-oriented organizations identified in previous GAO work. These leading practices call for performance goals and related strategies and measures, as we previously described. Such leading practices, as previously noted, include identifying: (1) specific and measurable performance goals to show progress toward broad strategic goals; (2) the activities (also known as strategies) the agency will take to make progress toward its goals; and (3) related performance measures to assess the results of the strategies and actual progress made toward the performance goals. FCC officials said that they are focusing on reducing the digital divide and have set high-level goals, but have not established goals specific to 5G. However, by establishing specific and measurable performance goals for 5G with related strategies and measures, FCC will have greater assurance that it has properly planned actions to effectively address the likely adverse effects on the digital divide as 5G networks are deployed. For example, specific goals for 5G will help FCC assess the effectiveness of its recent decision to make $9 billion in Universal Service Fund support available to carriers to deploy 5G services. <4. The High Cost of 5G Infrastructure May Affect 5G Deployment> <4.1. Experts Identified Economic Issues as a Key Challenge> Experts told us that deploying 5G infrastructure will be very costly for carriers. According to international standards established for 5G networks, to support all the new capabilities of 5G, carriers will need to replace their 4G core networks with new 5G equipment. These standalone 5G networks will provide new capabilities such as ultra- reliable low latency communications that could enable the development of new, more advanced use cases. In the meantime, carriers are currently deploying hybrid 5G, which uses existing 4G network infrastructure, but they still must make some upgrades to their 4G equipment and in some instances, deploy additional cell sites, such as small cells, to provide hybrid 5G service. These small cells can be installed on existing structures, such as buildings or streetlights. See figure 4 for examples of small cells. Some carriers are deploying 5G using low-band spectrum, which is much less costly to deploy because carriers can use their existing 4G cell towers. However, low-band spectrum does not enable the same data speeds as other types of 5G. As discussed previously, the United States has made a large amount of high-band spectrum available for 5G. The use of such spectrum increases the cost of 5G infrastructure deployment because it requires more small cell installations. Experts suggested that, because of the increased costs, carriers may limit deployment of high- band 5G network equipment to high-density areas such as sections of cities or stadiums. Moreover, a recent Defense Innovation Board report referenced a preliminary study that indicated that carriers would have to install approximately 13 million base stations, at a cost of approximately $400 billion, to deliver 5G service using this high-band spectrum to 72 percent of the population. In addition to installing the actual cell site equipment, each small cell site has costs associated with it: Fiber: Experts told us that fiber deployment is critical to the success of 5G. They noted that getting enough fiber in place to support the large increase in small cells will require a massive infrastructure deployment. For example, experts stated that currently there is not enough fiber in the ground in most places to support 5G. The fiber network must also have the capacity to handle the increased traffic from 5G. Experts told us that the new fiber needed for 5G will be costly to install, both in urban and rural areas. For example, installing fiber in urban areas can be costly due to local rules and difficulty accessing the right-of-way. In rural areas, fiber deployment costs are high because carriers must install fiber over longer distances to reach customers. Power: In addition to fiber, new cell sites also require a power source. While some small cells are being installed on light poles that have an existing power source, an expert noted that sometimes these are only powered on at night. Another expert noted that carriers may need to install back-up power sources, in case of a power outage. Permitting: When installing a new cell site, carriers generally must seek approval from the federal, state, or local government that controls the right-of-way or property where the cell site is to be located. This may require carriers to pay permitting fees or meet certain aesthetic requirements. Experts told us that the fact that different cities have different permitting regimes drives up the cost to build infrastructure. For example, experts told us that making sure small cells meet different localities requirements for design, dimension, and other aesthetic requirements is difficult for carriers and could slow deployment. However, other experts noted that these local permitting processes enable local governments to ensure 5G is being deployed in such a way that would benefit their citizens. For example, according to a report by the National League of Cities, San Jose, California created a tiered pricing structure to encourage carriers to cover more of the city. The city plans to use some of the revenues from this permitting process to help close the digital divide in the city, for example by allowing people to check out devices at libraries. Experts Perspectives on Permitting Costs There are several thousand municipalities in the United States, each of which has different paperwork, processes, and payment mechanisms for siting small cells, which increases 5G deployment cost and time and inhibits the rollout of the networks. 5G deployment requires many more small cells than 4G required macro cells, thereby increasing the reliance on public right-of-ways. As a result, we have seen cities restricted from charging market rates for permitting. However, cities play a really crucial role in ensuring that the deployment of these technologies and the use of public right-of-ways is coupled with public interest obligations. Carriers current financial condition will also affect how they deploy 5G, including where and what type of networks they deploy. Experts noted that carriers in the United States may not currently have the capital required to fund large-scale deployments of 5G due, in part, to the costs of recent business decisions. Additionally, an expert mentioned that carriers would likely only be able to afford to deploy high-band spectrum in small sections of cities. Another expert predicted that carriers may not replace existing 4G equipment until it becomes less reliable over time, leading to a more comprehensive roll-out of 5G in 6 to 8 years. A representative from a carrier said that while it did not anticipate any additional revenue from 5G deployment, carriers still must deploy 5G because to not do so would place their companies at extreme risk of losing large numbers of customers, potentially eroding their revenue base. Experts Perspectives on Economic Challenges to 5G Deployment Most of the major carriers in the United States aren't in great financial shape. They've leveraged up and have made acquisitions into new spaces. The challenge for these carriers is do they have the billions of dollars required for another large-scale capital program, or do they just sort of put it out there because it s good PR. Right now, from an economic standpoint, there isn't a strong case for making this enormous investment in 5G and it feels like it's more of a defensive play by carriers. Experts also noted that consumers are not always willing to pay more for 5G service, which reduces carriers ability to recoup their deployment investments. For example, one expert questioned whether consumers in the United States were willing to pay anything more for 5G, and another noted that carriers are currently charging the same price for 5G and 4G service. Additionally, experts told us that there is no clear use case currently developed for 5G in the United States, besides enhanced mobile broadband. The 5G use cases often cited, such as remote surgery or autonomous vehicles, are unlikely to be developed in the near future. Without such use cases, they said, carriers lack a strong business case for deploying 5G. Other experts noted, however, that 4G use cases such as social media or ride sharing apps did not exist when carriers started to deploy 4G, but were developed after 4G was in place. Similarly, experts predicted that 5G use cases would be developed after 5G networks were available in the United States. <4.2. FCC and Others Have Taken Some Steps to Reduce Deployment Costs> To help reduce the cost of deploying 5G infrastructure, FCC has taken steps to expedite the permitting and review of small cells. For example, FCC issued a Programmatic Agreement for the Collocation of Wireless Antennas, which reduces the regulatory approval process for collocating small cells that are on existing infrastructure, such as utility poles. In addition, FCC adopted an order and declaratory ruling regarding state and local government reviews of small cell applications, which set parameters for fees and time frames for these reviews. This Order went into effect in January of 2019; however, it is currently being challenged in federal court. FCC also adopted an order that, among other things, exempted the construction of small cells from compliance with federal historic preservation and environmental review that were applied to large macro towers. A recent federal court decision, overturned the exemption and the FCC repealed the section of the order. In addition to the steps FCC has taken to limit regulatory and permitting costs, experts suggested that carriers could consider sharing their network infrastructure to reduce their capital expenditure for deploying 5G. Through infrastructure sharing agreements, two or more carriers share infrastructure such as radio antennas or fiber to deliver service to users. This sharing reduces deployment costs for carriers and allows them to deploy in areas where the costs would normally be prohibitive, such as rural areas. Such sharing agreements can increase choices for consumers, as more carriers can afford to operate in areas they would not normally be able to. FCC officials said that industry is already moving toward greater shared infrastructure and FCC s efforts are designed to promote it. However, such sharing agreements may have the potential to decrease competition, if not well monitored. In addition, a carrier may not be willing to share infrastructure with other carriers for fear of losing its competitive advantage. For example, according to a report by the Body of European Regulators, a carrier that is the only one offering service in a certain area could lose competitive advantage and not be rewarded for its investments in the area under a sharing agreement. Infrastructure sharing is common in other countries; the same report by the Body of European Regulators found that carriers in 14 European countries had active sharing agreements with joint deployment in place. For example, in Spain, some carriers share their mobile networks in areas with fewer than 175,000 inhabitants. According to the report, 5G will further incentivize network sharing, as carriers need to deploy more small cells and fiber. Experts told us, however, that such sharing agreements were uncommon in the United States. Instead, carriers typically install their own network infrastructure, leading to overlapping networks and higher overall deployment costs. FCC officials said they recognize the benefits of infrastructure sharing, especially for 5G, but said that the decision about whether to share infrastructure is ultimately up to each carrier. Officials noted that carriers will use their own economic and engineering analysis in determining how to deploy 5G. <5. Conclusions> 5G networks could create significant economic benefits for the United States, as companies develop products and technologies to access 5G s new capabilities. Carriers currently face challenges to deploying 5G, however, which could delay or even limit the United States opportunity to realize those benefits. FCC has taken a number of actions regarding 5G deployment, but it has not clearly developed specific and measurable performance goals and related measures with the involvement of relevant stakeholders, including NTIA to manage the spectrum demands associated with 5G deployment. This makes FCC unable to demonstrate whether the progress being made in freeing up spectrum is achieving any specific goals, particularly as it relates to congested mid-band spectrum. Additionally, without having established specific and measurable performance goals with related strategies and measures for mitigating 5G s potential effects on the digital divide, FCC will not be able to assess the extent to which its actions are addressing the digital divide or what actions would best help all Americans obtain access to wireless networks. <6. Recommendations for Executive Action> We are making the following two recommendations to FCC: The Chairman of FCC should develop, in coordination with NTIA and other relevant stakeholders, specific and measurable performance goals with related strategies and measures to manage spectrum demands associated with 5G deployment. (Recommendation 1) The Chairman of FCC should develop specific and measurable performance goals with related strategies and measures to determine the effects 5G deployment and any mitigating actions may have on the digital divide. (Recommendation 2) <7. Agency Comments and Our Evaluation> We provided a draft of this report to FCC and NTIA for review and comment. FCC provided written comments, which we have reprinted in appendix II. FCC and NTIA also provided technical comments, which we incorporated as appropriate throughout our report. In its written comments, FCC neither agreed nor disagreed with our recommendations. FCC described the challenges associated with developing performance goals for managing the spectrum demands associated with 5G deployment. Specifically, FCC stated that such goals could limit the options available to manage spectrum demands. Instead, FCC stated that it adopts specific and measurable performance goals with related strategies and measures during ongoing rulemakings, which allow FCC to establish engineering, economic, or other technical outcomes. We acknowledge in our report that setting specific and measurable performance goals, strategies, and measures can be challenging, but continue to believe such strategic planning would benefit FCC s spectrum management efforts. We did not identify what specific and measurable performance goals, strategies, and measures FCC should develop because FCC is in the best position to make such determinations. However, as we describe in our report, FCC still has not engaged in this strategic planning effort. Our past work has found that there is no more important element in results-oriented management than an agency s strategic planning effort. That effort should be the starting point and foundation for FCC to define what it seeks to accomplish, identify the strategies it will use to achieve desired results, and then determine how well it succeeds in reaching results-oriented goals and achieving objectives. Related to our recommendation for FCC to develop specific and measurable performance goals to determine the effects 5G deployment and any mitigating actions may have on the digital divide, FCC noted that it is taking regulatory actions and providing funds designed to reduce the digital divide. FCC further said that it remains committed to promoting robust 5G deployment nationwide and, consistent with our recommendation, will continue to explore new ways to evaluate how it may impact efforts to close the digital divide. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 15 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Chairman of the FCC, the Secretary of the Department of Commerce, and other interested parties. In addition, the report will be available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology This report examines the challenges, and the federal government s efforts, related to 5G deployment with regard to: (1) managing spectrum; (2) closing the digital divide; and (3) addressing economic issues. These were the top three challenges to 5G deployment identified by the 17 experts we convened. To identify challenges to 5G deployment, we issued a brief questionnaire to 146 GAO-identified stakeholders with knowledge of 5G networks. These stakeholders included officials from the federal government, as well as representatives from academia, industry, and consumer groups. Stakeholders were identified by reviewing previous GAO reports and through background research and were selected to provide a range of perspectives on 5G deployment. We asked these stakeholders to identify challenges to deploying 5G networks in the U.S. and received 23 responses. We conducted a content analysis to categorize the responses into a final set of 13 challenges. See table 1 for a list of the challenges. Because content analysis relies on the judgment of coders to determine whether qualitative data reflects particular categories, we took several steps to ensure that this judgment remained objective, accurate, and consistent. These steps included using independent coders from two different mission teams within GAO to ensure consistent judgment of categories. The independent coders were in general agreement on the challenges categories. On the basis of this high level of agreement between coders, as well as a review by a third independent analyst, we are confident that our content analysis represents an objective, accurate, and consistent assignment of these coding categories. We then convened a meeting of 17 experts to discuss the above challenges to 5G deployment. Our meeting of experts was held at the National Academies of Sciences, Engineering, and Medicine (NASEM) in October 2019 over one-and-a-half days. Staff from NASEM assisted us in identifying experts for the meeting. To identify the experts appropriate for this meeting, NASEM relied on staff experience and professional judgment drawn from its Computer Science and Telecommunications Board. We selected the final panel of experts in consultation with NASEM staff with the goal of ensuring that a broad range of views was represented from multiple 5G-related areas, such as those of wireless carriers, academia, and consumer and industry groups. See table 2 for a list of the experts that participated in the meeting. The meeting was moderated by GAO staff who guided the experts through questions about each challenge to 5G deployment. The experts also discussed potential actions the federal government could take to address those challenges and were asked to identify the most significant challenges to 5G deployment. This meeting of experts was planned and convened with the assistance of NASEM to better ensure that a breadth of expertise was brought to bear in its preparation; however, all final decisions regarding meeting substance and expert participation are the responsibility of GAO. Any conclusions and recommendations in GAO reports are solely those of the GAO. The meeting was recorded and transcribed to ensure that we accurately captured the experts statements, and we reviewed and analyzed the transcripts as a source of evidence. We edited experts quotations from the transcripts for clarity and conciseness to include in this report. In addition to the experts we spoke to on the panel, we also interviewed 16 stakeholders as well as officials from the Federal Communications Commission (FCC), the National Telecommunications and Information Administration (NTIA), and the National Institute of Standards and Technology to further understand the challenges to 5G deployment. We selected these stakeholders based on our prior telecommunications work, other 5G literature, and recommendations from stakeholders we interviewed to provide a range of perspectives on 5G deployment. Stakeholders were from two universities, four industry associations, five wireless carriers, as well as five local governments and organizations. To identify these local governments, we selected a group of cities to include those where wireless carriers have announced they will launch 5G services, and selected a mix of cities where there was local opposition to 5G, as well as cities with state or local laws regarding small cell permitting. We then selected lower-population density cities in the same states as those cities, using U.S. Census data. To select these cities, we identified the county with the median population density of the state, and then selected the city which holds the county seat. We attempted to contact all the selected cities and were able to schedule and hold interviews with representatives from Los Angeles, California; Jacksonville, Florida; Greenville, Illinois; and Naples, Florida. The information we obtained from these interviews is not meant to be generalizable to other cities experiences, but is meant to provide illustrative examples of actual 5G deployment. See table 3 for a complete list of stakeholders we interviewed. Finally, to assess the federal government s actions to address challenges to 5G deployment, we reviewed relevant statutes and literature, along with reports and documents from FCC and the Department of Commerce. For example, we reviewed FCC reports and orders related to 5G networks, the Department of Commerce s Spectrum Repurposing Report, along with planning reports such as FCC s Facilitate America s Superiority in 5G Technology Plan (5G FAST Plan) and FCC s and the Department of Commerce s strategic plans. In addition, we interviewed FCC and NTIA officials about their efforts to address 5G deployment challenges. We compared FCC efforts to address 5G deployment challenges to its own strategic goals and relevant leading practices for performance management identified in our prior body of work. We conducted this performance audit from February 2019 to June 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. Appendix II: Comments from the Federal Communications Commission Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact> Andrew Von Ah, (202) 512-2834 or [email protected]. <9. Staff Acknowledgments> In addition to the contact named above, Keith Cunningham (Assistant Director); Daniel Paepke (Analyst in Charge); Oluwaseun Ajayi; Carol Bray; Vijay D Souza; Wayne Emilien; Jonathan Felbinger; Richard Hung; Catrin Jones; Michael Krafve; Kaelin Kuhn; Hannah Laufe; Dan Luo; Neelaxi Lakhmani; Brian Mazanec; Jamilah Moon; Cheryl Peterson; Erika Prochaska; Malika Rice; Oliver Richard; Pamela Snedden; Andrew Stavisky; Hai Tran; Christopher Turner; Tatyana Walker; and Michelle Weathers made key contributions to this report.

Why GAO Did This Study As the latest generation of mobile communications, 5G networks are expected to provide faster connections to support consumer, industry, and public sector services. While private sector carriers deploy 5G networks, FCC has a role in managing deployment challenges, such as how to allocate low-, mid-, and high-band spectrum for 5G use. GAO was asked to review 5G deployment challenges. This report examines challenges and the federal government's efforts related to 5G deployment with regard to managing spectrum for 5G and closing the digital divide, among other things. GAO, with assistance from the National Academies of Sciences, Engineering, and Medicine, convened a meeting of 17 experts from academia, industry, and consumer groups; reviewed relevant statutes, literature, and FCC documentation; and interviewed FCC and other relevant federal officials, along with stakeholders that include various localities, wireless carriers, and industry associations. What GAO Found Approximately every 10 years since the early 1980s, wireless carriers have deployed a new generation of wireless communication technology. This decade is no different, as carriers are now developing and deploying 5G networks, which offer greater speed and higher data capacity than previous generations of mobile wireless networks. Carriers in the United States are currently deploying “hybrid” 5G, which uses 5G technologies in combination with existing 4G networks to improve the networks' speed. In the future, carriers may deploy “standalone” 5G, which relies exclusively on 5G equipment to allow for additional enhanced capabilities (see fig. 1). Radio frequency spectrum is a finite natural resource used to provide a variety of communication services to businesses and consumers, as well as to federal, state, and local governments. The frequency bands—often referred to as low-band, mid-band, and high-band spectrum—have different characteristics that make them more or less suitable for specific purposes. Experts GAO convened said that mid-band spectrum is highly congested, leading to an insufficient amount available for carriers to deploy their 5G networks in the United States. The experts stated that to avoid delays in 5G deployment, the commercial sector needs access to more mid-band spectrum. These experts highlighted the need for mid-band spectrum for 5G due to mid-band's use internationally and because of its properties. Mid-band spectrum allows for higher data capacity than lower bands and can penetrate physical obstacles over long distances—a property known as “propagation”— better than higher bands (see fig. 2). The Federal Communications Commission (FCC) has some efforts under way to make additional mid-band spectrum available but so far has primarily made high-band spectrum available for 5G because it is more readily available. Making more mid-band spectrum available to the commercial sector will be challenging, as current mid-band spectrum users include federal government users that may not be able to readily transition to new or less favorable spectrum bands. FCC's planning document for 5G includes a section on making additional spectrum available but does not clearly identify specific and measurable performance goals or measures to manage the spectrum demands for 5G. Without such strategic planning efforts, FCC will be unable to determine the effectiveness of its spectrum management efforts, particularly related to the congested mid-band spectrum that is critical to 5G deployment. The experts GAO convened also stated that 5G deployment would likely exacerbate disparities in access to telecommunications services, known as the “digital divide.” Specifically, experts as well as stakeholders GAO interviewed said that 5G using high-band spectrum—which allows for high data capacity—is likely to be first deployed in areas already equipped with much of the necessary infrastructure. Experts said the areas with existing infrastructure are generally urban, densely populated, high-income areas as opposed to rural or low-income areas. Further, within urban settings, experts said that high-band 5G networks are more likely to be deployed in commercially viable areas, including those parts of a city that already are equipped with fiber and power and, presumably, already benefit from the most advanced mobile broadband services available. FCC has taken steps to address the digital divide, including a recent announcement to make up to $9 billion in funding available to carriers to deploy 5G in rural areas of the United States. However, FCC has not developed specific and measurable performance goals with related strategies and measures to assess how well its actions are mitigating the added effects 5G deployment will have on the digital divide. What GAO Recommends FCC should develop specific and measurable performance goals with related strategies and measures to: (1) manage spectrum demands for 5G and (2) determine the effects 5G deployment and any mitigating actions may have on the digital divide. FCC indicated that setting spectrum goals could unnecessarily limit its options but did not agree or disagree with GAO's recommendations. GAO continues to believe that well-considered strategic planning would benefit FCC's efforts.

gao_GAO-20-366

gao_GAO-20-366_0

<1. Background> The platform economy is relatively new. Its rise has been tied to the development of the iPhone and Apple s app store, which launched in 2008. Smart phones and apps made it easier for people to develop online marketplaces where buyers and sellers could connect to exchange goods. Since then, more platform companies have emerged, expanding into marketplaces for a host of services. This expansion has increased the ways in which people could sell their services or goods and lowered the barriers to entering this type of work. Platform companies generally facilitate the match, transaction, and payment between those seeking goods or services online and those providing them. Platform companies can be divided into marketplaces for services or goods and can be further divided into two types of services transportation or other types of services and two types of goods retail or short-term rental. See figure 1 for a description of the different platform company marketplaces. Transportation platforms comprise the largest sector of the platform economy by revenue and number of workers and include companies like Uber and Lyft. Examples of platform companies providing other types of services include Care.com (child or senior care) and Upwork (a range of freelance services). Retail platforms like Etsy and eBay provide an online marketplace for goods. Companies that facilitate short-term rental include Airbnb (property) or Kerb (parking spaces). Platform companies also vary by the number and degree of specialization of services offered. For example, platform companies could be differentiated by the range of services offered, from those that offer a single service, such as transporting people and goods, to those that are a one-stop source to access workers specializing in an array of fields such as legal, information technology, marketing, writing, design, and accounting. Further, companies have adopted different business models. Some set prices while others allow the worker and customer to negotiate a price for the good or service provided. While platform workers can choose whether to accept work, companies are not committed to pay workers for a set number of hours, which allows companies to more easily manage demand fluctuations. Many platform companies classify workers providing services as independent contractors rather than as employees. This classification has implications for companies and workers. For independent contractors, companies are not responsible for paying a minimum wage or overtime and do not typically provide benefits such as paid leave, health insurance, or retirement plans. Furthermore, numerous labor protections that apply to employees do not apply to independent contractors. Companies also do not have to withhold and remit federal income or employment taxes for independent contractors. Instead, the worker is responsible for estimating, saving, and remitting these taxes each quarter to IRS. Furthermore, a platform company that operates as an intermediary between buyers and sellers to transfer funds for transactions for example, a ride-hailing company that matches drivers and riders and processes those riders payments to drivers may act as a third party settlement organization (TPSO) under IRS regulations, depending on its circumstances. Acting as a TPSO can further reduce the tax reporting requirements for these companies. SB/SE oversees taxpayers filing tax returns as self-employed individuals with business income, such as independent contractors, and businesses with less than $10 million in total assets. SB/SE aims to promote compliance among this population by raising awareness through outreach and education about tax obligations and how to comply. SB/SE also takes enforcement actions such as audits to pursue noncompliance, although with budget cuts, the number of audits has dropped considerably over time. <2. Platform Work Has Some Unique Characteristics, but Lack of Data Complicates Efforts to Describe the Workforce Unique Characteristics of Platform Work Affect Tax Responsibilities and Information Reported> While the nature of the work may be similar, key differences exist among traditional independent contractors, platform workers, and employees. We use the term platform worker for those workers that platform companies classify as independent contractors, which is the focus of our report. A major similarity is that all three types of workers provide services to customers in a business transaction, regardless of whether the customer is another business or an individual such as a homeowner. However, the three types of workers differ in terms of payments, tax responsibilities, and the information reported to IRS and workers. Figure 2 summarizes these differences, which are discussed below. A major difference is how these workers provide their services and receive payments. Traditional independent contractors directly provide their services to and receive payments from a business or an individual customer. Employees provide services through an employer who pays them wages. Unlike the other two types of workers, the platform worker provides services through a third party intermediary the platform company that uses online tools to connect workers with customers and facilitates payment between them. Platform workers that are classified as independent contractors have different tax obligations than employees. Independent contractors are generally expected to pay the full amount of their personal federal income and self-employment taxes which are comprised of Social Security and Medicare taxes through quarterly estimated tax payments to IRS. For employer-employee relationships, both the employer and the employee each pay roughly half of the Federal Insurance Contribution Act (FICA) taxes which are comprised of Social Security and Medicare taxes. An employer is required to withhold income taxes and the employee portion of FICA taxes from wage payments made to the employee and pay these taxes to IRS. Additionally the employer is required to pay its own portion of the FICA taxes to IRS. These workers have different requirements for filing annual tax returns. Generally, independent contractors, including those that are platform workers, are to use Schedule C, Profit or Loss from Business (Sole Proprietorship), to report their self-employment revenues and expenses, and to calculate net income; the Schedule C is to be attached to their Form 1040. Employees are to report wage amounts received on their Form 1040. Businesses also differ in information-reporting obligations for workers classified as independent contractors and employees. Generally speaking, when a business pays an independent contractor, the business is required to report annual payments of $600 or more on Form 1099- MISC; for tax year 2020, businesses are to start using Form 1099-NEC to report such payments. Instead of a Form 1099-MISC (or Form 1099- NEC), TPSOs are required to file Form 1099-K to report annual payments made through their payment networks that exceed $20,000 and 200 transactions. When paying employees, businesses are to file a Form W- 2 annually to report all wages paid. A difference between platform workers and traditional independent contractors is that platform companies often have information on workers earnings and some expenses that could help workers file tax returns. For example, a ride-hailing company has information on fares, tips, and miles driven for each customer as well as fees and other charges. Traditional independent contractors who provide rides to individuals typically have no equivalent third party to provide such information. <2.1. Platform Workforce Size and Characteristics Are Uncertain but Many Believe It Is Growing> The population of platform workers is difficult to count, due in part to the variation in terms and definitions used to describe these workers such as gig, on-demand, sharing economy, contingent, and freelance, among others. As a result of these and other barriers, efforts to measure the size of the platform workforce through household surveys or administrative data have produced estimates that lack certainty; these estimates of the workforce size generally have ranged from around 1.5 million to 2 million for recent years and suggest that the platform workforce may be growing. In 2017, the Department of Labor s Bureau of Labor Statistics (BLS) collected data on alternative employment. BLS s survey found there are an estimated 1.6 million electronically-mediated workers, defined as those obtaining work through mobile apps and websites that connect workers with customers and arrange payment. However, in January 2019 we reported that several factors may have contributed to an undercount of platform workers. For example, survey questions may not have captured individuals who engage in platform work on a part-time or sporadic basis. BLS has stated that it will not use the same questions again and it is working with stakeholders and the Committee on National Statistics of the National Academies of Science, Engineering, and Medicine to address survey limitations. Despite the difficulties estimating the size of the workforce, two studies and stakeholders we interviewed have concluded that the platform workforce is growing. For example, in a review of customer checking account transactions, the JP Morgan Chase Institute documented a five- fold increase between 2012 and 2018 to about 2.3 million families receiving at least one payment from known platform companies. Two studies have also found that the majority of platform workers work part time, for a short time, for secondary income, and for relatively low earnings. For its sample, the JP Morgan Chase & Co. Institute found that platform work was not the primary source of income for most families that participated in the platform economy between 2012 and 2018. Yet the study also found that platform work can account for roughly 20 percent of workers income during months when they are actively engaged in platform work. Also, while the number of platform workers who provide transportation has increased, their average monthly earnings fell steadily between 2014 and 2018. In another study, IRS used tax data to attempt to estimate the population of platform workers, which it termed gig workers. Similar to BLS, IRS attempted to count workers who use websites and mobile apps to connect with customers to obtain short-term work and to receive payment through the company that owns the website or mobile app. IRS identified the names and Employer Identification Numbers of companies providing labor services and matched Forms 1099-MISC and 1099-K issued by the companies to workers. IRS estimated the number of workers who received a Form 1099-K or 1099-MISC from known labor platform companies increased from roughly 20,000 in 2012 to 1.9 million in 2016, then dropped to 1.3 million in 2017. However, IRS s methodology had limitations that make the study an uncertain source for determining the number of platform workers. First, IRS cannot easily identify the universe of platform companies because it is rapidly changing and not well documented. Second, according to IRS, an unknown number of platform workers receive neither a Form 1099- MISC nor a Form 1099-K, for reasons we discuss later in the report. In sum, the data IRS receives do not allow it to accurately count the number of platform workers or determine their tax reporting behaviors. <2.2. Certain Tax Form Changes Could Help IRS Better Understand the Size, Characteristics, and Reporting Behaviors of the Platform Worker Population> Given the limited data IRS has on the platform workforce, IRS cannot be assured that it knows enough about the size, characteristics, and behaviors of this workforce to better understand how to help workers comply with tax obligations. According to federal standards for internal control, managers should collect and use quality information to achieve an entity s objectives. IRS officials we interviewed acknowledged that identifying platform workers is challenging given limitations within IRS s data. IRS does not have a straightforward way for taxpayers to indicate on their tax forms whether they performed platform work. For example, Schedule C the form that independent contractors are to use to report profit or loss includes a series of yes/no checkboxes near the top of the form; however, it does not have a checkbox to indicate whether any reported income or expenses are from platform work. Similarly, Schedule C has a six-digit code to indicate the type of business or activity conducted, but it does not include a code for all platform workers. Although this information would be self-reported and imperfect, it would provide more information than IRS has on platform workers. Obtaining more information on the number of platform workers and their tax filing and reporting behaviors could help IRS develop ways to assist platform workers in complying with their tax obligations. For example, if IRS had more data on the types of deductions that certain types of workers were reporting, IRS would be better able to craft guidance on such deductions or do outreach to help those types of workers comply. Further, without changes to Schedule C, IRS cannot cross-check whether workers who self-identify as platform workers are also identified as platform workers on Forms 1099 filed by platform companies; a cross- check would enhance IRS s understanding of the platform workforce. For example, if the cross-check shows that the number of workers who self- identify as platform workers significantly exceeds the number of Forms 1099 filed, IRS may have to work with platform companies to understand the filing shortfall. Conversely, if the number of filed Forms 1099 is significantly higher, IRS may need to enhance outreach efforts to make platform workers more aware of their tax obligations. <3. Challenges for Platform Workers Include Awareness of Tax Responsibilities, Limited Income Information, and Saving and Remitting Quarterly Taxes> We identified three areas of challenges for platform workers compliance with their tax obligations. First, according to our stakeholder interviews, platform workers may be less aware of their tax responsibilities than some independent contractors. Independent contractors typically have to advertise or seek referrals to gain customers, develop a network of peers, and learn about rules related to licensing or certifications. These activities can educate them about the basic responsibilities of being self- employed, including their tax obligations. In contrast, entry into platform work can be quick and workers may begin the activity without time to learn how their tax obligations differ from those of employees. For example, someone with a car, a valid driver s license, and a smart phone can start working as a ride-hailing driver after they register with an app. Likewise, some platform workers may approach platform work as a hobby, an artistic endeavor, or something they do for a short time or in addition to another job. They may not realize that the company is treating them as an independent contractor, that the platform income may affect their taxes owed, and that they may need to track their expenses and make quarterly tax payments. As a second challenge, platform workers may have limited information about the payments they receive for their work. TPSOs are not required to file information returns to report earnings information to workers or IRS if the workers receive $20,000 or less in annual payments or have 200 or fewer transactions. Available tax data from tax year 2016 suggest that only around 30 percent of platform workers who were known to IRS had gross platform-related earnings higher than $5,000. Hence, most platform workers are likely not receiving an information return from the company. As a result, workers may not be aware that their income is taxable and IRS is less able to the check the workers tax compliance. A third challenge, according to stakeholders, is the burden associated with the steps platform workers must take to estimate, save, and remit quarterly tax payments. Because earnings of some platform workers may be low and earnings and expenses may fluctuate, they can have difficulty estimating their taxes owed and setting aside money to pay the taxes. They may also find it time consuming or costly to track expenses and determine profit. To the extent these burdens and difficulties confuse workers, they are less likely to pay the estimated tax payments fully and on time and may incur a penalty as a result. One stakeholder from a large tax preparation firm raised the concern that if the penalty or amount owed is more than workers can afford, they are at risk of falling into a cycle of noncompliance. <4. IRS s Strategy to Promote Compliance by Platform Workers Features Enhanced Communication, but Lacks Key Details for Monitoring Feedback and Clarifying Guidance> In response to a February 2019 recommendation by the Treasury Inspector General for Tax Administration, IRS formed a team of officials from across the agency to develop a strategy to promote compliance among platform workers. The strategy focuses on two challenges for platform workers: (1) raising awareness about federal tax obligations, and (2) easing burden by identifying improvements to instructions, guidance, or forms that platform workers are likely to use. As part of the strategy, IRS developed a communications plan that includes a redesign of IRS web pages for platform workers and companies, outreach activities to the workers and various stakeholders, and a review of IRS guidance and related forms or instructions. <4.1. IRS Redesigned Its Web Pages to Improve the User Experience for Platform Workers and Companies> The IRS Communications & Liaison office is managing the communications plan to educate platform workers and companies about their tax and reporting responsibilities. A key component of the plan is to redesign IRS web pages that provide tax information for platform workers and companies. IRS changed the name to the Gig Economy Tax Center (previously it was called the Sharing Economy Tax Center) and launched it in January 2020 before the start of the filing season (see fig. 3). As part of this effort, IRS is working to make web pages more user friendly for platform workers as well as platform companies. IRS s Online Services (OLS) conducted research on the expectations, behaviors, motivations, and needs of self-employed individuals. According to OLS officials, IRS used insights about platform workers from the research coupled with user testing of the new web pages to inform the redesign effort. IRS s steps to redesign the web pages align with selected leading practices for improving the online user experience, such as taking steps to make the pages useful and findable (see table 1). It is too soon to know whether the intended users find the new pages useful, usable, findable, and credible, as envisioned by the practices. <4.2. IRS s Outreach Activities for Increasing Awareness among Platform Workers and Companies Lack Key Details for Monitoring Their Feedback> IRS s communications plan included outreach activities to raise awareness. For example, to publicize the redesigned web pages, the plan envisions targeting audiences such as platform workers and companies, news media, national tax publications, tax professionals, government agencies, IRS employees, and other groups. IRS created and distributed products such as a national news release about the new web pages and articles for newsletters and other products for tax professionals, small businesses, and payroll providers. IRS created a one-page electronic brochure to inform platform workers about their tax obligations and available tools to help them (see fig. 4). IRS intends to encourage platform companies to provide the brochure to workers. IRS is also using social media such as Twitter and Instagram to target platform workers and direct them to the redesigned web pages through posts such as those seen in figure 5. To assess the effectiveness of its efforts to increase awareness, including whether outreach efforts are driving people to the new web pages, IRS plans to compare data analytics for the redesigned site with the previous site. OLS plans to analyze changes in website traffic volume and taxpayer behavior such as click patterns and how long users stay on the page 3 months after the launch of the redesigned pages and again 6 months later, and make changes as warranted. IRS s office of Tax Outreach, Partnership, and Education (TOPE) is supporting awareness efforts by building relationships with partners, such as platform companies and organizations that advise platform workers. The communications plan provides a high-level description of efforts to engage with partners. Goals are to increase partner use of IRS social media, develop more industry-specific content, and increase TOPE involvement in virtual and face-to-face partner events and conferences, among others. IRS also plans to leverage these new partnerships to solicit feedback on its communication efforts to ensure they meet the needs of platform workers and companies. However, the communications plan lacks details about how IRS will monitor feedback from stakeholders. Specifically, IRS does not have a process for documenting and evaluating feedback based on the various communications efforts and products tailored for platform workers. According to federal standards for internal control, management should establish two-way reporting of quality information to achieve its objectives. Management should monitor activities and periodically evaluate the quality of information received to achieve its objective. According to IRS officials, they do not have the time or staff to document all feedback received. Further, they said the value of responding quickly to stakeholder comments supersedes the value of documenting and evaluating feedback. Given limited resources, IRS could choose to do something simple like creating a spreadsheet that captures feedback received, such as stakeholder emails, and document whether it led to changes. IRS has dedicated time and resources to better understand platform workers tax- related challenges and has undertaken multifaceted communication efforts to address them. Without a process to monitor feedback, IRS may miss opportunities to find better ways to drive platform workers toward the redesigned web pages, to ensure the redesigned web pages are meeting platform workers needs, or to strengthen communication efforts to enhance tax compliance. These opportunities could become more important as the platform worker population grows and evolves. <4.3. IRS Guidance and Instructions Do Not Always Clarify Tax Obligations for Platform Workers> IRS identified changes to forms, guidance, and other publications that could make it easier for platform workers to understand which forms apply to them. According to IRS officials, the Gig Strategy Team reviewed tax forms, publications, instructions, and training materials relevant to independent contractors, including platform workers. The team concluded that it did not need to create new forms or publications, although it identified 10 forms, instructions, guidelines, and publications that could be updated to be more helpful to platform workers. For example, the team suggested that IRS make several changes to update the instructions for Form 1040, such as adding a reference to Form 1099-K and clarifying that platform economy work can be a trade or business. The team also suggested that IRS revise the Form 1099-K instructions for payees to indicate how this form could clarify information on business gross receipts. IRS did not approve the gig strategy team s requested changes to clarify the instructions for Forms 1040 and 1099-K for 2020. However, IRS is considering making these changes in 2021. According to IRS officials, they want to ensure these changes complement each other and the guidance is clear for taxpayers. According to federal standards for internal controls, management should communicate both internally and externally information necessary to achieve the entity s objectives. Moreover, research based on behavioral insights has shown that introducing small interventions or removing small obstacles can significantly improve effectiveness.For example, interventions should be attractive (to draw people in) and easy (use simple, plain language). Leading practices suggest that people respond to information that is relevant to them. One way to do this is to include examples that help people recognize when information is relevant. For example, adding a brief reference to the gig or platform economy to the Form-1099 K payee instructions, along with a simple description of what the taxpayer should do, such as show total payments from a company that facilitated a match, transaction, and payment for goods or services, could help platform workers understand that the forms apply to them. By not including plain language for the Form 1099-K and 1040 instructions, platform workers are less likely to recognize which information applies to them. Simplifying one aspect of the tax system for platform workers by making the forms easier to understand could lead to enhanced tax compliance. <5. IRS and Congress Have Options to Improve Voluntary Tax Compliance, but Tradeoffs Exist> According to our prior work, a good tax system should be equitable, economically efficient, and simple, transparent, and administrable. However, the challenges we have discussed such as the lack of awareness and information are complicating the tax system for platform workers and limiting IRS s ability to more effectively collect taxes. We identified nine options from our literature review and stakeholder interviews to address these challenges and enhance tax compliance for platform workers (see table 2). For each option, we analyzed available data on the potential design and tradeoffs, including the potential costs and benefits. We discuss two options related to reporting and two options related to withholding in the sections below. For five options related to simplifying the reporting and filing processes, we found that the available data and research did not support a full assessment of potential pros and cons. We discuss those five options in appendix II. <5.1. Increasing Information Reporting on Payments Made to Platform Workers Could Help Improve Tax Compliance> Many platform workers are not receiving a Form 1099 on their self- employment income, and therefore may be unaware of their tax reporting obligations. It is difficult to estimate how many workers are not receiving these forms because of limitations in available data. However, IRS found that the number of workers receiving Forms 1099-K or 1099-MISC from known labor platform companies dropped more than 30 percent from 2016 to 2017. Such a decline in information reporting for platform workers can be attributed to three factors. First, reporting thresholds for TPSOs were set at a high level to prevent unnecessary information reporting to IRS. When Congress enacted the Housing and Economic Recovery Act of 2008, TPSOs applied mainly to online marketplaces for goods, like eBay, and companies that facilitated payments, like PayPal. The act required information reporting by TPSOs for payments made through their payment networks only if those payments exceed both $20,000 and 200 transactions annually. Individuals who were generally not engaged in business or not producing a profit, such as casual sellers of goods, would likely fall below these thresholds. Second, IRS created a tie-breaker rule to avoid duplicative reporting which also led to no Form 1099 being filed in some cases. Businesses, including TPSOs, are in general required to report certain transactions on Form 1099-MISC, while TPSOs are also required to report certain transactions on Form 1099-K. IRS instituted a rule to break the tie that exists when a TPSO is required to report the same transactions on both Forms 1099-MISC and 1099-K. Specifically, the rule states that payments made through a TPSO s payment network are not required to be reported on Form 1099-MISC, subject to an annual $600 threshold. Instead, TPSOs payments are required to be reported on Form 1099-K, subject to the annual $20,000 and 200 transactions thresholds. Third, since 2008, new platform companies have emerged that fit the TPSO designation but that facilitate payments for workers providing services rather than goods. These payments often fall below the combined annual $20,000 and 200 transaction thresholds. Options to increase information reporting for platform workers would help raise awareness about their tax obligations while lowering their burden. As a result, platform workers would be more likely to comply with tax obligations. The following sections discuss our analysis of two options. <5.1.1. Amend the Tie-Breaker Rule for TPSOs> The tie-breaker rule could be amended to reverse the rule for payments made through a TPSO s payment network. This would result in more reporting on Forms 1099-MISC under Internal Revenue Code (IRC) Section 6041, rather than on Forms 1099-K under IRC Section 6050W. Given the much lower threshold for the Form 1099-MISC versus the thresholds for the Form 1099-K, more workers would receive reports on their payments and IRS would receive more reports, too. Information reporting under the regulations related to IRC Section 6041 would generally increase for TPSOs that facilitate the provision of services. If the TPSO makes a payment for a service on behalf of another and performs management or oversight for the payment, then that TPSO would generally be responsible for filing a Form 1099-MISC, subject to the annual $600 threshold. Also, TPSOs that facilitate payments of rentals and also provide management or oversight of those payments would likely be subject to the $600 threshold. Reporting would remain unchanged for some types of companies. Because payments for goods are generally not reportable under IRC Section 6041, reporting would not change for online marketplaces that facilitate the sale of goods only. Because of the management and oversight requirements of IRC Section 6041, TPSOs that only facilitate payments would also generally not be affected by a change to the tie- breaker rule (see fig. 6). IRS Counsel has discussed amending the tiebreaker rule, but has yet to take action. According to IRS, Counsel has had to address other priorities, such as reviewing rules and publishing guidance related to Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017. Without amending this rule, the lack of information-return reporting for many workers complicates their efforts to comply with their tax obligations and IRS s ability to ensure that these workers are correctly reporting their income. When workers do not receive forms related to their self-employment income, they have more difficulty determining how much money they made for computing taxable income. IRS analysis indicates that taxpayers are more likely to report their income that is subject to some information reporting (an estimated 83 percent compliance) compared to little or no information reporting (an estimated 45 percent). Sending more information returns may add costs for some companies; however, stakeholders had differing views on how significant those costs would be. <5.1.2. Determine Appropriate Form 1099 Reporting Thresholds> In addition to amending the tie-breaker rule, stakeholders, as well as our literature review, discussed changing the various reporting thresholds. IRS and the Department of the Treasury (Treasury) have unique access to tax data and could analyze whether the 1099-K and 1099-MISC reporting thresholds are set at levels appropriate for tax administration. The 1099-MISC threshold was enacted in 1954 and the 1099-K reporting threshold was enacted in 2008; neither reflect the development of the platform economy. These changes include the emergence of companies that facilitate workers earning income by renting their houses or by providing transportation services, among many other activities. Informed stakeholders suggested that the current 1099-K thresholds may be appropriate for some TPSOs, such as online marketplaces that facilitate the sale of goods or companies with a primary function of facilitating payments. Different thresholds may be more appropriate for other activities facilitated by platform companies, such as renting houses or other assets. For example, a lower dollar threshold and no transaction threshold may be appropriate for home rentals because substantial income could be generated from even one transaction and provider costs may be limited. However, some service providers incur significant costs, such as drivers who must pay to own and operate a vehicle. Some stakeholders suggested that a threshold of $600 was more appropriate than a threshold of $20,000 and 200 transactions. Even so, some stakeholders suggested that typical costs to service providers may justify a threshold higher than the $600 threshold set in 1954. We found no available analysis of tax or other data showing whether the reporting thresholds for Forms 1099-MISC and 1099-K are appropriate for today s economy or what the thresholds should be. The NEW GIG Act of 2019, which was introduced in Congress in March 2019, would raise the Form 1099-MISC reporting thresholds from $600 to $1,000. It would also lower the Form 1099-K reporting threshold from $20,000 and 200 transactions to $5,000 or 50 transactions for TPSOs making payments to those primarily engaged in the sale of goods, among other actions. Aligning reporting thresholds with today s economy would support tax administration for IRS, as IRS studies have shown that information reporting increases tax compliance. It would also help reduce compliance burden for workers, since they would have clear information on their earnings. <5.2. Withholding Estimated Taxes Owed Could Ease Burden for Platform Workers> Platform workers can be burdened in estimating, saving, and remitting quarterly payments for income, Social Security, and Medicare taxes. Companies are not allowed to withhold and remit these taxes for platform workers who are treated as independent contractors and who want to participate in voluntary withholding except where backup withholding is required. Voluntary tax withholding that satisfies quarterly tax payment requirements could reduce the workers burden and promote their tax compliance. We identified two actions that IRS could take on voluntary tax withholding. <5.2.1. Implement Voluntary Withholding> IRS could work with Treasury to implement voluntary withholding on payments to independent contractors for services. Voluntary withholding would be an option where it would be voluntary for companies to participate; for those companies that choose to participate, it would be voluntary for the independent contractor to participate. According to IRS Counsel, IRS has the statutory authority to take this action if the Secretary of the Treasury finds that withholding would be appropriate and would improve tax administration, and if the company and independent contractor agree to such withholding. According to IRS officials, IRS and Treasury have not determined whether they intend to pursue such an action. Voluntary withholding could be implemented by adjusting existing procedures and using the existing requirements for paying estimated taxes each quarter as a foundation. For example, to enable companies to solicit workers choices on when and how much to withhold, IRS could create a form similar to the Employee s Withholding Certificate, Form W- 4, which employees complete so that employers can withhold the correct estimated federal income tax from employees wages. Workers could choose to vary the amounts withheld and the frequency of withholding as long as they met the quarterly estimated tax requirements. Alternatively, IRS could create guidance similar to what exists for workers who opt-in to electronically receive tax forms from their companies. Companies could use the existing procedures for tax withholding on wages paid or for backup withholding to withhold and remit the taxes to IRS. Companies would need to develop other design features, such as how they inform workers about participation. If the withholding is voluntary for companies, any burden is limited to those companies that choose to participate. For workers who choose to participate, they would still have the burden of estimating the amount of taxes owed for each quarter, but their burden to save and remit those taxes could be reduced. If some workers find that withholding is not appropriate for them, they could continue to use the existing system for quarterly tax payments. As long as workers choose withholding amounts that satisfy these quarterly estimated tax requirements, IRS would not need to design default percentages or dollar amounts to be withheld. While withholding could potentially help all types of independent contractors, voluntary withholding would specifically address some challenges that platform workers face. For example, platform workers have had challenges meeting the quarterly estimated tax requirements when their work is part time or sporadic. Giving workers and the companies the flexibility to structure tax withholding would better ensure that these challenges are addressed and the taxes are paid. Furthermore, this voluntary withholding regime would help those workers who choose to participate set aside a sufficient amount of money for taxes throughout the year, reducing the likelihood of an unanticipated large tax bill and tax penalty at the end of the year. Tax withholding plays a critical role in supporting voluntary compliance. IRS s analysis indicates that withholding helps induce higher compliance in reporting income; higher compliance can help to reduce the tax gap the difference between tax amounts the taxpayers should have paid and what they paid voluntarily and on time. <5.2.2. Assess Requiring Companies to Offer Voluntary Withholding to Workers> Another option we reviewed involved Congress requiring companies to offer the withholding of taxes for remittance to IRS. That is, the companies must offer withholding; it would still be voluntary for the independent contractor to participate. Given that IRS does not currently allow for voluntary withholding on payments to independent contractors, we could not determine the need for such a requirement. If IRS implements withholding that is voluntary for companies, it would have the opportunity to collect and assess information on the need for such a requirement. For example, IRS could determine whether workers who volunteer to participate in withholding are able to better meet their estimated quarterly tax payments. IRS also could determine whether companies are offering withholding. If IRS finds that voluntary withholding bolsters compliance while reducing burden for workers, but that platform companies are not offering it, IRS could recommend that Congress take action. In considering which platform companies could be required to offer voluntary withholding, a starting point would be TPSOs. Focusing the requirement on TPSOs would likely be less burdensome than on other platform companies. TPSOs already settle payments to multiple parties; withholding and remitting taxes to IRS would only be one more type of payment that the TPSOs would process. This requirement would benefit platform workers who wished to participate in voluntary tax withholding and who work for TPSOs. More workers would have the option to have their taxes withheld. Because worker participation would remain voluntary, the need to determine default percentages or dollar amounts for withholding could be avoided as long as the worker met the quarterly requirement for paying estimated taxes. Some stakeholders suggested the option of mandatory withholding for platform workers to help them avoid a tax penalty. However, mandatory withholding could be burdensome for workers who need to balance cash flow and other spending priorities. Additionally, if participation in withholding is mandated, IRS would need to determine minimum withholding amounts. Because different businesses involve different typical expenses, it may be difficult to create an appropriate withholding rate across all business types. Creating multiple withholding rates for different types of businesses instead could be complicated and burdensome. <6. Conclusions> The platform economy is still relatively new but available evidence suggests that it is growing and presenting tax-related challenges for both workers and IRS. While IRS has addressed some of these challenges, it could do more to promote voluntary compliance among platform workers by further raising awareness and easing taxpayer burden. IRS developed a communications plan to raise awareness among platform workers of their tax responsibilities; however, the plan lacks details about how IRS will monitor stakeholder feedback. Having a process for documenting and evaluating feedback would help assure that IRS s communications efforts are addressing platform workers tax-related challenges, even as the population grows and evolves. Additionally, IRS could better understand the platform workforce if it had a straightforward way to collect data to identify platform workers. IRS has identified changes to forms, guidance, and other publications that could make it easier for platform workers to understand which forms apply to them. However, IRS has not yet taken actions such as adding plain language to instructions and publications that clearly indicate when a form applies to a platform worker. Making instructions and publications easier to understand by adding a simple description could help platform workers comply with their tax obligations. IRS could help ease taxpayer burden by taking steps to increase information reporting for these workers. Platform companies that act as TPSOs do not have to report income information on many workers because reporting thresholds are much higher than what most workers earn. Amending IRS rules to require such reporting at lower thresholds would provide workers with more information to comply with their tax responsibilities and would give IRS additional information to support enforcement efforts. Taxpayer burden could also be eased through a voluntary withholding program for platform workers. IRS and Treasury have the statutory authority to take such an action if the Secretary of the Treasury finds that withholding would be appropriate; however, IRS and Treasury have not determined whether they intend to pursue it. Voluntary withholding could help platform workers save and remit their taxes to IRS. This would address specific challenges platform workers face, such as low or fluctuating income. Once a voluntary withholding program is created, IRS would be able to assess its impacts and, if warranted, work with Treasury on a proposal to Congress to require TPSOs to offer voluntary withholding on payments for platform workers and other independent contractors. <7. Recommendations for Executive Action> We are making the following seven recommendations to IRS: The Commissioner of IRS should change Schedule C or Form 1099-NEC so that taxpayers can identify if they received payment for platform work. (Recommendation 1) The Commissioner of IRS should develop a process for monitoring feedback on its communications efforts and products tailored for platform workers, which should include documenting and evaluating feedback. (Recommendation 2) The Commissioner of IRS should clarify the instructions and publications for Forms 1040 and 1099-K by adding plain language to clearly indicate to platform workers that the forms apply to them. (Recommendation 3) The Commissioner of IRS should work with the Secretary of the Treasury to amend the 6050W tie-breaker rule that applies to duplicative reporting requirements so that payments made through a TPSO s third party payment network are reportable under Section 6041, rather than under Section 6050W. (Recommendation 4) The Commissioner of IRS should work with Treasury to determine what thresholds would be the most appropriate for payment information reporting and, if warranted, recommend that Congress adjust the thresholds. (Recommendation 5) The Commissioner of IRS should work with the Secretary of the Treasury to implement withholding that is voluntary for companies making payments for services to platform workers and other independent contractors who choose to participate. (Recommendation 6) The Commissioner of IRS should assess the impact of withholding that is voluntary for companies, once implemented, and if warranted, work with the Secretary of the Treasury on a proposal to Congress that would require TPSOs to offer tax withholding to platform workers and other independent contractors who choose to participate. (Recommendation 7) <8. Agency Comments> We provided a draft of this report to Treasury and IRS for review and comment. IRS provided written comments, which are reproduced in appendix III and summarized below. Of our seven recommendations, IRS agreed to implement or consider two recommendations, said it could not agree with two recommendations due to other priorities, disagreed with two, and said it could not implement a recommendation that flowed from another recommendation. IRS also provided technical comments, which we incorporated as appropriate. IRS agreed to refine its process for monitoring feedback on its communication efforts and products but was silent on documenting and evaluating the feedback (Recommendation 2). The value of monitoring feedback will be minimized unless IRS has a process for documenting and evaluating it over time. In addition, IRS agreed to consider clarifying the language in the instructions and publications for Forms 1040 and 1099-K (Recommendation 3). We revised this recommendation by deleting the word examples from the clarifications to make. IRS stated that it could not agree to work with Treasury to (a) amend the 6050W tie-breaker rule and (b) determine appropriate thresholds for payment information reporting and, if warranted, recommend that Congress adjust the thresholds (Recommendations 4 and 5). For both recommendations, IRS said it cannot commit to implementation dates because of higher priority guidance projects, especially in light of the many new tax provisions enacted by Congress. We acknowledge IRS s need to prioritize guidance projects, but we do not understand why it does not agree to address problems that will persist into the future absent corrective actions or why IRS believes it cannot agree unless it commits now to a future implementation date. In fact, IRS stated that it has a long- term guidance project under development for amending the rule to clarify definitions. IRS said it would consider our recommendation on amending the rule as it develops its 2020-2021 plan for guidance priorities. As for our recommendation on determining reporting thresholds, IRS said it is willing to meet with Treasury officials to discuss the need to analyze the current thresholds. IRS disagreed with our recommendation to change Schedule C or Form 1099-NEC so that taxpayers can identify if they received payments for platform work (Recommendation 1). IRS said it has no evidence that platform workers pose a greater compliance risk and that the platform worker designation, by itself, would not be a selection factor for compliance actions. We found that IRS has not measured this risk, in part, because it cannot easily identify the workers. Further, we did not intend that IRS use the data to initiate compliance against the workers; our report discussed using the data to identify workers and their reporting behaviors to improve services and voluntary compliance. IRS concluded that the additional taxpayer burden and its costs were not warranted at this time. IRS did not identify the level of burden or costs, and the burden from checking a box on Schedule C does not seem high. We asked about the costs to revise the forms to add a checkbox but IRS did not provide them. As for IRS s costs to capture the data, we note that IRS s costs to transcribe the data would be zero for returns filed electronically. Individual taxpayers (including platform workers) electronically filed 138 million of 156 million (89 percent) tax returns which includes the Schedule C during 2019. If IRS intends to help these workers become more aware and reduce their taxpayer burdens to comply, identifying them and their tax behaviors would enhance those efforts. IRS disagreed with our recommendation to work with Treasury to implement withholding that is voluntary for companies making payments for services to workers who choose to participate (Recommendation 6). IRS said that its role is to administer tax law rather than propose tax policy changes. As we discuss in the report, IRS has the authority to take this action if the Secretary of the Treasury agrees that the action would improve tax administration and our recommendation focuses on working with Treasury officials. IRS also stated that it cannot commit to an implementation date for publishing guidance on a voluntary withholding program due to higher priorities, including implementing various COVID- 19 relief programs. As stated above, we do not understand why current higher priorities would prevent IRS from taking future corrective actions or why IRS believes it must commit to an implementation date at this time. We continue to believe that voluntary withholding has potential to improve compliance and reduce taxpayer burden Finally, IRS said it would not assess the impact of such voluntary withholding and thus not work with Treasury on a proposal to Congress that would require third party settlement organizations to withhold taxes for workers who choose to participate (Recommendation 7). IRS s rationale was that it disagreed with the voluntary withholding recommendation. As stated above, we believe this proposal has potential to improve compliance and an assessment would help inform Congressional deliberations about additional statutory changes that could enhance tax compliance among platform workers. 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 copies of this report to the relevant congressional committees, the Secretary of the Treasury, the Commissioner of IRS, and other interested parties. In addition, this report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff has 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 are on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology You asked us to review issues related to platform workers and tax compliance. This report (1) examines what is known about the platform workforce and what can be done to improve the available Internal Revenue Service (IRS) data, (2) identifies challenges platform workers face complying with federal tax obligations, (3) assesses IRS actions to promote tax compliance among this population, and (4) assesses additional options to promote tax compliance. This sector and its workers are referred to by different names including sharing, on-demand, gig, and platform. We selected the term platform because it was the most comprehensive and relevant to online work arrangements. For example, neither sharing nor gig communicates that the work could be full time and for income. Platform worker also clearly communicates that workers are using an online app or other platform to find and secure work. While platform workforce does not have a standard definition, for the purposes of this report we defined it as workers who provide goods or services to customers through an online platform operated by a company that facilitates the match, transaction, and payment. To identify what is known about platform workers, we conducted a literature review of peer-reviewed material; trade and industry articles; government reports; conference papers; general news; association, nonprofit, and think tank publications; hearings and transcripts; and working papers that described the platform economy in the United States and related tax issues. We searched publication databases such as Proquest and Dialog for keywords like gig, contingent, sharing, or platform, and tax, IRS, or compliance to identify studies that were relevant to our research objectives. We also conducted semistructured interviews with selected stakeholders and reviewed documents provided by them to obtain information on and descriptions of platform workers. Through these interviews, we obtained stakeholder views on (1) the use of the term platform workforce, (2) its size and composition, (3) workers understanding of and compliance with tax obligations, and (4) federal, state, and private-sector-level efforts and policy proposals to help workers comply with their tax obligations. We conducted close to 30 interviews with knowledgeable individuals that we selected to represent varied areas of expertise and perspectives including Department of the Treasury and IRS officials; academics and other researchers; state government tax and revenue officials from the Massachusetts Department of Revenue, the California Franchise Tax Board, the Maryland Department of Labor & Regulations, and the Vermont Department of Taxation; private-sector and nonprofit tax preparers; tax software developers; and platform company representatives and workers. We interviewed representatives from four companies Airbnb, Thumbtack, Etsy, and eBay; and two representatives from professional associations, Technet and Internet Association, that include platform companies among their members. Company representatives from Uber, Lyft, Taskrabbit, Upwork, Snag, and Postmates participated in the Technet group interview. We also interviewed representatives from organizations that work directly with platform workers such as the Freelancers Union, Center on Budget and Policy Priorities and Creating Assets, Savings and Hope Campaign of Maryland, National Association of Self-Employed, and the Independent Drivers Guild (IDG). IDG also set up 30-minute phone calls for us with five full-time drivers who use mobile apps to connect with customers. We were also invited to attend a panel from the National Academies of Science on the platform workforce. The panel included experts from the Aspen Institute, JP Morgan Chase, the Federal Reserve Board, the Census Bureau, and various think tanks and universities. We identified potential interviewees through a literature search, and recommendations from our initial interviews. We selected interviewees based on their relevance to the scope of our review. We also aimed for balance between those who could serve as a proxy specifically for low- income platform workers, and those who work with people across the income spectrum. Although the results of these interviews are not generalizable to the views of all stakeholders, they still provide important insight into and illustrative examples of the challenges platform workers face understanding and complying with federal tax obligations. To assess IRS actions to promote tax compliance, we reviewed IRS research on the platform workforce and other documents describing current and planned actions to identify taxpayers who are platform workers and to promote their tax compliance, including the Gig Economy Compliance Strategy. We also interviewed IRS officials from the Small Business/Self-Employed Division; Research, Applied Analytics, and Statistics Division; Communications & Liaison Office, including officials from the Offices of Online Services and Tax Outreach, Partnership, and Education; and the Office of Chief Counsel about their efforts to develop, implement, and assess the impact of the new strategy. We identified criteria for assessing elements of IRS s strategy such as its research, communication materials, and evaluation plan. We based these criteria on Standards for Internal Control in the Federal Government and leading practices for designing web materials to improve the user experience. The relevant internal control principles focus on information and communication and monitoring. The leading practices posted at usability.gov describe principles for creating a meaningful and valuable online user experience. To assess options to promote tax compliance, we identified options from our literature review and our interviews of stakeholders and selected those that were commonly cited as potential solutions for the challenges. We then sent 39 stakeholders a list of the potential solutions to solicit their views on these options, including whether they supported or opposed the option. Twenty-eight stakeholders, including those from academia, the research sector, government, platform companies, tax preparation firms, and worker advocacy, provided their views. We analyzed their responses to help us identify strengths, weaknesses, and other considerations associated with each option. We also assessed each option using criteria for a good tax system described in our prior work. These criteria state that a good tax system should be equitable, economically efficient, and simple, transparent, and administrable. We focused on whether individual options would increase simplicity by reducing compliance burden; enhance transparency by helping taxpayers better understand their tax obligations; and improve tax administration by helping IRS more effectively collect taxes. We found that the available data and research for some options did not support a full assessment of the pros and cons that might be offered by the option. We describe these options in appendix II. We conducted this performance audit from February 2019 to May 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. Appendix II: Other Options to Help Platform Workers Comply with Their Federal Tax Obligations One set of options we identified focused on simplifying aspects of the tax system to help platform workers comply with their tax obligations. For all of them, sufficient evidence did not exist on how the option would be designed or on the tradeoffs such as costs and benefits. Some of the options require legislative action, and other options could be costly for the Internal Revenue Service (IRS) to implement. Balancing the pros and cons is a policy decision for IRS and the Department of the Treasury (Treasury) or Congress to make and more research would be needed. The following discusses our analyses of these options including what information would be needed to design the option and compare the tradeoffs. <9. Create a Standard Business Deduction> According to some stakeholders, properly tracking and deducting expenses from gross income can be burdensome for self-employed workers, including platform workers. A common feature of platform work is using an asset, such as a car or house, for personal and business use; for example, a car owner may use his or her personal car for occasional ride-hailing work. Stakeholders and several articles from our review discussed how the rules for apportioning expenses for personal and business use and determining which ones are deductible can be complicated, especially for part-time or short-term drivers or renters. Some stakeholders as well as some articles mentioned that Congress could consider creating a standard business deduction that platform workers could use. Platform workers, especially those who may not have the necessary knowledge or experience, may not track all eligible business deductions and overpay income and self-employment taxes. They may improperly overstate their expense deductions to offset income, contributing to the tax gap. Creating a standard business deduction could reduce the complexity associated with the current system. However, different businesses involve different expenses, and it may be difficult to create an appropriate standard deduction across all business types. Creating multiple standard deductions for different types of businesses could be complicated and burdensome, and could ultimately reduce tax revenue if the standard deduction exceeds actual expenses for many platform workers. Additionally, a standard business deduction limited to only platform workers would be difficult to design because no regulatory or statutory definition of the term platform worker exists. Further, providing the standard deduction option only for platform workers would raise disparate treatment concerns. Given the limited data on the number and tax reporting characteristics of platform workers, we could not analyze the potential benefits and costs of creating a standard deduction. <10. Require Platform Companies to Inform Workers about Federal Tax Obligations> Because platform workers may be unaware of their federal tax obligations, Congress could consider requiring platform companies to inform workers who are classified as independent contractors about their tax obligations. While platform companies may incur some burden to inform platform workers, some could leverage existing processes to inform their workers. For example, when platform companies hire such workers, they could inform them about their tax obligations. Officials at platform companies we contacted raised concerns about the legal risks for them to develop the information provided to the workers. Platform companies would not necessarily need to develop the information provided. IRS developed a one-page publication that platform companies could provide to workers to inform them about tax obligations (see fig. 4). The publication is available in an electronic format for sharing with workers. However, no statutory or regulatory definition of a platform company exists. Without a definition, IRS could not equitably enforce the requirement. Alternatively, the requirement to provide the information could be limited to third party settlement organizations (TPSO) which have been defined. However, even a well-designed requirement could have limited impact on awareness. IRS is collaborating with partners such as platform companies to better inform workers about their tax obligations. To the extent that this collaboration as well as other IRS actions help make workers more aware, Congress may not need to consider requiring platform companies to inform their workers. <11. Require Platform Companies to Provide Expense Information> Congress could require platform companies to provide available payment and expense information to platform workers who are independent contractors. Multiple stakeholders suggested that sharing this information is a best practice for raising awareness and helping workers comply with tax obligations. Some platform companies already provide a dashboard to workers showing total payments and other data, like miles driven. Platform companies have visibility over the full range of payments and some expenses for workers. While some companies would be providing data or providing online access to data that they already have, requiring information-sharing may increase their administrative burden to at least some extent. However, we did not find information on how much more burden would be created, which could vary based on the type of platform company. Further, given no statutory or regulatory definition of a platform company, a legal definition would need to be created or the requirement to provide the information could be limited to a subset of companies, such as TPSOs. Because several prominent platform companies already provide expense information, Congress may not need to add a legal obligation on the companies. We did not find sufficient evidence to show that this legal requirement would benefit most platform workers. Likewise, IRS considered adding information to its website encouraging platform companies to provide available payment and expense information their workers, but decided not to do so. IRS officials explained that many platform companies are already providing workers with this information. They also expressed concerns that platform workers might rely on this information, and not maintain their own records, which could cause challenges if platform companies do not track all available expenses or income. According to IRS officials, they will continue to update the website to include tips for platform companies to help workers comply with their tax obligations. <12. Clarify Form 1099-K Definition of Gross Amount> The Internal Revenue Service Advisory Council (IRSAC) found that the definition of gross amount for reporting purposes on Form 1099-K includes items that are not part of the economic transaction between the purchaser and the seller or service provider. This includes refunds, fees, discounts, and other items. IRSAC recently recommended that the definition of gross amount for the purposes of reporting on Forms 1099- K should exclude these items, which are not taxable income for the platform worker, and include only payments to the workers for their service. IRS officials have identified some practical drawbacks to implementing this proposal. For example, determining what is includable and what is excludable from the economic transaction can vary from industry to industry and from taxpayer to taxpayer. Depending on the industry or activity, the gross transaction amount may not be itemized to specify what is included; for example, many payment settlement entities would not know whether sales tax is included in a transaction amount. IRS officials stated that it is not clear whether this proposal would provide any value to the worker or IRS given the variations. <13. Make Electronic Delivery of Forms 1099 the Default> IRS could work with Treasury to allow for electronic delivery of Forms 1099 by default. The default delivery method is mail, and workers must opt-in to receive forms electronically. When a worker receives the form electronically, the worker may receive an email notification that the electronic form is available for download in a secure online account. Platform company officials with whom we spoke said sending forms by mail can be burdensome due to mailing costs and the costs of finding accurate mailing addresses. However, they generally have accurate email addresses because that is how they exchange information with platform workers. Allowing electronic delivery of Forms 1099 by default could reduce the burden for companies, while ensuring that more workers receive their forms. However, new rules would be needed to ensure that workers are easily able to opt-out of electronic delivery, and receive the forms on paper if they wish. We were not able to collect sufficient data on the cost or savings for companies and barriers for workers. Appendix III: Comments from the Department of the Treasury Appendix IV: GAO Contact and Staff Acknowledgments <14. GAO Contact Staff Acknowledgments> James R. McTigue, Jr. (202) 512-9110, [email protected] Key contributors to this report include: Julie Anderson, Rob Gebhart, Sarah Gilliland, Gina Hoover, Jesse Mitchell, Ed Nannenhorn, Jessica Nierenberg, Robert Robinson, Eden Savino, Tom Short, AJ Stephens, and Peter Verchinski.

Why GAO Did This Study Platform companies typically classify workers offering services as independent contractors and do not withhold taxes from their payments for remittance to IRS. GAO was asked to review issues related to platform workers and tax compliance. This report, among other things, examines (1) what is known about the platform workforce, and (2) options to promote compliance among its workers. GAO reviewed research on the U.S. platform economy and interviewed stakeholders on the tax-related challenges platform workers face; reviewed IRS documents; interviewed IRS officials; and assessed potential impacts of some options that could address platform worker tax-related challenges. What GAO Found The platform economy is an arrangement where workers offering goods or services connect with customers through an app or other online platform. Estimates of the population of platform workers lack certainty, but generally range from around 1.5 million to 2 million workers for recent years and suggest that the platform workforce may be growing. According to stakeholders, such as researchers and tax preparers, platform workers may not realize that a company is treating them as independent contractors rather than employees and that they must comply with different tax requirements. To help address this challenge, the Internal Revenue Service (IRS) developed a communications plan aimed at workers in the platform economy (which IRS calls the gig economy). The communications plan incorporates leading practices for redesigning web pages and improving the online user experience, but lacks a monitoring plan to help assure IRS's efforts address platform workers' tax challenges. GAO found that platform workers may not receive information on their earnings, creating compliance challenges for them and enforcement challenges for IRS. GAO identified actions that could promote compliance. For example, some platform companies only report total annual payments for workers if they exceed $20,000 and 200 transactions—an amount that exceeds the average gross pay from a single company for many platform workers. Amending this rule to lower the reporting thresholds would provide workers with more information to help them comply with their tax obligations. The change could also enhance IRS's ability to ensure that these workers are correctly reporting their income. Additionally, IRS could implement voluntary withholding on payments to independent contractors (including platform workers). IRS data indicate that tax withholding substantially increases the compliance rate. What GAO Recommends GAO is making seven recommendations to IRS, including actions to enhance its communications plan, increase information reporting for platform workers, and allow voluntary withholding. IRS agreed with the recommendation to enhance its communications plan. For four recommendations related to information reporting and voluntary withholding, IRS either disagreed or said it was unable to agree because it could not commit to an implementation date due to higher priorities. GAO continues to believe that all the recommendations are valid, as discussed in the report.

gao_GAO-19-370T

gao_GAO-19-370T_0

<1. Background> More than a dozen federal agencies known as National Drug Control Program agencies have responsibilities for drug prevention, treatment, and law enforcement activities. For example, the Department of Health and Human Services (HHS) has led efforts to expand access to drug treatment, and the Departments of Justice (DOJ) and Homeland Security (DHS) have taken lead roles in limiting the availability of illicit drugs through criminal investigations and prosecutions. The Anti-Drug Abuse Act of 1988 established ONDCP to enhance national drug control planning and coordination. In this role, the office is responsible for (1) leading the national drug control effort, (2) coordinating and overseeing the implementation of national drug control policy, (3) assessing and certifying the adequacy of National Drug Control Programs and the budget for those programs, and (4) evaluating the effectiveness of national drug control policy efforts. Until its 2018 reauthorization, ONDCP had been operating under the provisions of the ONDCP Reauthorization Act of 2006 pursuant to annual appropriations acts. In October 2018, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the SUPPORT Act) was enacted and reauthorized ONDCP and a number of its programs. The SUPPORT Act aims to address overprescribing and opioid misuse in the United States and includes provisions involving law enforcement, public health, and healthcare financing and coverage. Under both the ONDCP Reauthorization Act of 2006 and the SUPPORT Act, the Director of ONDCP is required to promulgate the National Drug Control Strategy and work with National Drug Control Program agencies to develop an annual National Drug Control Program Budget. Prior to the SUPPORT Act, the Director was required to promulgate a National Drug Control Strategy on an annual basis, while under the SUPPORT Act, generally, the National Drug Control Strategy is required to be developed every two years. ONDCP did not issue a National Drug Control Strategy for 2017 or 2018 despite the statutory requirement. Under both the ONDCP Reauthorization Act of 2006 and the SUPPORT Act, the National Drug Control Strategy is to set forth a comprehensive plan to reduce illicit drug use and the consequences of such illicit drug use in the United States by limiting the availability of and reducing the demand for illegal drugs. <2. Preliminary Observations on the 2019 National Drug Control Strategy> As part of our ongoing work, we are reviewing the 2019 National Drug Control Strategy that ONDCP issued on January 31, 2019. Agency officials told us that they began preparing the National Drug Control Strategy in early 2018 prior to the enactment of the SUPPORT Act in October 2018. Officials stated that the National Drug Control Strategy was intended to respond to the requirements of the ONDCP Reauthorization Act of 2006, which was the applicable law at that time. In light of ONDCP s stated approach, we based our preliminary analysis of the National Drug Control Strategy on the ONDCP Reauthorization Act of 2006. However, the SUPPORT Act retained certain similar requirements for the National Drug Control Strategy contained in the prior law. According to ONDCP, the 2019 National Drug Control Strategy provides a high-level vision of federal drug control efforts by focusing on prevention, treatment and recovery, and reducing the availability of illicit drugs. The 2019 National Drug Control Strategy designates one overarching strategic objective to reduce the number of lives lost to drug addiction and provides some general descriptions of federal agencies activities. However, our preliminary observations related to the 2019 National Drug Control Strategy indicate that it does not include several pieces of required information, including the following: Quantifiable and measurable objectives. The National Drug Control Strategy was required to include annual quantifiable and measurable objectives and specific targets to accomplish long-term quantifiable goals that the Director determines may be achieved during each year beginning on the date on which the National Drug Control Strategy is submitted. However, our work showed that the 2019 National Drug Control Strategy does not include this information. While it lists seven items that it designates as measures of performance or effectiveness, it does not indicate how they would be quantified or measured, or targets to be achieved each year. For example, one of the measures of performance relates to educating the public, especially adolescents, about drug use. However, it lacks information on how ONDCP would measure its efforts to educate adolescents, as well as targets ONDCP hopes to achieve, such as the number of adolescents educated or specific knowledge gains. Further, none of the seven measures has a baseline of current performance or annual targets, and four of the seven measures do not have associated timelines which are important ways that results could be quantified. For example, one of the Strategy s measures of effectiveness is that evidence-based addiction treatment, particularly medication-assisted treatment for opioid addiction, is more accessible nationwide for those who need it. However, there is no information on the current level of treatment access, any targets for expanding access, or any associated timeline by which ONDCP hopes to achieve desired results. Program and budget priorities. The National Drug Control Strategy was required to include a 5-year projection for program and budget priorities. While the 2019 National Drug Control Strategy outlines several high-level priorities, including a top priority to address the current opioid crisis and its associated deaths, it does not include such a 5-year projection. Specific assessments. The National Drug Control Strategy was required to include specific assessments related to illicit drug use. For example, the National Drug Control Strategy was required to include an assessment of the reduction of illicit drug availability. This assessment was to be measured by, among other things, the quantities of cocaine, heroin, marijuana, methamphetamine, ecstasy, and other drugs available for consumption in the United States; the amount of marijuana, cocaine, heroin, methamphetamine, ecstasy, and precursor chemicals and other drugs entering the United States; and the number of illicit manufacturing laboratories seized and destroyed as well as the number of hectares of marijuana, poppy, and coca cultivated and destroyed domestically and in other countries. The 2019 National Drug Control Strategy does not include this information. In addition, the National Drug Control Strategy was required to include an assessment of the reduction of the consequences of illicit drug use and availability. This assessment was to include the burden illicit drug users placed on hospital emergency departments; the annual national health care cost of illicit drug use; and the extent of illicit drug-related crime and criminal activity. Similarly, the 2019 National Drug Control Strategy does not include this information. Performance measurement system. The ONDCP Director was required to submit as part of the National Drug Control Strategy a description of a national drug control performance measurement system. Among other things, this system was to describe the sources of information and data that would be used for each performance measure incorporated into the performance measurement system. This system was also to coordinate the development and implementation of national drug control data collection and reporting systems to support policy formulation and performance measurement. Further, the system was to monitor consistency across the drug-related goals and objectives of the National Drug Control Program agencies and ensure that each agency s goals and budgets support are fully consistent with the National Drug Control Strategy. The 2019 National Drug Control Strategy does not contain a description of such a national drug control performance measurement system. As part of our ongoing work, we also asked ONDCP for information regarding how ONDCP officials determined the adequacy of National Drug Control Program agencies budget submissions without a National Drug Control Strategy in effect for 2017 and 2018. The National Drug Control Program Budget is to provide information on federal drug control funding requested by the executive branch to implement the National Drug Control Strategy. National Drug Control Program agencies are required to submit to ONDCP the portion of their annual budget requests dedicated to drug control activity undertaken by the department, agency, or program. Agencies are to prepare these as part of their overall budget submission to the Office of Management and Budget for inclusion in the President s annual budget request. ONDCP is required to review and certify whether these budgets are sufficient to support the relevant goals and objectives outlined in the National Drug Control Strategy and then include these budgets in the consolidated National Drug Control Program Budget, which the President issues alongside his budget each year. As of March 4, 2019, ONDCP had not provided information on how it accomplished the required determination. In addition, as of March 4, 2019, the President s FY 2020 budget, and the accompanying National Drug Control Program Budget, had not been released. We will continue to consider ONDCP s activities in this area as part of our ongoing work. As part of our ongoing work, we will also discuss the 2019 National Drug Control Strategy with ONDCP and plan to examine how ONDCP intends to address additional requirements in the SUPPORT Act. The lack of information in the 2019 National Drug Control Strategy on assessing progress toward its objective to reduce lives lost reflects findings in our previous reports. Our prior work in general, and our work on federal drug control efforts in particular, has consistently emphasized the importance of setting clear priorities through measurable and quantifiable goals, and assessing progress toward those goals over time, in order to achieve results. For example: In March 2018, we reported on federal agencies efforts including those of ONDCP to limit the availability of and enhance their response to illicit opioids, such as heroin and fentanyl. We reviewed five strategies related to combating illicit opioids and determined that only one included outcome-oriented performance measures that aim to assess the effectiveness of its efforts ONDCP s Heroin Availability Reduction Plan (HARP). In contrast, we found that ONDCP s High Intensity Drug Trafficking Areas (HIDTA) programs Heroin Response Strategy did not include any outcome-oriented performance measures. Outcome measures address the results of programs and services, such as reductions in overdose deaths, and they can help in assessing the status of program operations, identifying areas that need improvement, and ensuring accountability for results. Among other things, we recommended in March 2018 that ONDCP coordinate with the HIDTAs to establish outcome-oriented performance measures to assess progress towards the goals set out in the Heroin Response Strategy. While ONDCP neither agreed nor disagreed with our recommendation, ONDCP told us in June 2018 that they had engaged with leaders from the HIDTAs participating in the Heroin Response Strategy to develop performance measures, including some outcome performance measures. As of March 4, 2019, this recommendation has not yet been addressed and ONDCP has not provided additional information on these efforts. We continue to believe that establishing these measures would enhance the HIDTAs ability to assess whether these efforts are producing intended results. In October 2017, we reported on HHS s efforts to reduce the prevalence of opioid misuse and the fatalities associated with it by expanding access to medication-assisted treatment (MAT) for opioid use disorder. These efforts included four grant programs that focus on expanding access to MAT in various settings (including rural primary care practices and health centers) and implementing regulatory and statutory changes that expanded treatment capacity by increasing patient limits for a MAT medication buprenorphine and by expanding the types of practitioners who can prescribe it in an office-based setting. We found that HHS had not established performance measures with targets that would specify the results that HHS hoped to achieve through its efforts, and by when. We concluded that without this information, HHS would not have an effective means to determine whether its efforts are helping to expand access to MAT or whether new approaches are needed. Among other things, we recommended that HHS establish performance measures with targets related to expanding access to MAT for opioid use disorders. HHS concurred with the recommendation and in February 2019, provided information that the agency had established performance measures with targets to increase the number of prescriptions for certain MAT medications, one of the potential ways to measure access to MAT. However, the recommendation has not yet been fully addressed, in part because HHS did not provide information on measures related to the treatment capacity of providers who prescribe or administer MAT medications, which HHS had identified as another way to measure access. We continue to believe that fully implementing this recommendation will help ensure that invested resources in the program are yielding intended results. As our prior work shows, using data such as information collected by performance measures and findings from program evaluations and research studies to drive decision-making can help federal agencies improve program implementation, identify and correct problems, and make other management decisions. Although agencies may struggle to effectively use this approach, regular performance reviews and evidence- based policy tools can help them incorporate performance information into federal decision-making. Without effective long-term plans, such as a national strategy, that clearly articulate goals and objectives and without specific measures to track performance, federal agencies cannot fully assess whether taxpayer dollars are invested in ways that will achieve desired outcomes. ONDCP s responsibility to develop the National Drug Control Strategy and coordinate among federal agencies offers the agency an important opportunity to guide federal activities to address the unprecedented number of drug overdose deaths. We are continuing with ongoing and planned work to monitor and assess federal drug control efforts. Chairman Cummings, Ranking Member Jordan, and Members of the Committee, this concludes our prepared statement. We would be happy to respond to any questions you may have at this time. <3. GAO Contact and Staff Acknowledgments> If you or your staff has any questions concerning this testimony, please contact Triana McNeil at (202) 512-8777 ([email protected]) or Mary Denigan-Macauley at (202) 512-7114 ([email protected]). Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. In addition to the contacts named above, Joy Booth (Assistant Director), Will Simerl (Assistant Director), Michelle Loutoo Wilson (Analyst in Charge), Billy Commons, Helen Desaulniers, Wendy Dye, Jane Eyre, Kaitlin Farquharson, and Jan Montgomery made key contributions to the testimony. Other staff who made key contributions to the reports cited in the testimony are identified in the source products. Related GAO Products Drug Control: DOD Should Improve Its Oversight of the National Guard Counterdrug Program. GAO-19-27. Washington, D.C.: January 17, 2019. Colombia: U.S. Counternarcotics Assistance Achieved Some Positive Results but State Needs to Review the Overall U.S. Approach. GAO-19-106. Washington, D.C.: December 12, 2018. Opioid Crisis: Status of Public Health Emergency Authorities. GAO-18-685R. Washington, D.C.: September 26, 2018. Prescription Opioids: Medicare Needs Better Information to Reduce the Risk of Harm to Beneficiaries. GAO-18-585T. Washington, D.C.: May 29, 2018. VA Health Care: Progress Made Towards Improving Opioid Safety, but Further Efforts to Assess Progress and Reduce Risk Are Needed. GAO-18-380. Washington, D.C.: May 29, 2018. Illicit Opioids: Office of National Drug Control Policy and Other Agencies Need to Better Assess Strategic Efforts. GAO-18-569T. Washington, D.C.: May 17, 2018. Illicit Opioids: While Greater Attention Given to Combating Synthetic Opioids, Agencies Need to Better Assess their Efforts. GAO-18-205. Washington, D.C.: March 29, 2018. Substance Use Disorder: Information on Recovery Housing Prevalence, Selected States Oversight, and Funding. GAO-18-315. Washington, D.C.: March 22, 2018. Substance-Affected Infants: Additional Guidance Would Help States Better Implement Protections for Children. GAO-18-196. Washington, D.C.: January 19, 2018. Opioid Use Disorders: HHS Needs Measures to Assess the Effectiveness of Efforts to Expand Access to Medication-Assisted Treatment. GAO-18-44. Washington, D.C.: October 31, 2017. Counternarcotics: Overview of U.S. Efforts in the Western Hemisphere. GAO-18-10. Washington, D.C.: October 13, 2017. Preventing Drug Abuse: Low Participation by Pharmacies and Other Entities as Voluntary Collectors of Unused Prescription Drugs. GAO-18-25. Washington, D.C.: October 12, 2017. Prescription Opioids: Medicare Needs to Expand Oversight Efforts to Reduce the Risk of Harm. GAO-18-15. Washington, D.C.: October 6, 2017. Newborn Health: Federal Action Needed to Address Neonatal Abstinence Syndrome. GAO-18-32. Washington, D.C.: October 4, 2017. Opioid Addiction: Laws, Regulations and Other Factors Can Affect Medication-Assisted Treatment Access. GAO-16-833. Washington, D.C.: September 27, 2016. Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere. GAO-17-684. Washington, D.C.: August 22, 2017. International Mail Security: Costs and Benefits of Using Electronic Data to Screen Mail Need to Be Assessed. GAO-17-606. Washington, D.C.: August 2, 2017. Drug Control Policy: Information on Status of Federal Efforts and Key Issues for Preventing Illicit Drug Use. GAO-17-766T. Washington, D.C.: July 26, 2017. Medicaid Expansion: Behavioral Health Treatment Use in Selected States in 2014. GAO-17-529. Washington, D.C.: June 22, 2017. Drug-Free Communities Support Program: Agencies Have Strengthened Collaboration but Could Enhance Grantee Compliance and Performance Monitoring. GAO-17-120. Washington, D.C.: February 7, 2017. Highlights of a Forum: Preventing Illicit Drug Use. GAO-17-146SP. Washington, D.C.: November 14, 2016. Drug Enforcement Administration: Additional Actions Needed to Address Prior GAO Recommendations. GAO-16-737T. Washington, D.C.: June 22, 2016. State Marijuana Legalization: DOJ Should Document Its Approach to Monitoring the Effects of Legalization. GAO-16-419T. Washington, D.C.: April 5, 2016. Firearms Trafficking: U.S. Efforts to Combat Firearms Trafficking to Mexico Have Improved, but Some Collaboration Challenges Remain. GAO-16-223. Washington, D.C.: January 11, 2016. Prenatal Drug Use and Newborn Health: Federal Efforts Need Better Planning and Coordination. GAO-15-203. Washington, D.C.: February 10, 2015. Office of National Drug Control Policy: Office Could Better Identify Opportunities to Increase Program Coordination. GAO-13-333. Washington, D.C.: March 26, 2013. Prescription Pain Reliever Abuse: Agencies Have Begun Coordinating Education Efforts, but Need to Assess Effectiveness. GAO-12-115. Washington, D.C.: December 22, 2011. This is a w ork 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 w ithout further permission from GAO. How ever, because this w ork may contain copyrighted images or other material, permission from the copyright holder may be necessary if you w ish to reproduce this material separately.

Why GAO Did This Study Over 70,000 people died from drug overdoses in 2017, according to the most recently available Centers for Disease Control and Prevention data. Overdoses have become the leading cause of death due to injuries in the United States, and most of these deaths involve opioids. GAO has a body of work on drug policy and ongoing work on ONDCP's efforts, including issuance of the National Drug Control Strategy. GAO also noted in its March 2019 High Risk report that federal efforts to prevent drug misuse is an emerging issue requiring close attention. This statement includes preliminary GAO observations on the 2019 National Drug Control Strategy and related findings from select GAO reports on federal opioid-related efforts. It is based on ongoing GAO work, two reports that GAO issued in March 2018 and October 2017, and selected updates on recommendations from these reports as of February 2019. For ongoing work and recommendation updates, GAO assessed the 2019 National Drug Control Strategy against statutory requirements, reviewed ONDCP and HHS documents, and interviewed ONDCP officials. What GAO Found The Office of National Drug Control Policy (ONDCP)—responsible for coordinating and overseeing efforts by more than a dozen federal agencies to address illicit drug use—issued the 2019 National Drug Control Strategy on January 31, 2019. ONDCP describes the strategy as a high-level vision of federal drug control efforts, focused on prevention, treatment and recovery. The strategy designates one overarching objective to reduce the number of lives lost to drug addiction, and provides some description of federal agencies' activities, including steps to reduce the availability of illicit drugs. However, it does not include certain information required by law, such as annual objectives that are quantifiable and measurable, or a 5-year projection for program and budget priorities. This required information could help prioritize activities across federal agencies and measure progress over time, which previous GAO work has shown to be important for achieving results. GAO will continue to assess the strategy as part of ongoing work, and make recommendations as appropriate. The lack of information in the 2019 National Drug Control Strategy on measuring progress toward its objective to reduce lives lost is particularly concerning in light of previous GAO reports. These reports found that individual agencies could do more to assess their particular efforts related to opioids. For example, GAO reported in March 2018 on five agency-specific strategies to combat illicit opioids, and also reported in October 2017 on the Department of Health and Human Services' (HHS) efforts to expand access to medication-assisted treatment for opioid use disorder. In these reports, GAO recommended, among other things, that federal agencies establish performance measures to better determine progress toward their goals. While federal agencies have taken some action to implement these recommendations, such as establishing performance measures for access to medication-assisted treatment, additional actions to measure the effectiveness of related drug control efforts would further help to gauge agencies' success, determine if new approaches are needed, and efficiently target resources. What GAO Recommends GAO has made prior recommendations to ONDCP, HHS, and other federal agencies to address drug misuse, including establishing performance measures with targets to better gauge progress toward achieving agency goals.

gao_GAO-19-721T

gao_GAO-19-721T_0

<1. HECM Defaults Have Increased, and Use of Foreclosure Prevention Options Is Limited> Our analysis of FHA data found that 272,155 HECMs terminated from fiscal years 2014 through 2018. The number of terminations rose from about 24,000 in fiscal year 2014 to a peak of roughly 82,000 in fiscal year 2016, before declining to about 60,000 in fiscal year 2018. In recent years, a growing percentage of HECMs have terminated because borrowers defaulted on their loans. While death of the borrower is the most commonly reported reason why HECMs terminated, the percentage of terminations due to defaults increased from 2 percent in fiscal year 2014 to 18 percent in fiscal year 2018 (see fig. 2). Most defaults were due to borrowers not meeting occupancy requirements or failing to pay property charges. For about 30 percent of terminations, we were unable to readily determine a termination reason from FHA s data. We also found that servicers use of foreclosure prevention options for HECM borrowers was limited or FHA did not have readily available data to assess the extent of use. For example, since 2015, FHA has allowed HECM servicers to offer borrowers who are behind on property charges repayment plans to help prevent foreclosures, but as of the end of fiscal year 2018, only about 22 percent of these borrowers had received this option. Also, while FHA created a low-balance extension in 2016 which allows HECM servicers to delay calling a HECM due and payable if the borrower owes less than $2,000 in unpaid property taxes or hazard insurance FHA officials told us they do not track how often servicers use this option. Our analysis of FHA data found that approximately 8,800 HECMs that terminated in fiscal years 2014 through 2018 had unpaid property charges of less than $2,000 at the time of termination. Some of these HECMs may have been eligible for a low-balance extension when they terminated. Additionally, we found that it is difficult to estimate the universe of HECMs potentially eligible for mortgagee optional election assignments an option to help nonborrowing spouses stay in their homes after a borrowing spouse dies. Under this option, if required conditions and time frames are met, the servicer can assign the HECM to FHA. The assignment defers repayment of the HECM as long as the nonborrowing spouse fulfills certain conditions. According to information generated by FHA, HECM servicers submitted 1,445 requests for mortgagee optional election assignments from June 2015 (when FHA made this option available) through September 2018. In total, FHA approved roughly 70 percent of the requests and denied the remaining 30 percent. However, nonborrowing spouses were not listed on loan documentation for HECMs originated prior to August 4, 2014. As a result, FHA does not know how many eligible nonborrowing spouses could have, but did not, apply for the mortgagee optional election assignment, or how many are potentially eligible to apply for it in the future. FHA has begun reaching out to HECM borrowers to inform them of the mortgagee optional election process and ask them to self-identify whether there is a nonborrowing spouse associated with their loan. <2. Weaknesses Exist in HECM Termination Data, Performance Assessment, and Portfolio Monitoring> FHA s monitoring, performance assessment, and reporting for the HECM program have weaknesses. Since fiscal year 2013, FHA has used the Home Equity Reverse Mortgage Information Technology (HERMIT) system to collect data on the servicing of HECMs, but the system does not contain comprehensive and accurate data about the reasons why HECMs terminate, a key servicing event. According to the HERMIT User Guide, servicers should provide a reason in HERMIT when they terminate a HECM. However, as noted previously, for about 30 percent of the HECMs that terminated in fiscal years 2014 through 2018, we were unable to determine the reason for termination. FHA officials told us termination reasons are available on an individual loan basis in HERMIT but not in an extractable form. FHA does not regularly track and report on HECM termination reasons, due partly to this system limitation. In the report being released today, we are recommending that FHA take steps to improve the quality and accuracy of HECM termination data. These steps may include updating the termination reasons in the HERMIT system for recording these data or updating the HERMIT User Guide to more clearly instruct servicers how to record termination reasons. FHA agreed with this recommendation. Comprehensive and accurate data on HECM terminations would provide FHA with a better understanding of loan outcomes information FHA and Congress need in order to know how well the program is helping seniors age in place. FHA also has not established comprehensive performance indicators for the HECM portfolio and has not regularly tracked key performance metrics, such as the percentage of HECM terminations due to borrower defaults, the proportion of active HECMs with delinquent property charges, or the percentage of distressed borrowers who have received foreclosure prevention options. For example, HUD s most recent strategic plan and corresponding performance report do not include HECM-specific performance indicators, and the last comprehensive evaluation of the HECM program was done in 2000. FHA officials told us they were in the planning phase for a new evaluation of the program but had not set a start date and did not expect the evaluation to include an analysis of the reasons for HECM terminations or the use of foreclosure prevention options for borrowers in default. We are recommending that FHA establish, periodically review, and report on performance indicators for the HECM program and examine the impact of foreclosure prevention options in the forthcoming HECM program evaluation. FHA agreed with this recommendation. Better performance assessment could provide FHA important information about how well the HECM program is working. Additionally, we found shortcomings in FHA s internal reporting and analysis for the HECM program. For example, FHA has not developed internal reports to comprehensively monitor patterns and trends in loan outcomes, such as the percentage of HECM terminations due to borrower defaults. FHA has generated some reports from HERMIT to help oversee the HECM portfolio, but it has been slow to develop regular and comprehensive reporting mechanisms. FHA officials told us that while data on defaults and foreclosure prevention options have generally been available in HERMIT since 2015, FHA was unable to obtain reports on these topics until 2018 because of funding limitations with their HERMIT system contractor. Our review of the regular and ad hoc reports FHA has received from its HERMIT system contractor found that many are lists of loans that meet criteria and do not provide summary statistics that could be used to readily identify patterns or trends in metrics. Further, we found the reports required additional analysis to generate meaningful management information. In the report being released today, we recommend that FHA develop analytic tools, such as dashboards or watch lists, to better monitor outcomes for the HECM portfolio, such as reasons for terminations, defaults, use of foreclosure prevention options, or advances paid by servicers on behalf of HECM borrowers. FHA agreed with this recommendation. With more robust program analysis and internal reporting, FHA would be better positioned to detect and respond to emerging issues and trends in the HECM portfolio. Finally, we found that FHA has not fully analyzed the implications of how it prioritizes foreclosures for HECMs that servicers have assigned to FHA. FHA officials told us the agency generally does not foreclose on borrowers whose HECMs have been assigned to FHA and who are in default due to unpaid property charges. As a result, defaulted borrowers whose loans have not been assigned to FHA face a greater risk of foreclosure than defaulted borrowers with FHA-assigned loans. In addition, FHA s process may create a financial incentive for HECM borrowers with assigned loans to not pay their property charges. Therefore, we are recommending that FHA analyze the implications of its prioritization process. FHA agreed with our recommendation. Such analysis would help FHA to better understand how its process for prioritizing foreclosures for assigned loans affects the HECM portfolio, HECM borrowers, neighborhoods, and FHA s insurance fund. <3. FHA s Oversight of Servicers and Collaboration on Oversight between FHA and CFPB Are Limited> FHA s oversight of HECM servicers has been limited in recent years. FHA has not performed comprehensive on-site reviews of HECM servicers compliance with program requirements since fiscal year 2013 and does not have current procedures for conducting these reviews. FHA officials said they planned to resume the HECM servicer reviews in fiscal year 2020, starting with three servicers that account for most of the market. However, as of August 2019, FHA had not developed updated review procedures (they were last updated in 2009) and did not have a risk- based method for prioritizing reviews. In the report being released today, we recommend that FHA develop and implement procedures for conducting on-site reviews of HECM servicers, including a risk-rating system for prioritizing and determining the frequency of reviews. FHA agreed with this recommendation. By resuming HECM servicer on-site reviews and adopting a risk-rating system, FHA would be better positioned to ensure that servicers are following program requirements, including those designed to help protect borrowers. Additionally, we found that while CFPB has examined reverse mortgage servicers and plans to continue doing so, according to CFPB officials the bureau does not share results with FHA because the agencies do not have an agreement in place to share supervisory information. CFPB officials said CFPB and FHA had taken initial steps in 2017 toward developing an information-sharing agreement. However, as of August 2019, an information-sharing agreement had not been completed. Accordingly, we are recommending that FHA and CFPB work together to complete an agreement for sharing the results of CFPB s examinations of HECM servicers with FHA. CFPB generally agreed with this recommendation, and FHA neither agreed nor disagreed. Sharing these results could aid FHA s oversight of HECM servicers by providing additional information about the servicers performance and operations. <4. CFPB Collects and Analyzes Consumer Complaints on Reverse Mortgages, but FHA Does Not Use All Available Data> CFPB began collecting reverse mortgage consumer complaints in December 2011 and has collected about 3,600 complaints since then. CFPB officials told us they use consumer complaints as part of their criteria for selecting entities to examine, including reverse mortgage servicers, and to inform CFPB s educational publications. We conducted a detailed analysis of a random, generalizable sample of 100 consumer complaint narratives drawn from all the reverse mortgage complaints CFPB received in calendar years 2015 through 2018. Based on our review of complaint narratives, we found that some of the issues consumers cited most commonly were foreclosures, poor communication from lenders or servicers, problems at loan origination, estate management, and unfair interest rates, fees, or costs. FHA collects and records inquiries and complaints about HECMs, and it has access to CFPB data on reverse mortgage complaints. However, FHA does not use its inquiry and complaint data to help inform HECM program policies and oversight, and the way data are collected does not produce quality information for these purposes. Additionally, we found that FHA has not leveraged CFPB complaint data for HECM program oversight. According to FHA officials, FHA s two main methods for collecting customer inquiries and complaints are hotlines operated by the agency s National Servicing Center and the FHA Resource Center. From calendar years 2015 through 2018, the National Servicing Center received about 105,000 HECM-related calls. During this same period, the FHA Resource Center received 147 HECM-related calls. In April 2019, the FHA Resource Center became the primary entity for collecting, recording, and responding to all HECM-related calls. FHA officials told us they transferred these responsibilities from the National Servicing Center to the FHA Resource Center to help improve call management. While this change could help improve customer service, it does not fully resolve limitations we found in FHA s approach to collecting and recording HECM inquiries and complaints that diminish the usefulness of the information for program oversight. For example, both the National Servicing Center and the FHA Resource Center do not collect call information in a way that would allow FHA to readily analyze the data for themes. Specifically, both centers do not reliably differentiate between inquiries and complaints a potentially important distinction for determining appropriate agency-level responses. Additionally, while both the centers collect data on the reason for calls, neither does so in a systematic way that would allow FHA to readily determine how frequently issues are being raised. For example, neither center s data systems contain standardized categories or menus with options for recording reasons for calls. FHA officials said the agency uses complaint and inquiry data to improve customer service. However, FHA does not analyze data for other purposes that could enhance program oversight, such as determining which HECM servicers and lenders receive the most complaints, targeting entities for on-site reviews, or identifying topics that may need additional borrower education. In the report being released today, we recommend that FHA collect and record consumer inquiries and complaints in a manner that facilitates analysis of the type and frequency of the issues raised. FHA neither agreed nor disagreed with our recommendation. We also recommend that FHA periodically analyze available internal and external consumer complaint data about reverse mortgages to help inform management and oversight of the HECM program. FHA agreed with this recommendation. By improving the collection and use of consumer complaint data and better monitoring its own and CFPB s complaint data, FHA could improve its ability to detect and respond to emerging consumer protection issues regarding HECMs. Chairman Clay, Ranking Member Duffy, and Members of the Subcommittee, this completes my statement. I would be pleased to respond to any questions that you may have at this time. <5. GAO Contact and Staff Acknowledgments> If you or your staff have any questions about this testimony, please contact Alicia Puente Cackley, Director, Financial Markets and Community Investment 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 statement. GAO staff who made key contributions to this testimony are Beth Faraguna and Steve Westley (Assistant Directors), Holly Hobbs (Analyst in Charge), Steven Campbell, William Chatlos, John Karikari, Matthew Levie, Marc Molino, Jennifer Schwartz, and Tyler Spunaugle. 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.

Why GAO Did This Study This testimony summarizes the information contained in GAO's September 2019 report, entitled Reverse Mortgages: FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing ( GAO-19-702 ). What GAO Found The vast majority of reverse mortgages are made under the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) program. In recent years, a growing percentage of HECMs insured by FHA have ended because borrowers defaulted on their loans. While death of the borrower is the most commonly reported reason why HECMs terminate, the percentage of terminations due to borrower defaults increased from 2 percent in fiscal year 2014 to 18 percent in fiscal year 2018 (see figure). Most HECM defaults are due to borrowers not meeting occupancy requirements or failing to pay property charges, such as property taxes or homeowners insurance. Since 2015, FHA has allowed HECM servicers to put borrowers who are behind on property charges onto repayment plans to help prevent foreclosures, but as of fiscal year-end 2018, only about 22 percent of these borrowers had received this option. FHA's monitoring, performance assessment, and reporting for the HECM program have weaknesses. FHA loan data do not currently capture the reason for about 30 percent of HECM terminations (see figure). FHA also has not established comprehensive performance indicators for the HECM portfolio and has not regularly tracked key performance metrics, such as reasons for HECM terminations and the number of distressed borrowers who have received foreclosure prevention options. Additionally, FHA has not developed internal reports to comprehensively monitor patterns and trends in loan outcomes. As a result, FHA does not know how well the HECM program is serving its purpose of helping meet the financial needs of elderly homeowners. FHA has not conducted on-site reviews of HECM servicers since fiscal year 2013 and has not benefited from oversight efforts by the Consumer Financial Protection Bureau (CFPB). FHA officials said they planned to resume the reviews in fiscal year 2020, starting with three servicers that account for most of the market. However, as of August 2019, FHA had not developed updated review procedures and did not have a risk-based method for prioritizing reviews. CFPB conducts examinations of reverse mortgage servicers but does not provide the results to FHA because the agencies do not have an agreement for sharing confidential supervisory information. Without better oversight and information sharing, FHA lacks assurance that servicers are following requirements, including those designed to help protect borrowers.

gao_GAO-19-477T

gao_GAO-19-477T_0

<1. Number of NIV Adjudications and Refusal Rates Increased From Fiscal Years 2012 Through 2016, and Declined in Fiscal Year 2017> <1.1. NIV Adjudications Increased Annually from Fiscal Years 2012 through 2016 and Declined in Fiscal Year 2017> We reported in August 2018 that the total number of NIV applications that consular officers adjudicated (NIV adjudications) annually peaked at about 13.4 million in fiscal year 2016, which was an increase of approximately 30 percent since fiscal year 2012. In fiscal year 2017 (the most recent data available at the time of our report), NIV adjudications decreased by about 880,000 adjudications, or about 7 percent. Figure 2 shows the number of applications adjudicated each year from fiscal years 2012 through 2017. <1.2. Most NIV Applications Refused from Fiscal Years 2012 through 2017 Were for Reasons Other than Terrorism and Other Security-Related Concerns> As shown in figure 2, the percentage of NIVs refused known as the refusal rate increased from fiscal years 2012 through 2016, and was about the same in fiscal year 2017 as the previous year. The NIV refusal rate rose from about 14 percent in fiscal year 2012 to about 22 percent in fiscal year 2016, and remained about the same in fiscal year 2017; averaging about 18 percent over the time period. The total number of NIVs issued peaked in fiscal year 2015 at about 10.89 million, before falling in fiscal years 2016 and 2017 to 10.38 million and 9.68 million, respectively. According to State data, while the majority of NIV refusals from fiscal years 2012 through 2017 were a result of consular officers finding the applicants ineligible, a relatively small number of refusals were due to terrorism and other security-related concerns. State data indicate that more than 90 percent of NIVs refused each year from fiscal years 2012 through 2017 were based on the consular officers determination that the applicants were ineligible nonimmigrants in other words, the consular officers believed that the applicant was an intending immigrant seeking to stay permanently in the United States, which would generally violate NIV conditions, or that the applicant otherwise failed to demonstrate eligibility for the particular visa he or she was seeking. For example, an applicant applying for a student visa could be refused as an ineligible nonimmigrant for failure to demonstrate possession of sufficient funds to cover his or her educational expenses, as required. As we reported in August 2018, our analysis of State data indicates that relatively few applicants approximately 0.05 percent were refused for terrorism and other security-related reasons from fiscal years 2012 through 2017. As shown in figure 3, in fiscal year 2017, State data indicate that 1,256 refusals (or 0.05 percent) were based on terrorism and other security-related concerns, of which 357 refusals were specifically for terrorism-related reasons. <1.3. Executive Actions Taken in Calendar Year 2017 Introduced New Visa Entry Restrictions and Requirements to Enhance Screening and Vetting, Including for NIVs> The President issued Executive Order 13769, Protecting the Nation from Foreign Terrorist Entry Into the United States (EO-1), in January 2017. In March 2017, the President revoked and replaced EO-1 with the issuance of Executive Order 13780 (EO-2), which had the same title as EO-1. Among other things, EO-2 suspended entry of certain foreign nationals for a 90-day period, subject to exceptions and waivers. In September 2017, as a result of the reviews undertaken pursuant to EO-2, the President issued Presidential Proclamation 9645, Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry into the United States by Terrorists or Other Public-Safety Threats (Proclamation), which imposes certain conditional restrictions and limitations on the entry of nationals of eight countries Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela and Yemen into the United States for an indefinite period. These restrictions, identified in table 1, are to remain in effect until the Secretaries of Homeland Security and State determine that a country provides sufficient information for the United States to assess adequately whether its nationals pose a security or safety threat. Challenges to both EOs and the Proclamation affected their implementation and, while EO-2 s entry restrictions have expired, the indefinite visa entry restrictions outlined in the Proclamation continued to be fully implemented as of our August 2018 report. We reported in August 2018 that our analysis of State data indicates that out of the nearly 2.8 million NIV applications refused in fiscal year 2017, 1,338 were refused due to visa entry restrictions implemented in accordance with the executive actions. To implement the entry restrictions, in March 2017, State directed its consular officers to continue to accept all NIV applications and determine whether the applicant was otherwise eligible for a visa without regard to the applicable EO or Proclamation. If the applicant was ineligible for the visa on grounds unrelated to the executive action, such as having prior immigration violations, the applicant was to be refused on those grounds. If the applicant was otherwise eligible for the visa, but fell within the scope of the nationality-specific visa restrictions implemented pursuant to the applicable EO or Proclamation and was not eligible for a waiver or exception, the consular officer was to refuse the visa and enter a refusal code into State s NIV database indicating that the applicant was refused solely due to the executive actions. More than 90 percent of the NIV applications refused in fiscal year 2017 pursuant to an executive action were for tourist and business visitor visas, and more than 5 percent were for students and exchange visitors. <2. CBP s Air Predeparture Programs Interdict High-Risk Air Travelers, but CBP Has Not Fully Assessed the Programs Performance> <2.1. CBP Identifies and Interdicts High-Risk Travelers before They Board U.S.-Bound Flights> As we reported in January 2017, CBP electronically vets all travelers before they board U.S.-bound flights, and continues to do so until they land at a U.S. port of entry. Through these vetting efforts, CBP seeks to identify high-risk travelers from the millions of individuals who travel to the United States each year. As we reported in January 2017, CBP s vetting and targeting efforts are primarily conducted by its NTC and entail (1) traveler data matching and analysis, (2) rules-based targeting, and (3) recurrent vetting. Specifically: CBP s primary method of identifying high-risk individuals is through the comparison of travelers information (such as name, date of birth, and gender) against records extracted from U.S. government databases, including the Terrorist Screening Database (TSDB) the U.S. government s consolidated terrorist watch list. Traveler data matching focuses on identifying known high-risk individuals that is, individuals who may be inadmissible to the United States under U.S. immigration law or who may otherwise pose a threat to homeland or national security. CBP s primary tool for vetting and targeting travelers is the Automated Targeting System (ATS), which is a computer-based enforcement and support system that compares traveler information against intelligence and law enforcement data to identify high-risk travelers. Traveler data matching occurs throughout the travel process and, upon a positive or possible match, CBP officers can select these individuals for further vetting, interviewing, and inspection. CBP s rules-based targeting efforts seek to identify unknown high-risk travelers that is, travelers for whom U.S. government entities do not have available derogatory information directly linking them to terrorist activities or any other actions that would make them potentially inadmissible to the United States but who may present a threat and thus warrant additional scrutiny. CBP identifies unknown high-risk individuals by comparing their information against a set of targeting rules based on intelligence, law enforcement, and other information. NTC officials stated that these rules have identified potential high-risk travelers, including potential foreign fighters. Rules-based targeting evaluates travelers during the travel process and, in some cases, in advance of the travel process. If a traveler is a rule hit, this individual can be selected for further vetting, interviewing, and inspection. CBP supports its traveler data matching and rules-based targeting efforts through the use of recurrent vetting. NTC s vetting, targeting, and traveler data matching activities in ATS run 24 hours a day and 7 days a week and automatically scan updated traveler information, when available. This process is to ensure that new information that affects a traveler s admissibility is identified in near real time. Recurrent vetting occurs throughout the travel process and continues until a traveler arrives at a domestic port of entry. For example, after checking into a foreign airport, a traveler may have his or her visa revoked for a security or immigration-related violation. Due to recurrent vetting, CBP would be alerted to this through ATS and could take action, as appropriate. <2.2. CBP s Air Predeparture Programs Interdict High- Risk Travelers on U.S.- Bound Flights, but CBP Has Not Fully Evaluated Overall Effectiveness of These Programs> As we reported in January 2017, throughout the travel process, CBP s predeparture programs use the results of NTC s efforts to identify and interdict high-risk individuals destined for the United States while they are still overseas; however, we found that CBP had not evaluated the effectiveness of its predeparture programs as a whole, including implementing a system of performance measures and baselines to assess whether the programs are achieving their stated goals. CBP operates three air predeparture programs that are responsible for all U.S.-bound air travelers (1) Preclearance; (2) the Immigration Advisory Program (IAP) and Joint Security Program (JSP); and (3) the regional carrier liaison groups (RCLG). As we reported in January 2017, CBP data indicated that these programs identified and ultimately interdicted approximately 22,000 high-risk air travelers in fiscal year 2015, the most recent data available at the time of our review. Information on individuals who the NTC identifies through traveler data matching or rules-based targeting, including recurrent vetting, is compiled automatically through ATS into a daily high-priority list (or, traveler referral list). CBP officers at the NTC review the traveler referral list for accuracy and to remove, if possible, any automatically generated matches determined to not be potential high-risk individuals. After this review, CBP officers at the NTC use ATS to send the traveler referral list to officers at each Preclearance, IAP, JSP, and RCLG location, as shown in figure 4. Preclearance. Preclearance locations operate at foreign airports and serve as U.S. ports of entry. Preclearance operations began in 1952 in Toronto to facilitate trade and travel between the United States and Canada. As of March 2018, CBP operated 15 air Preclearance locations in six countries. Through the Preclearance program, uniformed CBP officers at a foreign airport exercise U.S. legal authorities to inspect travelers and luggage and make admissibility determinations prior to an individual boarding a plane to the United States. According to CBP officials, an inspection at a Preclearance location is the same inspection as an individual would undergo at a domestic port of entry, and officers conducting Preclearance inspections exercise the same authority as officers at domestic ports of entry to approve or deny admission into the United States. As a result, travelers arriving at domestic air ports of entry from Preclearance locations do not have to be re-inspected upon entry. According to CBP data, in fiscal year 2015, CBP officers at Preclearance locations determined that 10,648 air travelers were inadmissible out of the approximately 16 million air travelers seeking admission to the United States through a Preclearance location. In addition to requiring that all travelers undergo a primary inspection, CBP officers in these locations also referred almost 290,000 individuals for secondary inspection. Immigration Advisory Program (IAP) and Joint Security Program (JSP). IAP and JSP operated at nine and two foreign airports, respectively, as of January 2017. According to CBP officials, under this program, unarmed, plainclothes CBP officers posted at foreign airports partner with air carriers and host country government officials to help prevent terrorists and other high-risk individuals from boarding U.S.- bound flights by vetting and interviewing them before travel. According to CBP program documentation, CBP established IAP in 2004 to prevent terrorists, high- risk travelers, and improperly documented travelers from boarding airlines destined to the United States. Building on the IAP concept, CBP established JSP in 2009 to partner with host country law enforcement officials to identify high-risk travelers. CBP officers at IAP and JSP locations have the ability to question travelers and review their travel documents. They are to act in an advisory manner to the air carriers and host governments and do not have authority to deny boarding to individuals on U.S.-bound flights or fully inspect travelers or their belongings. IAP and JSP officers are authorized by CBP to make recommendations to airlines as to whether to board or deny boarding (known as a no-board recommendation) to selected travelers based on their likely admissibility status upon arrival to the United States. The final decision to board travelers, however, lies with the carriers. According to CBP data, CBP officers at IAP and JSP locations made 3,925 no-board recommendations in fiscal year 2015 for the approximately 29 million air travelers bound for the United States from such locations. During this same time period, CBP data indicated 1,154 confirmed encounters with individuals in the TSDB, including 106 on the No Fly List. Regional Carrier Liaison Groups (RCLG). RCLGs are located and operate at three domestic airports Miami International Airport, John F. Kennedy International Airport, and Honolulu International Airport. CBP established RCLGs in 2006 to assist air carriers with questions regarding U.S. admissibility requirements and travel document authenticity. According to CBP officials, RCLGs are responsible for coordinating with air carriers on all actionable referrals from NTC on U.S.-bound travelers departing from an airport without an IAP, JSP, or Preclearance presence. Each RCLG is assigned responsibility for travelers departing out of a specific geographic location. Similar to IAP and JSP, CBP officers in RCLGs also make no-board recommendations, as appropriate, to air carriers. CBP officers at RCLGs do not have authority to make admissibility determinations about U.S.-bound air travelers, and the final decision to board or not board a traveler lies with the carrier. We reported in January 2017 that CBP officers working at the three RCLGs made 7,664 no-board recommendations in fiscal year 2015 for the approximately 59 million travelers bound for the United States from locations within the RCLGs spheres of responsibility. During this time period, CBP data indicated that RCLGs also reported 1,634 confirmed encounters with individuals in the TSDB, including 119 on the No Fly List. In January 2017, we reported that CBP had not evaluated the effectiveness of its predeparture programs as a whole, including implementing a system of performance measures and baselines to assess whether the programs were achieving their stated goals. We reported that CBP had taken some initial steps to measure the performance of these programs. Specifically, CBP officials told us that they had collected a large quantity of data and statistics regarding the actions of their predeparture programs and had done so since program inception for all programs. However, due to changes in operational focus, technology updates, and the use of separate data systems at program locations, CBP had not collected consistent data across all of its predeparture programs. As a result, CBP did not have baseline data on which to measure program performance. Therefore, we recommended that CBP develop and implement a system of performance measures and baselines for each program to help ensure that these programs achieve their intended goals. In response, as of March 2018, CBP has developed three performance measures for its predeparture programs. On the basis of our review of CBP documentation, as of December 2018, CBP has collected the fiscal year 2018 data relevant to these measures, used those data to set preliminary targets for fiscal year 2019, and plans to analyze the fiscal year 2019 results and set targets for future fiscal years by October 31, 2019. We will review documentation of CBP s analysis of the fiscal year 2019 results and future targets, when available, to determine if CBP s actions address our recommendation. Chairwoman Rice, Chairman Rose, Ranking Members Higgins and Walker, and Members of the Subcommittees, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. <3. GAO Contact and Acknowledgments> 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 H. Bernet, Assistant Director; Eric Hauswirth; Thomas Lombardi; Sasan J. Jon Najmi; Erin O Brien; and Natalie Swabb. 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.

Why GAO Did This Study Previous attempted and successful terrorist attacks against the United States have raised questions about the security of the U.S. government's screening and vetting processes for NIVs. State manages the visa adjudication process. DHS seeks to identify and interdict travelers who are potential security threats to the United States, such as foreign fighters and potential terrorists, human traffickers, drug smugglers and otherwise inadmissible persons, at the earliest possible point in time. DHS also has certain responsibilities for strengthening the security of the visa process. In 2017, the President issued executive actions directing agencies to improve visa screening and vetting, and establishing nationality-based visa entry restrictions, which the Supreme Court upheld in June 2018. This statement addresses (1) data and information on NIV adjudications and (2) CBP programs aimed at preventing high-risk travelers from boarding U.S.-bound flights. This statement is based on prior products GAO issued in January 2017 and August 2018, along with selected updates conducted in December 2018 to obtain information from DHS on actions it has taken to address a prior GAO recommendation. What GAO Found In August 2018, GAO reported that the total number of nonimmigrant visa (NIV) applications that Department of State (State) consular officers adjudicated annually increased from fiscal years 2012 through 2016, but decreased in fiscal year 2017 (the most recent data available at the time of GAO's report). NIVs are issued to foreign nationals, such as tourists, business visitors, and students, seeking temporary admission into the United States. The number of adjudications peaked at about 13.4 million in fiscal year 2016, and decreased by about 880,000 adjudications in fiscal year 2017. State refused about 18 percent of adjudicated applications during this time period, of which more than 90 percent were because the applicant did not qualify for the visa sought and 0.05 percent were due to terrorism and security-related concerns. In 2017, two executive orders and a proclamation issued by the President required, among other actions, visa entry restrictions for nationals of certain listed countries of concern. GAO's analysis indicates that, out of the nearly 2.8 million NIV applications refused in fiscal year 2017, 1,338 applications were refused specifically due to visa entry restrictions implemented per the executive actions. In January 2017, GAO reported that the Department of Homeland Security's (DHS) U.S. Customs and Border Protection (CBP) operates predeparture programs to help identify and interdict high-risk travelers before they board U.S.- bound flights. CBP officers inspect all U.S.-bound travelers on those flights that are precleared at the 15 Preclearance locations at foreign airports—which serve as U.S. ports of entry—and, if deemed inadmissible, a traveler will not be permitted to board the aircraft. CBP also operates nine Immigration Advisory Program and two Joint Security Program locations, as well as three Regional Carrier Liaison Groups, through which CBP may recommend that air carriers not permit identified high-risk travelers to board U.S.-bound flights. CBP data showed that it identified and interdicted over 22,000 high-risk air travelers through these programs in fiscal year 2015 (the most recent data available at the time of GAO's report). While CBP tracked some data, such as the number of travelers deemed inadmissible, it had not fully evaluated the overall effectiveness of these programs. GAO recommended that CBP develop a system of performance measures and baselines to better position CBP to assess program performance. As of December 2018, CBP set preliminary performance targets for fiscal year 2019, and plans to set targets for future fiscal years by October 31, 2019. GAO will continue to review CBP's actions to address this recommendation. What GAO Recommends GAO previously recommended that CBP evaluate the effectiveness of its predeparture programs. DHS agreed with GAO's recommendation and CBP has actions under way to address it.

gao_GAO-20-278

gao_GAO-20-278_0

<1. Background> <1.1. Airport Public Areas> Commercial airports in the United States (i.e., those regulated by TSA) can be generally described as having security-restricted areas and unsecured areas. Security-restricted areas include the area from which screened passengers may board aircraft, as well as areas where access is generally limited to appropriately vetted and credentialed personnel, such as airport and air carrier employees who require access to aircraft or to load and sort baggage. Unsecured areas, or airport public areas, are the areas of the airport that may be accessed by the general public without restrictions (i.e., without passing through security or some other controlled access point), such as ticketing areas, restaurants and shops, baggage claim areas, and areas extending outward from the airport facility to include pathways leading to an airport s terminal and public parking areas. Airport public areas described by TSA officials, airport operators, airport law enforcement and aviation related associations we met with included airport access roads, curbside drop-off/pick-up areas, parking structures, rental car facilities, bus/transit lines leading to the airport, main entrances to and lobbies of terminal areas, and the security queue leading to security screening checkpoints. See figure 1 for a general illustration of the public areas of a commercial airport in the United States. According to aviation security stakeholders, such as airport operators, law enforcement officers, and industry representatives from trade associations, securing airport public areas presents inherent challenges for numerous reasons. They also stated that, in general, airports are designed to support the movement of large numbers of people through the airport s public spaces to the security checkpoint and into the airport sterile area or to aircraft for boarding. TSA officials stated that given the large number of people that pass through airport public areas during peak hours, it can be difficult to monitor these areas for security threats. Additionally, the use of some enhanced security measures and reconfiguring terminals (e.g., metal detectors at entrance doors or the movement of security checkpoints closer to airport entrances or ticket counters) may create additional challenges because such measures could result in long lines and smaller congested spaces that would disrupt service. As a result, airport officials stated that any airport modernization projects, law enforcement actions or technologies introduced to potentially enhance security in the public areas of airports should not disrupt the efficiency of the airport s business operations. In addition, airport officials and industry representatives stated that each airport is unique in its combination of layout and operations, which may determine the type of security approach and method the airport operator utilizes to enhance the security of the airport s public areas. For example, an airport may have a number of separate terminals, each comprising separate entrances and public areas, creating a security challenge due to the vast area of detached public space. While another airport may have a single main terminal building that includes a hotel, restaurants and shops with two sections (A and B), each maintaining ticket counters and security checkpoints that may require a different security approach due to its unique set of challenges to securing their public areas, such as having large numbers of people congregating in one central location. TSA, the federal agency with primary responsibility for civil aviation security, implements security measures and imposes security requirements to ensure that access to those areas of the airport that could otherwise permit an individual with ill-intent access to cleared passengers and aircraft is controlled. Although TSA s statutory authorities and responsibilities for the civil aviation system are not limited to this purpose, resource and other practical constraints, as well as TSA s mission to secure civil aviation without unduly impeding the flow of commerce, have resulted in a regulatory structure largely focused on implementing measures that ensure the security of the aircraft and the traveling public. As a result, airport operators determine the boundaries for the security-restricted areas of their own airport based on the physical layout of the airport and in accordance with TSA requirements generally documented through TSA-approved security programs. <1.2. Roles and Responsibilities of Airport Stakeholders for Securing Public Areas> Securing airport public areas requires a collaborative approach involving airport operators, law enforcement, and TSA officials, among others. A number of aviation stakeholders play an important role in recommending enhancements that impact the security of airport public areas. The roles and responsibilities for each of these aviation stakeholders vary, but together provide a collective approach to securing airport public spaces. Airport operators. Airport operators are the owners, administrators and managers of an airport with responsibilities to plan, organize, supervise and direct airport operations, and have direct responsibility for implementing security requirements in accordance with their TSA- approved airport security programs. In accordance with its security program, airport operators must, in general, provide for the availability of law enforcement personnel in the number and manner adequate to support its security program for public areas and TSA screening operations at the airport. Although TSA s primary responsibility is to implement and oversee aviation security, incident response at commercial airports is essentially the responsibility of the airport operator in conjunction with state or local law enforcement agencies and TSA collaboratively working to respond to any security incidents. Law enforcement. Responding to security incidents such as an active shooter situation or any other criminal matter whether in an airport public area or within a security-restricted area is generally the responsibility of law enforcement personnel present at or available for response to the airport, in accordance with an airport s security program. For example, officials providing the requisite law enforcement support may be federal, state or local officers, or special airport-authority officers. While some airport law enforcement officers are stationed at dedicated posts at or near passenger screening checkpoints, officers also routinely patrol areas around the checkpoints, such as ticketing areas, restaurants and shops, and baggage claim, among others. TSA. TSA assumed primary responsibility for implementing and overseeing the security of the nation s civil aviation system following the terrorist attacks of September 11, 2001. As previously stated, TSA primarily fulfills its mission through a regulatory structure largely focused on implementing and enforcing measures that ensure the security of the aircraft and traveling public such as by controlling access to the security-restricted areas of the airport through the screening of passengers, accessible property, checked baggage, air cargo and mail, or ensuring that controlled access points for use by credentialed aviation workers are in place. However, TSA is also responsible for ensuring that airport operators and other aviation stakeholders remain compliant with their TSA-approved airport security programs and other applicable requirements, which it accomplishes by conducting inspections of, for example, an airport operator s perimeter, access control, and other security measures. As circumstances warrant, TSA also issues information circulars to notify regulated entities of security concerns and security directives to augment or supplement requirements implemented through security programs. Security directives and guidance issued by TSA related to airport public areas have covered such topics as law enforcement requirements to patrol public areas, law enforcement response times and improved communications systems, among others. Key TSA roles at airports include: Federal Security Directors (FSD). The ranking TSA authority at airports, the FSD, provides leadership and coordination of TSAs day- to-day security activities, including ensuring airport operator s compliance with their airport security program. Assistant Federal Security Directors for Inspections (AFSD-I). Each AFSD-I manages a Compliance Hub staffed by Transportation Security Inspectors who ensure regulatory compliance, respond to incidents, and reduce vulnerabilities in collaboration with regulated and non-regulated entities. The area of responsibility of the Compliance Hub may cover one or more FSD areas. Visible Intermodal Prevention and Response (VIPR) Teams. TSA Law Enforcement Federal Air Marshal Service (LE/FAMS) conducts protection, response, detection and assessment activities in airports and other transportation systems. VIPR teams comprised of TSA and law enforcement, security inspectors, and screening personnel perform various functions that include randomly screening workers, property, and vehicles, as well as patrolling the public areas of airports. According to TSA officials, there are approximately 31 VIPR teams nation-wide providing enhancement to security in airports. Decisions on deployments of VIPR teams are determined by risk associated with the venue, which is either surface transportation venues like passenger rail or bus stations among others, or airports. TSOs. Although TSOs are uniformed security personnel that resemble law enforcement, they are not law enforcement officers. Therefore, TSA relies on the presence of law enforcement at the passenger screening checkpoints to mitigate actual or perceived threats they face and stated that they appreciate the prompt response provided during the LAX shooting incident. Other aviation stakeholders. Additional aviation stakeholders share responsibility in coordinating input and providing recommendations to strengthen security in airport public areas. Such stakeholders include federal, state and local government officials, airline industry partners, aviation associations, and government agencies such as CISA, Federal Bureau of Investigation (FBI), state and local law enforcement partners, emergency management and fire and rescue officials, airline officials, and association members from Airports Council International-North America, Airport Law Enforcement Agencies Network, and American Association of Airport Executives, among others. <1.3. Airport Public Area Security Incidents, Subsequent Actions and Reports> On November 1, 2013, Gerardo I. Hernandez, a TSO, was shot and killed at a podium located at the base of an escalator which led to the upstairs security checkpoint at LAX, which TSA deemed a part of the checkpoint area, as he checked passengers identification and travel documents. According to TSA officials, as passengers and TSOs located upstairs heard the sound of gunshots, they realized there was an active shooter situation and began to run and hide in shops and restaurants. The shooter proceeded upstairs into the security- restricted area and fired additional shots injuring two TSOs and a passenger. Airport police officers responded within 90 seconds and apprehended the shooter within 4 minutes, who, according to law enforcement officials, was specifically targeting TSA employees. As a result, TSA issued an after action report on March 26, 2014, and identified numerous recommendations to enhance the safety and security of TSOs and the screening checkpoint area, such as improving the visibility of law enforcement officers, active-shooter training, and communications systems. On September 24, 2015, the Gerardo Hernandez Act was enacted into law and directed TSA to, as appropriate, conduct outreach to all commercial airports in the United States to ensure they have plans in place to respond to, among other things, active shooter attacks and incidents targeting passenger screening checkpoints, and to report to Congress on the findings from its outreach. On March 22, 2016, suicide bombers using explosives in suitcases killed 16 people and injured more than 200 inside the main terminal area of the Brussels Zaventem International Airport in Belgium. The attack was followed by the June 28, 2016 Istanbul Ataturk International Airport attack in Turkey, where suicide attackers used guns and bombs to kill 46 and injured more than 230 people inside public areas of the airport, including the security checkpoint and parking areas. On January 6, 2017, a passenger obtained a handgun from his checked baggage upon landing at the airport and shot and killed five people and injured six others in the baggage claim area at FLL. Travelers rushed out of the terminal and also ran into security- restricted areas while law enforcement officers responded to the scene. The shooting event ended in less than 80 seconds when the shooter surrendered to law enforcement officers. Approximately 90 minutes after the shooting, speculation of additional gunshots in the airport caused panic and led to an uncontrolled self-evacuation of passengers, and others throughout the airport. Law enforcement and emergency personnel from surrounding areas quickly responded, causing traffic congestion and blocking all airport roadways. As a result, the Broward County Aviation Department (BCAD) issued an after action report on August 15, 2017, to identify coordination challenges airport officials and law enforcement personnel experienced in response to the active shooter incident, and recommended preparedness and response training and exercises among other things. Enacted on October 5, 2018, as part of the Federal Aviation Administration (FAA) Reauthorization Act of 2018, the TSA Modernization Act required, among other things, that TSA and CISA establish a public area security working group and identify and share best practices to secure aviation and other public areas of transportation facilities. On September 27, 2019 a man fired a gun outside of the baggage claim area of the Portland International Airport in Oregon and was injured in a struggle with police officers. See figure 2 for a timeline of these events and response efforts to enhance the security of public areas. <2. TSA Took Various Actions to Enhance Public Area Security in Response to the 2013 LAX Shooting and Gerardo Hernandez Act> In response to the November 2013 shooting at LAX, TSA took various actions to improve security in airport public areas. In March 2014, TSA issued an after-action report on the shooting. TSA officials at LAX stated that confusion about where to run, hide and respond; delayed and inaccurate communications; and the lack of law enforcement visibility were safety concerns that needed to be addressed. As a result, TSA identified short term actions and proposals for increasing airport public area security and enhancing the safety of TSA employees at airports. These include (1) strengthening and mandating active shooter training for TSA employees, (2) installing duress alarms at screening checkpoints, and (3) adopting recommended standards for law enforcement presence at checkpoints, as described below. Active shooter training. In its after-action report, TSA stated that although it provided optional active shooter training courses available online to employees prior to the 2013 shooting, employees were not required to complete the training and could have been unaware of steps to take during a shooting event. According to TSA officials, adequate training and preparation for how to best respond to security incidents, such as an active shooter situation, are important in order to minimize casualties. After its review of the 2013 LAX shooting, on December 19, 2013, TSA mandated that TSA employees complete the training. In addition, TSA later revised the active shooter training to include various training exercises and threat scenarios, according to LAX officials. TSA noted in its after-action report that the active shooter training scenarios and exercises are intended to allow law enforcement officers to practice reacting to a specific incident and immediately assess the appropriateness of their reactions. All of the six airport operators we interviewed stated that active shooter training and frequent drills are important because they instill instinctive reactions and standard communications and procedures in employees during a crisis situation. In addition, airport officials at all six of the airports we visited agreed with the importance of active shooter training to familiarize employees with the steps to take or escape routes to use during an attack. In its after-action report, TSA also noted actions taken to ensure active shooter tactical response plans to reinforce emergency procedures, and conducting emergency evacuation drills twice a year. Airport officials at all of the six airports we visited noted the importance of these drills and stated that they have incorporated the drills into their emergency plans and procedures. Duress alarms. TSA reported that installing duress alarms at screening checkpoint areas would improve communications from TSOs to law enforcement through use of a silent alarm. To enhance emergency response equipment and technology, TSA mandated regular testing of duress alarms, recommended linking closed circuit television (CCTV) cameras to duress alarms, and recommended enhanced use of local airport emergency alert notification systems. TSA also identified the need for FAMS notifications in the event of a security emergency, because previously FAMS did not receive automatic notification of an active shooter incident occurring. Duress alarms are installed at each checkpoint, and when pushed, provide TSOs with a method to notify law enforcement of dangerous situations at or around the checkpoint area. TSOs we met with at five of the six airports we visited discussed a number of situations where travelers have been unruly, threatening, and sometimes physical prior to undergoing or during security screening at the checkpoint. In instances of hostility or threats of attack, TSOs highlighted the importance of having operational duress alarms to help improve the safety and security of the public area and the checkpoint (see figure 3). After the LAX incident, TSA conducted an assessment of all existing alarms and found that some airport checkpoints lacked alarms and some alarms were not fully functional. As a corrective action, TSA issued an operational directive to mandate weekly testing of duress alarms at commercial airports nationwide. In addition, not all airports had duress alarms as a notification capability prior to the LAX incident. As such, TSA subsequently planned to take action to install duress alarms at all airports nationwide. Officials at all of the six airports we visited confirmed the use and weekly testing of duress alarms. Representatives of all four industry associations we contacted stated that the installation of duress alarms in all airports was a useful practice. TSA s review also recommended linking duress alarms to CCTV cameras to focus camera footage on the area where the duress alarm is activated. All of the six airports we visited have completed or plan to complete linking the alarms to the cameras. Law enforcement presence. Following the LAX shooting, TSA officials, and TSO screeners, wanted to ensure adequate law enforcement presence at the checkpoints. In response to the review of the shooting incident, TSA recommended enhancing law enforcement presence by providing a visible deterrence and establishing quicker incident response times at security checkpoints. In an effort to address the concerns of visibility and responsiveness, TSA recommended standards for law enforcement presence at checkpoints and ticket counters during peak travel times and incorporation of a maximum allowable response time for law enforcement to arrive at an airport checkpoint when notified of a security incident. Prior to the LAX shooting, airport operators were required to comply with existing airport security program requirements to provide adequate law enforcement presence to ensure passenger safety, including responding to threats at security checkpoints. However, when TSA conducted a review of all airport security programs, they found that although most airports specified maximum response times to checkpoints, 71 airports that maintained flexible law enforcement coverage did not list a required response time in their security programs. As a result, TSA required all airports to clearly include a maximum allowable law enforcement response time in all security programs. Officials for the five airports we visited with the highest passenger volumes stated they comply with the response time requirement listed in their security program while officials from a smaller airport we met with told us they include a longer maximum response time as a requirement in their security program. While recommended standards for law enforcement presence and maximum response times are required in airport security programs, nearly all 50 TSOs and TSO supervisors at the six airports we visited expressed concerns for safety and security while conducting screening operations in the passenger checkpoint areas. Many of these TSOs and supervisors said they feel vulnerable to both physical and verbal attacks, and public misperceptions of their overall roles and responsibilities. The majority of TSOs also noted concerns about adequate law enforcement presence and attentiveness in the checkpoint areas and because they are sometimes harassed for conducting their screening duties. While many of the TSOs stated they sometimes feel their concerns are not always met with action, such as supervisors intervening or calling upon law enforcement for assistance, they said they appreciate law enforcement s response to the LAX shootings and value building relationships with law enforcement present at the checkpoint. All TSOs we interviewed expressed interest in continuing to provide feedback to TSA headquarters and offering suggestions for improving their safety. In addition to actions taken in response to the after-action report for the LAX shooting, TSA took other actions consistent with the Gerardo Hernandez Act. As previously mentioned, the act directed TSA to, as appropriate, conduct outreach to all commercial airports in the United States to ensure they have plans in place to respond to, among other things, active shooter attacks and incidents targeting passenger screening checkpoints, and to report to Congress on the findings from its outreach. In response to the Gerardo Hernandez Act, TSA conducted outreach to all commercial airports and analysis of each airport s preparedness to respond to security events. TSA determined that all of the airports had plans in place to respond to security incidents in the public areas of airports including active shooters, acts of terrorism, and incidents that target passenger screening checkpoints. TSA also determined that all commercial airports had met TSA regulatory requirements related to security incident response planning. After the LAX shooting and subsequent review, TSA issued an Operations Directive in August 2014, about one year before enactment of the Gerardo Hernandez Act, detailing specific guidance and TSA employee procedures for responding to an active shooter incident. Upon reviewing the act, TSA concluded that the procedures outlined in its directive were consistent with requirements and that no further action was required. For example, TSA had provided guidance for its personnel to mentally prepare themselves in advance for an active shooter incident by predetermining an escape route that offers concealment or cover. TSA guidance had also encouraged employees to use the mantra of Run, Hide, Fight during active shooter incidents. Furthermore, over the next few years, TSA released a new training video, issued revised operational guidance, and nation-wide update concerning security measures. In January 2015, TSA released a new active shooter training video, Active Shooter Incident Response Training for active shooter incidents specifically depicting an airport environment. The interactive training video was filmed at Indianapolis airport with support and participation from local airport officials, law enforcement officers, and TSA personnel. TSA released the training video with a required completion date of March 31, 2015, and mandated that this be completed as an annual training requirement for all TSA personnel. In July 2016, TSA also issued revised operational guidance for reporting aviation security incidents to the Transportation Security Operations Center, including security breaches and suspicious activities, among others. In November 2017, TSA issued a national update to airport security programs for law enforcement coverage of certain airport public areas under the National Terrorism Advisory System. These documents include guidance and procedures that align with requirements of the Gerardo Hernandez Act for verifying that plans exist, and for identifying and sharing best practices, across airports to respond to security incidents inside the airport perimeter, including active shooters, acts of terrorism, and incidents that target passenger screening checkpoints. More recent actions have also been taken that correspond with requirements of the Gerardo Hernandez Act to have plans to respond to active shooter attacks and incidents targeting passenger screening checkpoints. Specifically, in March 2018, TSA issued a revised security directive to enhance security of airport public areas by identifying responsibilities for local law enforcement coverage of airport public areas, including the passenger screening checkpoints and nearby public areas. Also, in August 2018, TSA issued an information circular describing best practices identified by airport operators to mitigate against insider threats, including practices related to conducting vulnerability assessments, and escort procedures, among others. <3. TSA and Stakeholders Took Additional Actions to Enhance Airport Public Area Security, but TSA Does Not Have a Plan for Future Stakeholder Collaboration TSA Issued a National Framework in 2017, Among Other Actions, to Enhance Airport Public Area Security> In response to other security incidents in airport public areas, TSA has taken additional actions to enhance security. Specifically, in 2017, TSA issued the Public Area Security National Framework (Public Area Framework). TSA developed the framework following a series of security summits that gathered stakeholders together to identify ways to mitigate threats against aviation and surface transportation public areas. Between September 2016 and April 2017, TSA and the DHS Office of Infrastructure Protection (now within CISA) co-hosted four public area security summits (see fig. 4). According to TSA officials, the summits leveraged an entire network of transportation and security officials including industry, government, academic, international, and public stakeholders to develop a set of best practices and recommendations that could help deter nefarious actors in the transportation environment. As a result of these summits, in May 2017, TSA published the Public Area Framework, which established best practices and recommendations for protecting public areas from harmful attacks. TSA officials described the summits as opportunities for stakeholders to generate meaningful dialogue and exchange ideas as opposed to developing a formal strategy or prescriptive action plan with an implementation time frame. Moreover, this official added that the framework was intended to be a toolkit for stakeholders, designed by stakeholders. Industry stakeholders and airport officials we interviewed reported that the security summits were beneficial for gathering key stakeholders together to determine a variety of measures to enhance security of airport public areas, some of which had already been implemented at certain airports. The Public Area Framework categorized 11 best practices across three key areas: sharing information, preventing attacks, and securing public infrastructure (see fig. 5). According to TSA officials, the report was intended to be a framework, which consisted of non-binding best practices developed by and used for aviation and surface transportation security stakeholders to implement public area security improvements in their respective operating environments. During our interviews with 10 sets of airport stakeholders consisting of airport operators and law enforcement officials from six airports and industry representatives from four aviation trade associations we found that all 10 stakeholder groups reported that the resulting best practices were useful in increasing their awareness of the various ways in which airports can enhance the security of their public areas. For example, airport operators at Los Angeles International Airport (LAX) and Hartsfield-Jackson International Airport (ATL) and law enforcement officials at Fort Lauderdale-Hollywood International Airport (FLL) stated that establishing an airport operations center, one of the best practices recommended in the framework, provides real-time monitoring capabilities of security-related events throughout the airport and the ability to communicate more effectively in the event of an emergency. Similarly, representatives of industry trade associations, such as Airports Council International-North America and American Association of Airport Executives, stated that enhanced law enforcement patrols throughout public areas provide a visible deterrent against potential attacks during peak travel times while also ensuring adequate resources are available to respond quickly to potential threats. As recommended in the framework, strategies to deploy law enforcement patrols are one of the most basic forms of deterring, detecting and defeating potential attacks and a part of coordinating response planning. Several stakeholders groups also added that while the framework was useful in formally documenting industry agreed upon best practices and recommendations, many of the practices, including the use of airport emergency operations centers and enhanced law enforcement patrols were already being implemented locally by various airport operators nationwide. In addition to issuing the Public Area Framework, TSA took additional actions in recent years in response to other security incidents in airport public areas led by TSA s Policy, Plans, and Engagement (PPE) office, which was also responsible for engaging airport and surface transportation stakeholders in developing the 2017 Public Area Framework recommendations. Specifically, the TSA Modernization Act, enacted in October 2018, required TSA, in coordination with CISA, to establish a public area security working group to promote collaboration between TSA and public and private stakeholders to develop non-binding recommendations for enhancing security in public areas of transportation facilities. The act also requires TSA to periodically share best practices developed by TSA and transportation stakeholders related to protecting public spaces of transportation infrastructure from emerging threats with transportation security stakeholders. According to TSA officials we interviewed, PPE established the public area security working group in March 2019 to engage with stakeholders and update the original best practices that were developed in the 2017 Public Area Framework. TSA conducted two conference calls March 2019 and June 2019 with the working group members to update, discuss, and validate the existing best practices. The working group consists of security stakeholders from both aviation and surface transportation modes and includes several of the same stakeholders who participated in the 2017 public area security summits to develop the 2017 Public Area Framework and associated recommended best practices. For the working group, TSA PPE officials reported that TSA selected a subset of stakeholders who were highly engaged and participatory during their prior security summits and who provided the most input during focus group discussions. According to TSA officials, many of the stakeholders previously involved in the development of the Public Area Framework including several industry associations representing aviation and surface transportation stakeholders are aware of ongoing issues and emerging threats. For example, while engaging with TSA during the March 2019 and June 2019 conference calls, industry stakeholders identified ways for enhancing the security of airport public areas by 1) utilizing various technologies, such as public address notification systems throughout airports, to better communicate instructions during and after security incidents occur in the public area, and 2) establishing clearer guidance and protocols for resuming business operations after a security incident, such as rescreening passengers and positively identifying lost baggage in the terminal area. Moreover, stakeholders cited the growing concerns about the emergence of unmanned aircraft systems, such as drones, which pose risks to securing airport public areas. In late October 2019, in accordance with the TSA Modernization Act, TSA issued a report listing best practices and recommendations to secure transportation public areas. This report summarizes the working group s effort to review and update prior best practices cited in the 2017 Public Area Framework as well as identify current challenges. For example, the updated report provides specific tools and resources for enhancing situational awareness, such as resource guides providing informational materials, fact sheets, research reports, and online training videos. Specifically, one of the resource guides highlights security of soft targets and crowded places sports venues, shopping areas, schools, and transportation systems as locations that are easily accessible to large numbers of people that have limited security measures in place making them vulnerable to attack. For example, the guide describes how TSA focuses its effort on securing aviation and high-risk locations by deploying law enforcement and canine teams to serve as a visible deterrent. Other resources include a fact sheet regarding challenges posed by unmanned aircraft systems and a research report regarding mass attacks in public spaces, among others. Moreover, the updated report highlights the benefits of an airport operations center, including enhanced communication capabilities and situational awareness. <3.1. TSA Does Not Have a Fully Developed Plan for Future Stakeholder Collaboration on Best Practices for Airport Public Area Security> Although TSA and stakeholders have taken actions in response to other security incidents in airport public areas, TSA has not fully developed a plan for future engagement with stakeholders to update security best practices and ensure they are current, relevant, and reflective of any new transportation security advancements or new and emerging threats. According to the October 2019 updated report, TSA intends to engage with stakeholders on a periodic basis to affirm partnerships. However, TSA has not yet clearly defined roles and responsibilities for stakeholders or how frequently to engage with them, such as on a quarterly, semi- annual, or annual basis. The TSA Modernization Act requires TSA to periodically share best practices for protecting transportation public areas. Additionally, both the 2017 Public Area Framework and updated report from the working group emphasize the importance of continuing partnerships efforts and identifying solutions to improve public area security. For example, the working group s updated report issued in October 2019, in accordance with the TSA Modernization Act, highlighted TSA s role to build upon the work already accomplished in developing the Public Area Framework s best practices and recommendations. Additionally, our prior work has identified leading practices that can help sustain collaboration, such as developing a plan identifying roles and responsibilities for parties included in the collaborative effort. Further, standards for project management call for developing a plan with specific actions and time frames. TSA officials stated that they expect to better determine future plans for stakeholder engagement sometime after TSA issues its mandated report on the public area security working group to Congress in March 2020. However, TSA officials told us they currently have no specific plans outlined regarding the process or frequency with which they will engage stakeholders in the future on public area security best practices. By developing a plan that outlines the roles and responsibilities of the working group members, the mechanisms through which the working group will collaborate, and the frequency of when the working group will meet, TSA would be better positioned to ensure the best practices cited by aviation and surface transportation stakeholders remain relevant and emerging threats are proactively identified. <3.2. Aviation Stakeholders, Including Airport Operators, Have Taken Actions to Enhance Airport Public Area Security> Aviation stakeholders consisting of airport operators, law enforcement officials, airline representatives, among others have taken a series of actions in response to security incidents that followed the 2013 LAX shooting, consistent with the best practices outlined in TSA s Public Area Framework. On the basis of our observations and interviews at six airports, we found that aviation stakeholders have taken actions consistent with the best practices identified in the 2017 Public Area Framework including those related to attack prevention and information sharing and engaged with industry association representatives to better understand key efforts involved in securing airport public areas. Collectively, these efforts represent a series of actions taken by stakeholders in response to the 2013 LAX shooting, the 2017 FLL active shooter incident, or a combination of TSA requirements to enhance their security posture in securing airport public areas. Attack Prevention: Establish Airport Operations Center. One of the practices cited in the framework under preventing attacks in airport public areas is establishing an airport operations center, which calls for a unified command center to respond to airport security incidents. As cited in the Fort Lauderdale after action report, airport operators and law enforcement personnel experienced coordination challenges in responding to the active shooter incident because of inadequate communication capabilities, including interoperable communications and lack of a dedicated space to coordinate and deploy resources, among others things. Three of the airports we visited Los Angeles, Atlanta, and Fort Lauderdale had a dedicated airport operations center in place. During our site visit to Los Angeles, we toured the Airport Response Coordination Center which provides 24/7 response coordination capabilities between LAX airport operators and federal, state, and local law enforcement personnel (see fig. 6). LAX security officials told us that the coordination center provides real-time situational awareness of security-related incidents across the entire airport through monitoring closed-circuit television, as well as direct communications with federal and local law enforcement partners. Moreover, LAX security officials reported that the coordination center also houses the Incident Management Center which is activated as an emergency command center designed to integrate resources for all airport divisions and law enforcement agencies in response to a major security incident. Similarly, Atlanta and Fort Lauderdale had dedicated airport operations centers, including a comparable Incident Management Center, equipped with dedicated work stations, designated color-coded vests, secure video teleconference capabilities, and a mobile command center. Attack Prevention: Develop, Conduct, and Practice Exercises and Response Drills. The Public Area Framework also contained a recommendation that transportation stakeholders develop and conduct exercises and response drills to prepare for real-world incidents and identify potential obstacles to responding effectively. These collaborative engagements are intended to help develop strategies for incident management, such as resuming airport business operations including evacuating civilians during a law enforcement response, securing and returning abandoned luggage, and rescreening passengers, among other tasks and identify areas requiring additional coordination. For example, in August 2017, as a follow-up to the framework, the summit commissioned a new working group to specifically address incident response, recovery, and reconstitution. Specifically, the Intermodal Security Training and Exercise Program (I-STEP) developed and conducted a tabletop exercise focused on Resumption of Trade following an incident. The exercise was designed for aviation stakeholders airport operators, law enforcement officials, and airline representatives, among others to discuss, identify, and improve collective capabilities in responding to physical security incidents at airports and facilitating the orderly re-establishment of airport operations. The exercise assessed stakeholders ability to quickly and accurately 1) communicate critical information during and after a security incident in an airport public area, 2) evacuate passengers, employees, and vendors after a security incident, and 3) restore airport operations following a security incident. These training goals stemmed from the lessons learned from the 2017 FLL shooting as well as stakeholders discussions during the summits around developing best practices. According to airport operators at Ronald Reagan Washington National Airport (DCA), I-STEP was well received by airport security stakeholders because it was an event that incorporated several key stakeholders perspectives at one time and presented an opportunity for constructive viewpoints to be shared. As a result of the I-STEP training exercise, TSA issued an after action report identifying strengths and lessons learned in resuming airport operations, and highlighted areas for improvement including 1) better coordination to ensure all airport vendors and stakeholders receive standardized active shooter training and 2) consideration of the impacts and risks associated with plainclothes law enforcement and lawfully-armed individuals responding to an active shooter incident, among others. Airport stakeholders we met with at DCA also shared examples of locally sponsored training exercises. For example, airport officials stated that table top exercises discussions amongst emergency response personnel regarding the various roles and responsibilities during an airport emergency response situation are frequently held at DCA and most focus on the need for better communication. DCA officials added that quarterly training drills are hosted for nearby county law enforcement and fire department officials to better familiarize themselves with DCA airport operations, layout, and prestaging areas. Information Sharing: Enhance Situational Awareness. Airport operators we met with also shared their experiences with implementing best practices and recommendations cited in the Public Area Framework to enhance situational awareness and expand threat awareness education. For example, during our site visit to FLL, one senior airport security official shared examples of actions undertaken in response to the FLL after-action report to enhance workforce employee training and threat awareness education. This included the development of an active shooter training program required for all airport workers, such as airport concessionaires and rental car operators; and enhancing the airport s credentialing program to better distinguish certain workers requiring access to the secure area, and validate that active shooter training has been completed. Similar to FLL, according to the Public Area Framework, Boston s Logan International Airport and ATL have implemented vetting programs that include the issuance of identification cards for airport workers on the public side of airports. According to aviation stakeholders, issuing public side credentials allow the airport to have better awareness of who is working within their environment, thereby enhancing overall situational awareness within airport public areas, a practice recommended in the Public Area Framework. <3.3. Airport Operators Deployed Enhanced Law Enforcement Patrols and Installed an Active Shooter Detection System, Among Other Efforts, to Enhance Airport Public Security> Airports we met with have also taken actions that are generally consistent with its three main categories, including infrastructure and public protection. For example, in an effort to enhance the security of airport public areas, several airport operators and law enforcement officers we met told us that they regularly deployed enhanced law enforcement teams to patrol public spaces, including ticketing counters and baggage claim areas, among others. These specialized law enforcement teams equipped with assault rifles, body armor, and canine teams patrol airport public areas to provide a visible deterrent against criminal or terrorist activities and provide immediate law enforcement response capabilities. While these enhanced law enforcement teams were initially deployed in response to the LAX shooting, LAX security officials we met with stated that their continued presence in the public areas provides a strong deterrent. During a site visit to LAX, we observed two sets of tactical law enforcement teams patrol the Bradley International Terminal and American Airlines ticketing counter areas. One of the patrol teams included an explosives-detection canine and his handler (see fig. 7). These enhanced law enforcement teams also conduct training exercises to detect explosives that may be hidden throughout airport public areas, such as large atriums and baggage claim areas. These efforts are consistent with TSA airport security requirements and guidance provided in TSA s Law Enforcement Reimbursement Program. For example, during the site visit to ATL, we observed Atlanta Police Department tactical law enforcement response teams patrol the large atrium meeting area consisting of restaurants and shops from an elevated position (see fig. 8). Similarly, during a site visit to FLL, we observed the Broward County Sherriff s Office deploy an enhanced law enforcement team with an explosives-detection canine succeed in identifying hidden explosive materials inside a handbag during a training exercise in the baggage claim area, the exact location of the January 2017 active shooter attack (see fig. 9). In addition, Charleston International (CHS) airport deployed an active shooter detection system to enhance the security of airport public areas. The Shooter Detection System is a network of sensors placed throughout airport public areas that identify acoustic gunshot signatures and track the movements of a potential active shooter in real time through security camera footage (see fig. 10). According to senior CHS airport officials, the 2015 Emanuel African Methodist Episcopal Church shooting in Charleston that claimed the lives of nine area residents, significantly influenced the airport s decision to search for active shooter technologies. Charleston County Aviation Authority and senior CHS airport officials reported that the detection system became operational in December 2018. Aviation industry stakeholders, such as those from Airports Council International-North America and American Association of Airport Executives, plan to further research technologies to enhance the security of airport public areas. While CHS is the first U.S. commercial airport to install an active shooter detection system in ticketing counter and baggage claim areas, aviation industry officials stated that several airports nationwide are considering installing similar systems. <4. Conclusions> Attacks in the public areas of both domestic and foreign airports including Los Angeles, Fort Lauderdale, Brussels, and Istanbul have prompted TSA and aviation security stakeholders efforts to enhance the security of airport public areas. In accordance with the October 2018 TSA Modernization Act, TSA established a public area security working group to build upon the best practices and recommendations previously cited by stakeholders in the 2017 Public Area Framework. The actions taken by TSA and aviation security stakeholders represent a collective effort to enhance the security of airport public areas. Similarly, airport security stakeholders we interviewed took actions consistent with the best practices identified in the 2017 Public Area Framework, such as establishing a unified airport operations center, deploying enhanced law enforcement teams, and using technologies to identify the whereabouts of an active shooter, among others. However, TSA has not fully developed a plan that outlines the roles and responsibilities of the working group members, collaboration mechanisms amongst the working group, and frequency in which the working group will meet. By developing such a plan, TSA would be better positioned to ensure that the working group is proactively meeting to identify and share emerging threats and best practices, instead of reconvening in the aftermath of another security incident involving an airport public area. <5. Recommendation for Executive Action> The Administrator of TSA should develop a plan outlining roles and responsibilities for members of the Public Area Security Working Group, the mechanisms for collaborating, and the frequency of the working group meetings. <6. Agency Comments and Our Evaluation> We provided a draft of this report to DHS for review and comment. DHS provided written comments, which are reproduced in appendix I. DHS concurred with our recommendation and described actions to address it, such as developing Public Area Security Working Group guidelines to include roles and responsibilities, mechanisms of collaboration, and frequency of working group meetings by June 30, 2020. These efforts, if fully implemented, should address the intent of the recommendation. DHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Acting Secretary of the Department of Homeland Security, 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) 512-8777 or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. Appendix I: Comments from the U.S. Department of Homeland Security Appendix II: GAO Contact and Staff Acknowledgments <7. GAO Contact> William Russell (202) 512-8777 or [email protected]. <8. Staff Acknowledgments> In addition to the contact named above, Christopher Ferencik (Assistant Director), Katrina Taylor (Analyst-in-Charge), Pamela Davidson, Josh Diosomito, Eric Hauswirth, Thomas Lombardi, Herbert Tinsley, and Adam Vogt made significant contributions to this report.

Why GAO Did This Study Threats to public areas of airports have increased in recent years. TSA is responsible for civil aviation security, which includes ensuring the security and safety of aircraft and the traveling public. In November 2013, an armed individual entered the Los Angeles International Airport (LAX) and killed a Transportation Security Officer. Subsequent domestic and international attacks in airport public areas further emphasized the need to better secure these areas. In response, Congress has taken action—including passage of the 2015 Gerardo Hernandez Act and the 2018 TSA Modernization Act—to address incident planning and response at airports and the security of public areas of transportation facilities, including airports. GAO was asked to assess actions taken to secure the public areas of TSA- regulated airports. This report (1) describes actions TSA has taken in response to the LAX shooting and the Gerardo Hernandez Act, and (2) examines additional actions taken in response to subsequent security incidents and the TSA Modernization Act. GAO reviewed TSA reports issued after airport attacks; the Gerardo Hernandez Act and TSA Modernization Act; and other TSA documents related to securing public areas. GAO also conducted interviews with and obtained information from TSA and officials from a nongeneralizable sample of 6 TSA-regulated airports, selected based on factors such as size and location. What GAO Found The Transportation Security Administration (TSA) took several actions in response to the 2013 Los Angeles International Airport (LAX) shooting and the Gerardo Hernandez Airport Security Act of 2015. Specifically, TSA took several actions to better address airport security in public areas, including strengthening and mandating active shooter training drills and installing duress alarms at screening checkpoints, among other things. In response to the Act, TSA updated guidance for reporting suspicious behavior and revised directives identifying responsibilities for local law enforcement coverage of passenger screening checkpoints and nearby public areas, among other actions. In response to subsequent airport public area security incidents, such as those in Fort Lauderdale in 2017 and Brussels and Istanbul in 2016, TSA has taken additional actions. Specifically, TSA issued the Public Area Security National Framework in 2017, in coordination with various aviation security stakeholders. The framework categorized 11 best practices and non-binding recommendations for improving security of public areas, including sharing information and preventing attacks. Aviation security stakeholders have also implemented various actions consistent with these best practices, including establishing airport operations centers and deploying enhanced law enforcement teams to serve as a visible deterrent in airport public areas (see figure). In response to the TSA Modernization Act, TSA established a public area security working group in March 2019 to engage with stakeholders such as airport operators and industry associations and update and validate the best practices cited in the 2017 framework. This group met twice in 2019, but TSA has not outlined specific plans for engaging this group in the future. Developing a plan outlining the roles and responsibilities of the working group members, the mechanisms through which the working group will collaborate, and the frequency of when the working group will meet, would better position TSA to ensure the best practices cited by stakeholders remain relevant and emerging threats are proactively identified. What GAO Recommends GAO recommends that TSA develop a plan for future stakeholder engagement on the security of airport public areas. DHS concurred with the recommendation.

gao_GAO-20-183T

gao_GAO-20-183T_0

<1. FEMA Has Taken Steps to Strengthen Disaster Resilience, but Additional Actions are Needed to Fully Address Remaining Challenges> We have previously reported on the extent to which FEMA programs encourage disaster resilience during recovery efforts and our prior and ongoing work also highlight opportunities to improve disaster resilience nationwide. Specifically, we reported on (1) federal efforts to strengthen disaster resilience, (2) FEMA s efforts to promote hazard mitigation through the Public Assistance program, and (3) crafting appropriate federal responses to the effects of climate change. First, in July 2015, we found that states and localities experienced challenges when trying to use federal funds to maximize resilient rebuilding in the wake of a disaster. In particular, they had difficulty navigating multiple federal grant programs and applying federal resources toward their most salient risks because of the fragmented and reactive nature of the funding. In our 2015 report, we recommended that the Mitigation Framework Leadership Group an interagency body chaired by FEMA create a National Mitigation Investment Strategy to help federal, state, and local officials plan for and prioritize disaster resilience efforts. In August 2019, FEMA took action to fully implement our recommendation by publishing this strategy. Second, in November 2017, we found that FEMA had taken some actions to better promote hazard mitigation as part of its Public Assistance grant program, which provides grant funding for cost-effective hazard mitigation measures to reduce or eliminate the long-term risk to people and property from future disasters and their effects. However, we also reported that more consistent planning for, and more specific performance measures related to, hazard mitigation could help ensure that mitigation is incorporated into recovery efforts. We recommended, among other things, that FEMA (1) standardize planning efforts for hazard mitigation after a disaster and (2) develop performance measures for the Public Assistance grant program to better align with FEMA s strategic goal for hazard mitigation in the recovery process. The Department of Homeland Security (DHS) concurred with our recommendations, and officials reported taking steps to increase coordination across its Public Assistance, mitigation, and field operations to ensure hazard mitigation efforts are standardized and integrated into the recovery process. Additionally, FEMA officials reported taking actions to begin developing disaster-specific mitigation performance measures. However, FEMA has yet to finalize these actions, such as by proposing performance measures to FEMA senior leadership. As such, we are continuing to monitor FEMA s efforts to address these recommendations. Third, in September 2017, we reported that the methods used to estimate the potential economic effects of climate change in the United States using linked climate science and economics models could inform decision makers about significant potential damages in different U.S. sectors or regions, despite the limitations. For example, for 2020 through 2039, one study estimated between $4 billion and $6 billion in annual coastal property damages from sea level rise and more frequent and intense storms. We found that the federal government has not undertaken strategic government-wide planning on the potential economic effects of climate change to identify significant risks and craft appropriate federal responses. As a result, we recommended the Executive Office of the President, among others, should use information on the potential economic effects of climate change to help identify significant climate risks facing the federal government and craft appropriate federal responses, such as establishing a strategy to identify, prioritize, and guide federal investments to enhance resilience against future disasters. However, as of June 2019, officials had not yet taken action to address this recommendation. <2. Federal Programs Provide Long-Term Disaster Recovery Assistance, but Challenges in Managing Complex Recovery Programs Exist> FEMA and other federal agencies provide multiple forms of disaster recovery assistance after a major disaster has been declared, including through FEMA s Public Assistance and Individual Assistance programs, HUD s Community Development Block Grant Disaster Recovery (CDBG- DR) program, and other efforts. Through these programs, the federal government obligates billions of dollars to state, tribal, territorial, and local governments, certain nonprofit organizations, and individuals that have suffered injury or damages from major disaster or emergency incidents, such as hurricanes, tornados, or wildfires. In September 2016, we reported that, from fiscal years 2005 through 2014, FEMA obligated almost $46 billion for the Public Assistance program and over $25 billion for the Individual Assistance program. According to FEMA s September 2019 Disaster Relief Fund report, total projected obligations through fiscal year 2019 for the Public Assistance and Individual Assistance programs since August 1, 2017, are approximately $19 billion and $9 billion, respectively. Further, in March 2019, we reported that in response to the 2017 disasters, HUD had awarded approximately $32.9 billion in CDBG- DR funds to four grantees as of February 2019 $19.9 billion to Puerto Rico, $9.8 billion to Texas, $1.9 billion to the USVI, and $1.3 billion to Florida. As of September 2019, much of these awarded funds had been allocated to the grantees via Federal Register notices with the exception of Puerto Rico. HUD had not allocated the remaining $10.2 billion it awarded to Puerto Rico as of September 10, 2019, due to recent concerns about the territory s governance and financial management challenges. Given the high cost of these programs, it is imperative that FEMA and HUD continue to make progress on the challenges we have identified in our prior and ongoing work regarding recovery efforts. <2.1. FEMA s Public Assistance Program> FEMA s Public Assistance program provides grants to state, tribal, territorial, and local governments, as well as certain types of private nonprofit organizations, for debris removal; emergency protective measures; and the repair, replacement, or restoration of disaster- damaged, publicly owned facilities. It is a complex and multistep program administered through a partnership among FEMA, state, and local officials. Prior to implementing the Public Assistance program, FEMA determines a state, territorial or tribal government s eligibility for the program using primarily the per capita damage indicator. In our September 2018 report on federal response and recovery efforts for the 2017 hurricanes and wildfires, we reported on FEMA s implementation of the Public Assistance program, which has recently undergone significant changes as a result of federal legislation and agency initiatives. Specifically, we reported on FEMA s use of its redesigned delivery model for providing grants under the Public Assistance program, as well as the alternative procedures for administering or receiving such grant funds that FEMA allows states, territories, and local governments to use for their recovery. Our prior and ongoing work highlight both progress and challenges with FEMA s Public Assistance program, including the agency s methodology for determining program eligibility, the redesigned delivery model, and the program s alternative procedures. <2.1.1. Criteria for Determining Public Assistance Eligibility> In September 2012, we found that FEMA primarily relied on a single criterion, the per capita damage indicator, to determine a jurisdiction s eligibility for Public Assistance funding. However, because FEMA s per capita indicator, set at $1 in 1986, does not reflect the rise in (1) per capita personal income since it was created in 1986 or (2) inflation from 1986 to 1999, the indicator is artificially low. Our analysis of actual and projected obligations for 508 disaster declarations in which Public Assistance was awarded during fiscal years 2004 through 2011 showed that fewer disasters would have met either the personal income-adjusted or the inflation-adjusted Public Assistance per capita indicators for the years in which the disaster was declared. Thus, had the indicator been adjusted annually since 1986 for personal income or inflation, fewer jurisdictions would have met the eligibility criteria that FEMA primarily used to determine whether federal assistance should be provided, which would have likely resulted in fewer federal disaster declarations and lower federal costs. We recommended, among other things, that FEMA develop and implement a methodology that more comprehensively assesses a jurisdiction s capacity to respond to and recover from a disaster without federal assistance, including fiscal capacity and consideration of response and recovery capabilities. DHS concurred with our recommendation and, in January 2016, FEMA was considering establishing a disaster deductible, which would have required a predetermined level of financial or other commitment before FEMA would have provided assistance under the Public Assistance program. In September 2019, FEMA told us that it was considering options for alternative methodologies for, among other things, assessing a jurisdiction s independent capacity to respond to and recover from disasters. In addition, the DRRA includes a provision directing the FEMA Administrator to initiate rulemaking to update the factors considered when evaluating requests for major disaster declarations. According to FEMA documentation, as of September 2019, the agency was working to implement this provision through rulemaking proposals, including increasing the per capita indicator to account for inflation. Until FEMA implements a new methodology, the agency will not have an accurate assessment of a jurisdiction s capabilities and runs the risk of recommending that the President award Public Assistance to jurisdictions that have the capacity to respond and recover on their own. <2.1.2. Redesigned Public Assistance Delivery Model> In November 2017, we reported that FEMA redesigned its delivery model for providing grants under the Public Assistance program. As part of the redesign effort, FEMA developed a new, web-based case management system to address past challenges, such as difficulties in sharing grant documentation among FEMA, state, and local officials and tracking the status of Public Assistance projects. Both FEMA and state officials involved in testing the redesigned delivery model stated that the new case management system s capabilities could lead to greater transparency and efficiencies in the program. However, we found that FEMA had not fully addressed two key information technology management controls that are necessary to ensure systems work effectively and meet user needs. We recommended, among other things, that FEMA (1) establish controls for tracking the development of system requirements, and (2) establish system testing criteria, roles and responsibilities, and the sequence and schedule for integration of other relevant systems. DHS concurred with these recommendations and, as of October 2019, has fully implemented both. FEMA s original intention was to implement the redesigned delivery model for all future disasters beginning in January 2018. However, in September 2017, FEMA expedited full implementation of the redesigned model shortly after Hurricane Harvey made landfall. In September 2018, we reported that local officials continued to experience challenges with using the new Public Assistance web-based, case management system following the 2017 disasters, such as not having sufficient guidance on how to use the new system and delays with FEMA s processing of their projects. <2.1.3. Public Assistance Alternative Procedures in Puerto Rico and the U.S Virgin Islands> Our prior and ongoing work highlight the challenges with implementing the Public Assistance program, including the alternative procedures, in Puerto Rico and the USVI. In particular, our work has identified challenges related to (1) developing fixed-cost estimates and (2) implementing flexibilities provided by the Bipartisan Budget Act of 2018. This Act allows FEMA, Puerto Rico, and the USVI to repair and rebuild critical services infrastructure such as medical and education facilities so it meets industry standards without regard to pre-disaster condition (see fig. 1). Unlike in the standard Public Assistance program where FEMA will fund the actual cost of a project, the Public Assistance alternative procedures allow awards for permanent work projects to be made on the basis of fixed-cost estimates to provide financial incentives for the timely and cost- effective completion of work. FEMA officials in Puerto Rico and the USVI stated that the development of a cost factor for use in the fixed-cost estimating process had slowed the pace of FEMA obligations for permanent work projects. Specifically, these factors are intended to ensure that the costs associated with implementing projects in Puerto Rico and the USVI are sufficiently captured when developing the fixed- cost estimates for alternative procedures projects. Since incorporating the cost factor into the fixed-cost estimating process will increase the amount of funding obligated for any given permanent work project, FEMA officials explained that Puerto Rico and the USVI had an incentive to delay the obligation of individual projects until this factor was finalized. For example, FEMA officials in the USVI told us in May 2019 that obligations for permanent work projects in the territory had been mostly on hold since October 2018 while an independent contractor worked to develop the USVI-specific cost factor. FEMA officials told us that USVI officials disagreed with the initial USVI- specific cost factors the independent contractor proposed. USVI officials contended that the cost factors were insufficient in accurately capturing the unique circumstances that influence construction costs in the territory, such as the limited availability of local resources and the need to import materials and labor. In May 2019, the contractor proposed a new cost factor, which FEMA approved on an interim basis pending further analysis. In July 2019, FEMA officials told us that while additional analyses are required to ensure its final process for developing fixed-cost estimates in the USVI accurately captures construction costs, using this interim cost factor in the meantime allows FEMA and USVI officials to move forward with the development and final approval of alternative procedures projects. In August 2019, a senior USVI official told us the territory plans to begin using the interim cost factor, where appropriate, to keep projects progressing forward. However, this official stated that the USVI questioned whether the interim cost factor did, in fact, sufficiently capture the actual costs of construction in the USVI. Given the uncertainty around these fixed-cost estimates, USVI officials told us the territory will need to balance the potential flexibilities provided by the alternative procedures program with the financial risk posed by cost overruns when deciding whether to use the alternative procedures or the standard Public Assistance program for any given permanent work project. Specifically, these officials stated that the USVI plans to pursue alternative procedures projects that do not include high levels of complexity or uncertainty to reduce the risk of cost overruns, especially given its already difficult financial situation. In addition, according to FEMA guidance, the Puerto Rico-specific cost factor was developed by a third-party center of excellence comprising personnel selected by FEMA and Puerto Rico. Through our ongoing work we learned that FEMA convened a panel of FEMA engineers to assess the cost factor methodologies proposed by the center of excellence. In July 2019, FEMA approved the use of a cost factor designed to account for location-specific construction costs in Puerto Rico to ensure that fixed-cost estimates for alternative procedures projects are accurate. This cost factor consists of cost indices to apply to urban, rural, and insular (the islands of Vieques and Culebra) areas of Puerto Rico. According to FEMA officials, these cost indices will compile location- specific construction costs for each of these three areas. We are currently assessing FEMA s process for developing cost estimates for projects under both the standard and alternative procedures programs, and plan to report our results in early 2020. As of September 2019, FEMA officials told us the agency had obligated funding for 14 alternative procedures projects in Puerto Rico out of approximately 9,000 projects FEMA and Puerto Rico are working to develop for inclusion in the program. According to FEMA guidance, Puerto Rico must use the alternative procedures for all large permanent work projects and its deadline for finalizing the fixed-cost estimates for these projects was October 11, 2019. However, on October 8, 2019, Puerto Rico requested that FEMA extend this deadline. In response, FEMA acknowledged that Puerto Rico and FEMA have significant work remaining to develop and finalize the fixed-cost estimates for alternative procedures projects. As a result, FEMA authorized all parties to continue developing these projects while FEMA works to establish a new deadline for finalizing fixed-cost estimates in Puerto Rico. Unlike Puerto Rico, the USVI has the flexibility to pursue either the alternative procedures or the standard procedures on a project-by-project basis. As of September 2019, FEMA had obligated funding for two alternative procedures projects in the USVI. As the USVI s deadline for finalizing these projects is in March 2020, it is too early to gauge the extent to which the alternative procedures will play a role in the USVI s long-term recovery strategy. In addition, our preliminary observations indicate that FEMA, Puerto Rico, and USVI officials have reported challenges with the implementation of the flexibilities authorized by section 20601 of the Bipartisan Budget Act. This section of the Act allows for the provision of assistance under the Public Assistance alternative procedures to restore disaster-damaged facilities or systems that provide critical services to an industry standard without regard to pre-disaster condition. Officials from Puerto Rico s central government stated that they disagreed with FEMA s interpretation of the types of damages covered by section 20601 of the Bipartisan Budget Act of 2018. In response, FEMA officials in Puerto Rico stated they held several briefings with Puerto Rico s central recovery office to explain FEMA s interpretation of the section. Further, FEMA officials in the USVI told us that initially, they had difficulty obtaining clarification from FEMA headquarters regarding how to implement key components of section 20601 of the Act. In June 2019, the Additional Supplemental Appropriations for Disaster Relief Act of 2019 was signed into law and provides additional direction to FEMA regarding the implementation of section 20601. Among other things, this legislation includes a provision directing FEMA to change its process for determining whether a disaster- damaged facility is eligible for repair or replacement. FEMA evaluated this and other provisions of the Act and, in September 2019, issued an updated policy to provide clear guidance moving forward, according to agency officials. We will continue to evaluate these identified challenges and any efforts to address them, as well as other aspects of recovery efforts in the USVI and Puerto Rico, and plan to report our findings in November 2019 and January 2020, respectively. <2.2. FEMA s Individual Assistance Program> The Individual Assistance program provides financial and direct assistance to disaster victims for expenses and needs that cannot be met through other means, such as insurance. In May 2019, we reported on FEMA s efforts to provide disaster assistance under the Individual Assistance program to older adults and people with disabilities following the 2017 hurricanes. We found that aspects of the application process for FEMA assistance were challenging for older individuals and those with disabilities. Further, according to stakeholders and FEMA officials, disability-related questions in the Individual Assistance registration materials were confusing and easily misinterpreted. While FEMA had made some efforts to help registrants interpret the questions, we recommended, among other things, that FEMA (1) implement new registration-intake questions that improve FEMA s ability to identify and address survivors disability-related needs, and (2) improve communication of registrants disability-related information across FEMA programs. DHS concurred with the first recommendation, and officials reported that in May 2019 the agency updated the questions to directly ask individuals if they have a disability. The agency has taken actions to fully implement this recommendation and, according to FEMA s analysis of applications for assistance following recent disasters which used the updated questions the percentage of registrants who reported having a disability increased. However, DHS did not concur with the second recommendation, noting that it lacks specific funding to augment its legacy data systems. FEMA officials stated that they began a long-term data management improvement initiative in April 2017, which they expect will ease efforts to share and flag specific disability-related data. While we acknowledge FEMA s concerns about changing legacy systems when it has existing plans to replace those systems, we continue to believe there are other cost-effective ways that are likely to improve communication of registrants disability-related information prior to implementing the system upgrades. For example, FEMA could revise its guidance to remind program officials to review the survivor case file notes to identify whether there is a record of any disability-related needs. We also have work underway to assess FEMA s Individuals and Households Program, a component program of Individual Assistance. Through this program, as of April 2019, FEMA had awarded roughly $4.7 billion in assistance to almost 1.8 million individuals and households for federally-declared disasters occurring in 2017 and 2018. Specifically, we are analyzing Individuals and Households Program expenditures and registration data for recent years; reviewing FEMA s processes, policies, and procedures for making eligibility and award determinations; and examining survivors reported experiences with this program, including any challenges, for major disaster declarations occurring in recent years. We plan to report our findings in early 2020. FEMA s Individuals and Households Program provides individuals with financial assistance, such as grants to help repair or replace damaged homes, and temporary direct housing assistance, such as recreational vehicles. HUD CDBG-DR grants provide funding that disaster-affected communities may use to address unmet needs for housing, infrastructure, and economic revitalization. In March 2019, we reported on the status of CDBG-DR grants following the 2017 disasters, plans for monitoring the program, and challenges HUD and grantees faced in administering these grants. We found that HUD lacked adequate guidance for staff reviewing key information, such as the quality of grantees financial processes and procedures and assessments of grantees capacity and unmet needs. Further, we found HUD had not completed monitoring or workforce plans that identify key risk factors and critical skills and competencies required for program implementation, among other things. In addition, we found that Congress has not established permanent statutory authority for CDBG-DR but rather has used supplemental appropriation legislation to authorize HUD to establish requirements via Federal Register notices. Without such permanent statutory authority, HUD must customize grantee requirements for each disaster. The ad hoc nature of CDBG-DR has created challenges for CDBG-DR grantees, such as lags in accessing funding and coordinating these funds with other disaster recovery programs. For example, it took 154 days (or 5 months) for HUD to issue the requisite Federal Register notice after the first appropriation for the 2017 hurricanes. According to HUD officials, they delayed issuance of the first notice for the 2017 hurricanes because they expected a second appropriation and wanted to allocate those funds in the same notice. However, because the second appropriation took longer than HUD expected, the first notice allocated only the first appropriation. We recommended that Congress consider permanently authorizing a disaster assistance program to address unmet needs in a timely manner. In addition, we made five recommendations to HUD. Specifically, we made two recommendations to HUD regarding developing additional guidance for staff to use when reviewing grantees planning documentation. HUD partially agreed with these two recommendations, stating that some of this guidance was already in place. Because HUD acknowledged that providing additional guidance would improve its review process, we revised these two recommendations accordingly to reflect the need for additional guidance. We also made three additional recommendations to HUD, including that the agency should develop a monitoring plan for grants and conduct workforce training. HUD generally agreed with these recommendations and indicated it planned to develop monitoring strategies. HUD also stated that it had developed a staffing plan, but we noted the agency still needed to conduct workforce planning to determine if the number of staff the agency planned to hire was sufficient. We are continuing to monitor HUD s efforts to address these recommendations. <2.3. Additional Challenges in Federal Response and Recovery Efforts> In addition to those described above, we reported on challenges FEMA faced in (1) providing mass care to disaster survivors, (2) assisting jurisdictions affected by wildfires, and (3) supporting electricity grid recovery efforts in Puerto Rico. <2.3.1. Mass Care> In September 2019, we reported on FEMA s and the American Red Cross efforts to coordinate mass care which includes sheltering, feeding, and distributing emergency supplies following the 2017 hurricanes. We found that some needs related to mass care were unmet. For example, local officials in Texas said flooded roads prevented trucks from delivering supplies. Further, mass care providers encountered challenges in part because state and local agreements with voluntary organizations that help to provide mass care to disaster survivors did not always clearly detail what services these organizations were capable of providing. Among other things, we also found that while state, territorial, and local grantees of federal disaster preparedness grants are required to regularly submit information on their capabilities to FEMA, the mass care information some grantees provided to FEMA was not specific enough to aid its response in 2017. Moreover, as FEMA does not require grantees to specify the organizations providing mass care services in their capabilities assessments, grantees and FEMA may not be collecting reliable information on capabilities. As a result of our findings in this report, we made one recommendation to DHS, four recommendations to FEMA, and one recommendation to the American Red Cross. Specifically, among other things, we recommended that FEMA should emphasize the importance of defining roles and responsibilities in its guidance to grantees in states and localities and require them to solicit key capabilities information from mass care providers. DHS concurred with four recommendations, but did not concur with our recommendation requiring grantees to solicit key information from organizations providing mass care services and to specify these organizations in capability assessments. Specifically, DHS and FEMA stated that requiring grantees to include this information is not the most effective approach and would increase their burden. We modified our recommendation to address this concern and continue to believe that grantees should make an effort to include mass care providers in assessing capabilities. We will continue to monitor FEMA s progress in fully addressing these recommendations. <2.3.2. Wildfire Recovery> Further, in October 2019, we reported on the assistance FEMA provided to jurisdictions in response to major disaster declarations stemming from wildfires from 2015 through 2018 (see fig. 2). We found that FEMA helped state and local officials obtain and coordinate federal resources to provide for the needs of wildfire survivors and provided more than $2.4 billion in federal assistance. However, state and county officials also described challenges in responding to wildfire disasters. For example, onerous documentation requirements for FEMA s Public Assistance grant program, a shortage of temporary housing for survivors, and the unique challenge of removing wildfire debris led to over-excavation on some homeowners lots and lengthened the rebuilding process. We also found that while FEMA had developed an after-action report identifying lessons learned from the October and December 2017 wildfires, the agency could still benefit from a more comprehensive assessment of its operations to determine if any changes are needed to better respond to the threat posed by increased wildfire activity. We recommended that FEMA assess operations to identify any additional updates to its management controls such as policies, procedures, or training that could enhance future response and recovery from large- scale and severe wildfires. DHS agreed with our recommendation and described a number of ongoing and planned actions it would take to address it, including supporting states efforts to house disaster survivors, developing guidance for housing grants authorized by the DRRA, and taking steps to identify areas of innovation in response to wildfire disasters. DHS anticipates that these efforts will be put into effect by December 2020 and we will continue to monitor DHS and FEMA s progress in addressing this recommendation. In October 2019, we reported on federal efforts to support electricity grid recovery in Puerto Rico. We found that FEMA and other federal agencies can support long-term electricity grid recovery efforts and incorporate resilience through three primary roles providing funding and technical assistance and coordinating among local and federal agencies. However, we found that zero permanent, long-term grid recovery projects in Puerto Rico had received funding as of July 2019 as Puerto Rico was still establishing priorities for permanent work. Further, we found that certain challenges are hindering progress on electricity grid recovery efforts in Puerto Rico, including uncertainty about the kinds of projects that may be eligible for federal funding, local capacity constraints, uncertainty about available federal funding, and the need for coordination among local and federal stakeholders. As a result of our findings, we made three recommendations to FEMA and one recommendation to HUD. Specifically, we recommended that FEMA should provide clear written policies, guidance, or regulations to clarify its plans for implementing new authorities provided by the Bipartisan Budget Act of 2018 and take steps to enhance coordination among local and federal entities. DHS concurred with these recommendations and stated it is working to address them. In addition, we recommended that HUD establish timeframes and a plan for publication of the grant process and requirements specifically for CDBG- DR funding for improvements to Puerto Rico s electricity grid. In its response to this recommendation, HUD stated that it is closely working with its federal partners on the requirements for this funding in Puerto Rico, but did not specifically state whether it would establish the timeframes and a plan for publication of the grant process and requirements as we recommended. We continue to believe that this action is needed since without this information, local entities will continue to be uncertain regarding what is eligible for CDBG-DR funding. We will continue to monitor FEMA s and HUD s progress in addressing these recommendations. <3. Longstanding Workforce Management Challenges Exacerbate Key Issues with Response and Recovery Operations> FEMA s experiences during the 2017 disasters highlight the importance of continuing to make progress on addressing the long-standing workforce management challenges we have previously reported on and continue to observe in our ongoing work. In particular, our work has identified challenges related to (1) recruiting, maintaining, and deploying a trained workforce, (2) the Incident Management Assistance Team program, (3) Public Assistance program staffing, (4) contracting workforce shortages, (5) assistance to older adults and people with disabilities, and (6) workforce capacity and training. Recruiting, maintaining, and deploying a trained workforce. In September 2018, we reported that the 2017 disasters hurricanes Harvey, Irma, and Maria, as well as the California wildfires resulted in unprecedented FEMA workforce management challenges, including recruiting, maintaining, and deploying a sufficient and adequately-trained FEMA disaster workforce. FEMA s available workforce was overwhelmed by the response needs caused by the sequential and overlapping timing of the three hurricanes. For example, at the height of FEMA workforce deployments in October 2017, 54 percent of staff were serving in a capacity in which they did not hold the title of Qualified according to FEMA s qualification system standards a past challenge we identified. FEMA officials noted that staff shortages and lack of trained personnel with program expertise led to complications in its response efforts, particularly after Hurricane Maria. FEMA s Incident Management Assistance Team program. In February 2016, we reported on, among other things, FEMA s efforts to implement, assess, and improve its Incident Management Assistance Team program. We found that while FEMA used some leading practices in managing the program, it lacked a standardized plan to ensure that all national and regional Incident Management Assistance Team members received required training. Further, we found that the program had experienced high attrition since its implementation in fiscal year 2013. We recommended, among other things, that FEMA develop (1) a plan to ensure that Incident Management Assistance Teams receive required training, and (2) a workforce strategy for retaining Incident Management Assistance Team staff. DHS concurred with the recommendations. FEMA implemented our first recommendation by developing an Incident Management Assistance Team Training and Readiness Manual and providing a training schedule for fiscal year 2017. In response to the second recommendation, FEMA officials stated in July 2018 that they plan to develop policies that will provide guidance on a new workforce structure, incentives for Incident Management Assistance Team personnel, and pay-for-performance and all other human resource actions. We are continuing to monitor FEMA s efforts to address this recommendation. Public Assistance program staffing. In November and December 2017, we reported on staffing challenges in FEMA s Public Assistance program. In November 2017, we reported on FEMA s efforts to address past workforce management challenges through its redesigned Public Assistance delivery model. As part of the redesign effort, FEMA created consolidated resource centers to standardize and centralize Public Assistance staff responsible for managing grant applications, and new specialized positions to ensure more consistent guidance to applicants. However, we found that FEMA had not assessed the workforce needed to fully implement the redesigned model, such as the number of staff needed to fill certain new positions, or to achieve staffing goals. Further, in December 2017, we reported on FEMA s management of its Public Assistance appeals process, including that FEMA increased staffing levels for the appeals process from 2015 to 2017. However, we found that FEMA continued to face a number of workforce challenges, such as staff vacancies, turnover, and delays in training, which contributed to processing delays. Based on our findings from our November and December 2017 reports, we recommended, among other things, that FEMA (1) complete workforce staffing assessments that identify the appropriate number of staff needed to implement the redesigned Public Assistance delivery model, and (2) document steps for hiring, training, and retaining key appeals staff, and address staff transitions resulting from deployments to disasters. DHS concurred with our recommendations to address workforce management challenges in the Public Assistance program and have reported taking some actions in response. For example, to address the first recommendation, FEMA officials have developed preliminary models and estimates of staffing needs across various programs, including Public Assistance. However, as of October 2019, the agency has not yet taken actions to implement this recommendation. To address the second recommendation, FEMA has collected information on the amount of time regional appeals analysts spend on appeals, and the inventory and timeliness of different types of appeals. FEMA officials stated in September 2018 that they plan to assess this information to prepare a detailed regional workforce plan. In May 2019, FEMA sent us additional information and documentation involving its analysis of appeal inventory and timeliness. As of October 2019, we are evaluating the information provided by FEMA to determine if they have addressed this recommendation. Contracting workforce shortages. In April 2019, we reported on the federal government s contracting efforts for preparedness, response, and recovery efforts related to the 2017 hurricanes and California wildfires. We found, among other things, that contracting workforce shortages continue to be a challenge for disaster response and recovery. Further, although FEMA s 2017 after-action report recommended increasing contract support capacities, it did not provide a specific plan to do so. We also found that while FEMA evaluated its contracting workforce needs in a 2014 workforce analysis, it did not specifically consider contracting workforce needs in the regional offices or address Disaster Acquisition Response Team employees. In our April 2019 report, we recommended, among other things, that FEMA assess its workforce needs including staffing levels, mission needs, and skill gaps for contracting staff, to include regional offices and Disaster Acquisition Response Teams, and develop a plan, including timelines, to address any gaps. DHS concurred with this recommendation and estimates that it plans to implement it in the fall of 2019. Assistance to older adults and people with disabilities. In our May 2019 report on FEMA disaster assistance to older adults and people with disabilities following the 2017 hurricanes, we found that FEMA began implementing a new approach to assist individuals with disabilities in June 2018, which shifted the responsibility for directly assisting individuals with disabilities from Disability Integration Advisors which are staff FEMA deploys specifically to identify and recommend actions needed to support survivors with disabilities to all FEMA staff. To implement this new approach, FEMA planned to train all of the agency s deployable staff and staff in programmatic offices on disability issues during response and recovery deployments. According to FEMA, a number of Disability Integration Advisors would also deploy to advise FEMA leadership in the field during disaster response and recovery. We found that while FEMA has taken some initial steps to provide training on the changes, it had not established a plan for delivering comprehensive disability-related training to all staff who will be directly interacting with individuals with disabilities. We recommended, among other things, that FEMA develop a plan for delivering training to FEMA staff that promotes competency in disability awareness and includes milestones and performance measures, and outlines how performance will be monitored. DHS concurred with this recommendation and reported plans to update FEMA s position task books for all deployable staff with information that promotes competency in disability awareness. In July 2019, officials told us FEMA plans to hire new staff to focus on integrating the disability competency FEMA-wide and work with FEMA s training components to ensure that disability- related training is consistent with the content of the position task books. We will continue to monitor FEMA s efforts to address our recommendation. FEMA s workforce capacity and training. In addition to our prior work on FEMA s workforce management challenges related to specific programs and functions, we are continuing to evaluate FEMA s workforce capacity and training efforts during the 2017 and 2018 disaster seasons. Our preliminary observations indicate that there were challenges in FEMA s ability to deploy staff with the right kinds of skills and training at the right time to best meet the needs of various disaster events. For example, according to FEMA field leadership we interviewed, for some of the functions FEMA performs in the field, FEMA had too few staff with the right technical skills to perform their missions such as inspections of damaged properties efficiently and effectively. For other functions, these managers also reported that they had too many staff in the early stages of the disaster, which created challenges with assigning duties and providing on-the-job training. For example, some managers reported that they were allocated more staff than needed in the initial phases of the disaster, but many lacked experience and were without someone to provide direction and mentoring to ensure they used their time efficiently and gained competence more quickly. In focus group discussions and interviews with field managers, FEMA officials told us that difficulties deploying the right mix of staff with the right skills led to challenges such as delays in making purchases to support FEMA operations, problems with properly registering applicants for FEMA programs, or poor communication with nonfederal partners. Nonetheless, FEMA staff have noted that, despite any suboptimal circumstances during disaster response, they aimed to and have been able to find a way to deliver the mission. As part of this ongoing work, FEMA field leadership and managers also reported challenges using agency systems to ensure the availability of the right staff with the right skills in the right place and time. FEMA uses a system called the Deployment Tracking System to, among other things, help identify staff available to be deployed and activate and track deployments. To help gauge the experience level and training needs of its staff, the agency established the FEMA Qualification System (FQS), which is a set of processes and criteria to monitor staff experience in competently performing tasks and completing training that correspond to their job titles. According to the FQS guidance, staff who have been able to demonstrate proficient performance of all the relevant tasks and complete required training receive the designation qualified, and are expected to be ready and able to competently fulfill their responsibilities. Those who have not, receive the designation trainee, and can be expected to need additional guidance and on-the-job training. FQS designations feed into the Deployment Tracking System as one key variable in how the tracking system deploys staff. Among other challenges with FEMA s Deployment Tracking System and Qualification System, FEMA managers and staff in the field told us in focus group discussions that an employee s recorded qualification status was not a reliable indicator of the level at which deployed personnel would be capable of performing specific duties and responsibilities or their general proficiency in their positions, making it more difficult for managers to know the specialized skills or experience of staff and effectively build teams. We are continuing to assess these and other reported workforce challenges and plan to report our findings in spring 2020. Thank you, Chairwoman Titus, Ranking Member Meadows, and Members of the Subcommittee. This concludes my prepared statement. I would be happy to respond to any questions you may have at this time. <4. GAO Contact and Staff Acknowledgments> If you or your staff have any questions concerning this statement, please contact Christopher P. Currie at (404) 679-1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement were Joel Aldape (Assistant Director), Bryan Bourgault (Analyst-in-Charge), Amanda Miller, and Heidi Nielson. In addition, Aditi Archer, Anthony Bova, Janice Ceperich, James Cook, Adam Couvillion, Lorraine Ettaro, Eric Hauswirth, Tracey King, Caryn Kuebler, Amy Moran Lowe, Amanda Parker, Sara Pelton, Josephine Perez, Amanda Prichard, Paige Smith, and Johanna Wong made contributions to this statement. Key contributors to the previous work discussed in this statement are listed in each of the cited reports. Appendix I: Related GAO Products Previously Issued Highway Emergency Relief: Federal Highway Administration Should Enhance Accountability over Project Decisions. GAO-20-32 (Washington, D.C.: October 17, 2019). Wildfire Disasters: FEMA Could Take Additional Actions to Address Unique Response and Recovery Challenges. GAO-20-5 (Washington, D.C.: October 9, 2019). Puerto Rico Electricity Grid Recovery: Better Information and Enhanced Coordination Is Needed to Address Challenges. GAO-20-141 (Washington, D.C.: October 8, 2019). Disaster Response: HHS Should Address Deficiencies Highlighted by Recent Hurricanes in the U.S. Virgin Islands and Puerto Rico. GAO-19-592 (Washington, D.C.: September 20, 2019). Disaster Response: FEMA and the American Red Cross Need to Ensure Key Mass Care Organizations are Included in Coordination and Planning. GAO-19-526 (Washington, D.C.: September 19, 2019). Disaster Response: Federal Assistance and Selected States and Territory Efforts to Identify Deaths from 2017 Hurricanes. GAO-19-486 (Washington, D.C.: September 13, 2019). Emergency Management: FEMA s Disaster Recovery Efforts in Puerto Rico and the U.S. Virgin Islands. GAO-19-662T (Washington, D.C.: July 11, 2019). 2017 Disaster Relief Oversight: Strategy Needed to Ensure Agencies Internal Control Plans Provide Sufficient Information. GAO-19-479 (Washington, D.C.: June 28, 2019). Emergency Management: FEMA Has Made Progress, but Challenges and Future Risks Highlight Imperative for Further Improvements GAO-19-617T (Washington, D.C.: June 25, 2019). Emergency Management: FEMA Has Made Progress, but Challenges and Future Risks Highlight the Imperative for Further Improvements GAO-19-594T (Washington, D.C.: June 12, 2019). Disaster Assistance: FEMA Action Needed to Better Support Individuals Who Are Older or Have Disabilities. GAO-19-318 (Washington, D.C.: May 14, 2019). Disaster Contracting: Actions Needed to Improve the Use of Post- Disaster Contracts to Support Response and Recovery. GAO-19-281 (Washington, D.C.: April 24, 2019). 2017 Hurricane Season: Federal Support for Electricity Grid Restoration in the U.S. Virgin Islands and Puerto Rico. GAO-19-296 (Washington, D.C.: April 18, 2019). FEMA Grants Modernization: Improvements Needed to Strengthen Program Management and Cybersecurity. GAO-19-164 (Washington, D.C.: April 9, 2019). Disaster Recovery: Better Monitoring of Block Grant Funds Is Needed. GAO-19-232 (Washington, D.C.: March 25, 2019). Puerto Rico Hurricanes: Status of FEMA Funding, Oversight, and Recovery Challenges. GAO-19-256 (Washington, D.C.: March 14, 2019). Huracanes de Puerto Rico: Estado de Financiamiento de FEMA, Supervisi n y Desaf os de Recuperaci n. GAO-19-331 (Washington, D.C.: March 14, 2019). High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas. GAO-19-157SP (Washington, D.C.: March 6, 2019). U.S. Virgin Islands Recovery: Status of FEMA Public Assistance Funding and Implementation. GAO-19-253 (Washington, D.C.: February 25, 2019). 2017 Disaster Contracting: Action Needed to Better Ensure More Effective Use and Management of Advance Contracts. GAO-19-93 (Washington, D.C.: December 6, 2018). Continuity of Operations: Actions Needed to Strengthen FEMA s Oversight and Coordination of Executive Branch Readiness. GAO-19-18SU (Washington, D.C.: November 26, 2018). Homeland Security Grant Program: Additional Actions Could Further Enhance FEMA s Risk-Based Grant Assessment Model. GAO-18-354 (Washington, D.C.: September 6, 2018). 2017 Hurricanes and Wildfires: Initial Observations on the Federal Response and Key Recovery Challenges. GAO-18-472 (Washington, D.C.: September 4, 2018). Federal Disaster Assistance: Individual Assistance Requests Often Granted but FEMA Could Better Document Factors Considered. GAO-18-366 (Washington, D.C.: May 31, 2018). 2017 Disaster Contracting: Observations on Federal Contracting for Response and Recovery Efforts. GAO-18-335 (Washington, D.C.: February 28, 2018). Disaster Recovery: Additional Actions Would Improve Data Quality and Timeliness of FEMA s Public Assistance Appeals Processing. GAO-18-143 (Washington, D.C.: December 15, 2017). Disaster Assistance: Opportunities to Enhance Implementation of the Redesigned Public Assistance Grant Program. GAO-18-30 (Washington, D.C.: November 8, 2017). Climate Change: Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure. GAO-17-720 (Washington, D.C.: September 28, 2017). Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014. GAO-16-797 (Washington, D.C.: September 22, 2016). Disaster Recovery: FEMA Needs to Assess Its Effectiveness in Implementing the National Disaster Recovery Framework. GAO-16-476 (Washington, D.C.: May 26, 2016). Disaster Response: FEMA Has Made Progress Implementing Key Programs, but Opportunities for Improvement Exist. GAO-16-87 (Washington, D.C.: February 5, 2016). Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters. GAO-15-515 (Washington, D.C.: July 30, 2015). Budgeting for Disasters: Approaches to Budgeting for Disasters in Selected States. GAO-15-424 (Washington, D.C.: March 26, 2015). High-Risk Series: An Update. GAO-15-290 (Washington, D.C.: February 11, 2015). Emergency Preparedness: Opportunities Exist to Strengthen Interagency Assessments and Accountability for Closing Capability Gaps. GAO-15-20 (Washington, D.C.: December 4, 2014). Fiscal Exposures: Improving Cost Recognition in the Federal Budget. GAO-14-28 (Washington, D.C.: October 29, 2013). Federal Disaster Assistance: Improved Criteria Needed to Assess a Jurisdiction s Capability to Respond and Recover on Its Own. GAO-12-838 (Washington, D.C.: September 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). Appendix II: Ongoing GAO Reviews 1. Review of U.S. Virgin Islands recovery planning and progress; 2. Puerto Rico disaster recovery planning and progress; 3. Drinking water and wastewater utility resilience; 4. Disaster and climate change impacts on Superfund sites; 5. FEMA Public Assistance program fraud risk management efforts; 6. Wildland fire collaboration on fuel reduction efforts; 7. Preparedness challenges and lessons learned from the 2017 8. FEMA workforce management and challenges; 9. Small Business Administration response to 2017 disasters; 10. Development of the GAO disaster resilience framework; 11. FEMA Individuals and Households Program operations and 12. National Flood Insurance Program post-flood enforcement; 13. Emergency alerting capabilities and progress; 14. National Flood Insurance Program buyouts and property acquisitions; 15. Economic costs of large-scale natural disasters and impacts on 16. Community Development Block Grants disaster recovery; 17. Disaster Housing Assistance Program; 18. Contracting workforce and purchase card use for disaster response 19. Power grid and water projects; 20. National Earthquake Hazards Reduction Program (NEHRP); and 21. Disaster resilience and hazard mitigation. 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.

Why GAO Did This Study Recent hurricanes, wildfires, and flooding have highlighted the challenges the federal government faces in responding effectively to natural disasters. The 2017 and 2018 hurricanes and wildfires affected millions of individuals and caused billions of dollars in damages. In March 2019, the Midwest experienced historic flooding that affected millions of acres of agriculture and damaged infrastructure. Since 2005, federal funding for disaster assistance is at least $450 billion. Increasing reliance on federal help to address natural disasters is a key source of federal fiscal exposure, particularly as certain extreme weather events become more frequent and intense. This statement discusses, among other things, FEMA's and other federal agencies' progress and challenges related to disaster resilience, recovery programs, and workforce management. This statement is based on GAO reports issued from September 2012 through October 2019, and also includes preliminary observations from ongoing GAO reviews. GAO examined federal laws and documents; interviewed agency officials; and visited disaster damaged areas in California, Florida, South Carolina, North Carolina, Puerto Rico, Texas, and the U.S. Virgin Islands, where GAO also interviewed federal and local officials. What GAO Found GAO's issued and ongoing work has identified progress and challenges in the Federal Emergency Management Agency's (FEMA) and other federal agencies' disaster recovery efforts, as discussed below. Disaster resilience. GAO found that federal and local efforts to improve resilience can reduce the effects and costs of future disasters. FEMA has made progress in this area, but in November 2017, GAO found that more consistent planning could help ensure that rebuilding efforts incorporate hazard mitigation, which would increase the resilience of infrastructure during future disasters. GAO recommended that FEMA take steps to consistently integrate hazard mitigation into its recovery process. FEMA is working to address these recommendations. Managing long-term recovery. GAO's work has shown that federal recovery programs are complicated and can be slow to provide assistance. For example, in October 2019, GAO reported that local officials described onerous documentation requirements in FEMA's Public Assistance program and the unique challenge of removing debris following the 2017 wildfires. GAO recommended that FEMA assess its operations to identify actions to enhance future recovery from severe wildfires. In March 2019, GAO reported that the ad hoc nature of disaster recovery block grants from the Department of Housing and Urban Development delayed the availability of funding. GAO recommended, among other things, that Congress consider permanently authorizing this grant program to meet the needs of disaster survivors in a timely manner. FEMA workforce management. GAO has previously reported on long-standing workforce management challenges, such as ensuring an adequately-staffed and trained workforce to provide effective assistance. For example, GAO reported in September 2018 that the 2017 disasters overwhelmed FEMA's workforce and a lack of trained staff with program expertise led to complications in its response efforts, particularly after Hurricane Maria. While FEMA has taken actions to address several of GAO's workforce management-related recommendations since 2016, a number of recommendations have not yet been implemented. GAO is currently reviewing FEMA's workforce management efforts and lessons learned from the 2017 disasters and will report its findings early next year. What GAO Recommends GAO has made numerous recommendations in prior reports designed to address the challenges discussed in this statement. Federal agencies have taken steps to address these recommendations and GAO is monitoring agencies' ongoing efforts.

gao_GAO-19-321

gao_GAO-19-321_0

<1. Background> The F-35 Lighting II program is a joint, multinational acquisition program intended to develop and field a family of next-generation strike fighter aircraft for the U.S. Air Force, Navy, and Marine Corps (hereinafter referred to as the services), eight international partners, and foreign military sales customers (collectively hereinafter referred to as program participants). There are three F-35 variants, and each will be a multi-role, stealthy strike aircraft replacement for or complement to the services legacy fighter aircraft. <1.1. F-35 Milestones and Stakeholders> DOD initiated the F-35 program in October 2001, and began operational testing of the aircraft in December 2018. DOD has also, concurrently, been fielding and operating a growing fleet of aircraft as part of low-rate initial production. As of February 2019, more than 350 aircraft had been fielded and were operating from 16 bases worldwide. By 2023, the global F-35 fleet is expected to expand to more than 1,100 aircraft across 43 operational sites. In total, the program participants plan to purchase more than 3,300 F-35 aircraft, with the U.S. services planning to purchase nearly 2,500 of those aircraft. See figure 1 for a timeline of anticipated worldwide fleet growth and site activations in the F-35 program. Sustainment for the growing fleet of F-35 aircraft is a large and complex undertaking with several key stakeholders. The F-35 Joint Program Office, through its Product Support Manager, is responsible for managing and overseeing the support functions required to field and maintain the readiness and operational capability of the F-35 aircraft across the enterprise. As such, it establishes sustainment requirements, manages funding, develops contracts, and provides direction for and oversees the execution of F-35 sustainment strategy and policy. Additionally, in 2016, DOD established a Hybrid Product Support Integrator organization within the Joint Program Office, and it expects to fully implement this organization by the end of 2019. Once fully implemented, DOD intends for the Hybrid Product Support Integrator to bring together all government and commercial capabilities necessary to execute the F-35 sustainment strategy. The organization is led by a general officer, who is responsible for providing government oversight of all support providers to ensure that they deliver the required levels of performance. In particular, the F-35 program relies heavily on contractors to provide support for its F-35 aircraft. DOD has two primary contractors for the F-35 program: Lockheed Martin for the overall aircraft system and Pratt & Whitney for the engine. As the prime contractor for the overall aircraft system, Lockheed Martin (hereinafter referred to as the prime contractor) is responsible for managing the F-35 supply chain, depot maintenance, and pilot and maintainer training, as well as for providing engineering and technical support. Currently, DOD is contracting for this support with the prime contractor largely through annual contracts, and it plans to transition to multiple-year, fixed-price, performance-based sustainment contracts when the program achieves certain condition- based criteria, including the establishment of critical sustainment capabilities and the government s ability to collect and more fully assess performance and cost data. In addition, the U.S. Air Force, Navy, and Marine Corps have each established an F-35 integration office or similar construct focused on how the services will operate and afford the F-35, among other things. Figure 2 below depicts how these key stakeholders provide support to the F-35 program participants across the three aircraft variants. <1.2. The F-35 Global Support Solution and Supply Chain> DOD is planning to meet the sustainment requirements of its F-35 customers by providing a common, global support solution. As part of this common solution, participants share most sources of support, such as spare parts, depot maintenance, and training. At the core of the F-35 global support solution is the F-35 supply chain. At maturity, the F-35 supply chain is intended to be a network of manufacturers, commercial and government part repair depots, and base and regional part warehouses that will be located around the world to provide parts to support the operational and training requirements of all F-35 program participants. As a part of the F-35 supply chain, all F-35 program participants including the U.S. military services, international partners, and foreign military sales customers share a global pool of F-35 spare parts (formally called the Joint Spares Pool), which we refer to in this report as the F-35 global spares pool. These pooled assets comprise only parts used for F-35 aircraft, such as consumable and repairable spare parts for the airframe, engine system, support equipment, pilot flight equipment, and training devices. The F-35 global spares pool consists of four different packages of parts the base spares package, the global spares package, the deployment spares package, and the afloat spares package as described below and in figure 3. Base spares package: A base spares package is a retail-level supply of parts inventory that is positioned at each F-35 main operating base to support the F-35 aircraft operating from that location. Each base spares package is intended to have a sufficient amount of parts to support the number of aircraft and planned flying hours at the base. While inventory within each base spares package is sized to meet the projected needs of the aircraft at that particular location, parts within the base spare packages are intended to be available for sharing among all global participants, as needed. Global spares package: A global spares package is a wholesale- level supply of parts inventory that is positioned at regional warehouses, original equipment manufacturers, and depot repair facilities. The prime contractor manages this inventory to replenish the stocks of parts in base spares packages and the other packages below, and to meet participants requirements for parts that are not in their base inventories. If a part is needed for the repair of an aircraft, and the unit does not have the part in its base inventory, the prime contractor sends a part from the global spares package to meet the unit s requirement. Parts within the global spares package are intended to be available for sharing among all global participants. Deployment spares package: A deployment spares package is a retail-level supply of parts inventory that is purchased by a program participant to support its wartime or contingency operations. This package is intended to have a sufficient amount of parts to support a program participant s contracted operational requirements for a defined period of time, until the F-35 supply chain is able to ship replenishment parts to the participant s deployed location. For example, a deployment spares package could be sized to provide parts for 12 aircraft to fly a specified number of flight hours over a 20- day period and be fully mission capable 70 percent of the time. The parts in this package are generally reserved for use only by the participant who purchased the package. Afloat spares package: An afloat spares package is a retail-level supply of parts inventory that is purchased by a program participant to support its F-35 operations aboard a naval vessel. This package is intended to have a sufficient amount of parts to support a program participant s contracted operational requirements for a defined period of time until the F-35 supply chain is able to ship replenishment parts to the participant aboard the ship. For example, an afloat spares package could be sized to provide parts for six aircraft stationed on a ship to fly a specified number of flight hours over a 20-day period, and be fully mission capable 70 percent of the time. The parts in this package are generally reserved for use only by the participant who purchased the package. All of the parts within the global spares pool are owned by the U.S. government when not installed on a participant s aircraft. The U.S. military services and international participants do not purchase parts directly, but rather purchase access to parts in the shared pool based on how many F- 35 aircraft they own and the number of flight hours they plan to fly, among other factors. Accordingly, the F-35 program has developed a series of business rules that are intended to govern how parts within the F-35 global spares pool will be managed and shared, and how the costs of the parts will be allocated across participants. The prime contractor manages the F-35 supply chain and is responsible for allocating parts to F-35 sites and participants based on contracted requirements, such as numbers of aircraft and planned flying hours, and program business rules. The effective management of the F-35 supply chain requires significant technical data about the F-35 aircraft and parts, such as engineering data, maintenance instructions, and information related to how often the aircraft experiences failures and how much time it takes to repair those failures. Technical data constitute an important part of a weapon system program, such as the F-35. We have previously reported that identifying technical data needs, costs, and ownership are essential for DOD to effectively consider and maximize competition for future product support of F-35 sustainment, including supply chain management. <2. F-35 Performance Will Likely Continue to Fall Short of Warfighter Requirements, and DOD Faces Challenges Related to the Availability of Spare Parts> F-35 aircraft performance is not meeting warfighter requirements. While DOD is taking various actions to improve F-35 spare parts availability so that aircraft can fly and perform their missions, it will likely continue to struggle to meet warfighter requirements due to how it is planning for and allocating spare parts. <2.1. F-35 Aircraft Performance Is Not Meeting Requirements Due to Spare Parts Shortages and Limited Repair Capabilities> <2.1.1. Fleet-Wide F-35 Performance> The performance of the F-35 fleet is hindered by lower-than-required aircraft availability and capability rates. Air vehicle availability, or the percentage of total time during which the aircraft can fly and perform at least one mission, was 45.8 percent across the F-35 fleet from May through November 2018, as compared with the warfighter minimum target of 65 percent. Full mission capability, or the percentage of time during which the aircraft can perform all of its tasked missions, was 26.8 percent from May through November 2018, as compared with the warfighter minimum target of 60 percent. However, parts availability and aircraft performance varied by aircraft variant and the age of the aircraft. For instance, fleet-wide rates of full mission capability for the F-35A aircraft were higher than those for the F-35B. Figure 4 below shows aircraft performance data by variant across key program metrics relative to stated U.S. warfighter requirements, referred to within the F-35 program as objective and minimum performance targets. From May through November 2018, fleet-wide F-35 aircraft performance did not meet any of the U.S. warfighter s requirements. Lower-than-required F-35 aircraft performance is attributable in part to spare parts shortages. Specifically, the F-35 supply chain does not have enough spare parts available to keep aircraft flying enough of the time necessary to meet warfighter requirements. According to prime contractor data, from May through November 2018, F-35 aircraft across the fleet were unable to fly 29.7 percent of the time due to spare parts shortages (this metric is hereinafter referred to as the S-rate). Figure 5 below shows the percentage of aircraft that were unable to fly from May through November 2018 due to shortages of parts relative to the program s target. According to prime contractor data, to keep aircraft flying despite parts shortages, from May through November 2018 F-35 squadrons cannibalized (that is, took) parts from other aircraft at rates that were more than six times greater than the services objective. These high rates of cannibalization mask even greater parts shortages, because personnel at F-35 squadrons are pulling parts off of other aircraft that are already unable to fly instead of waiting for new parts to be delivered through the supply chain. The F-35 program is taking a number of actions to try to increase the availability of spare parts, including steps to increase the capacity of suppliers to produce parts to meet sustainment requirements, improve the timing of spare parts deliveries, and address the reliability of certain parts that are failing more frequently than expected. DOD has identified specific parts shortages that are causing the greatest aircraft capability degradation, and it is developing short-term and long-term mitigation strategies to increase the quantity and reliability of these parts. For instance, DOD found that the special coating on the F-35 canopy that enables the aircraft to maintain its stealth failed more frequently than expected, and that the manufacturer could not produce enough canopies to meet demands. To address these challenges, the program is looking for additional manufacturing sources for the canopy and is considering design changes. <2.1.2. Limited Spare Part Repair Capabilities and DOD Actions for Improvement> A key contributor to spare parts shortages is the F-35 program s limited capacity to repair broken parts. The average time to repair an F-35 part was more than 6 months, or about 188 days for repairs completed between September and November 2018 more than twice that of the program s objective of 60 90 days. Also, there was a backlog of about 4,300 spare parts awaiting repair at depots or manufacturers (see figure 6). This backlog of parts awaiting repair is largely attributable to delays in the establishment of part repair capabilities at the military depots. The capabilities to repair all parts at the military depots were originally intended to be in place by 2016, but the F-35 program s current plan now projects that the military depots will not have the capability to repair all parts at the expected repair demand rates until 2024. According to program officials and documentation, the plan includes the required material and technical instructions to repair parts, and DOD has allocated funding for these efforts in its budget planning. However, as of February 2019, funding decisions had not been finalized. In the meantime, to address the gap in part repair capabilities at the military depots, the prime contractor has begun incentivizing manufacturers to increase their capacity to repair spare parts by establishing performance-based repair agreements. As of October 2018, according to program documentation, the prime contractor had established seven such agreements, with six more planned by May 2019. In October 2017, we reported that DOD was experiencing supply chain challenges, largely as the result of sustainment plans that did not fully include key requirements or aligned funding. DOD concurred with our recommendation that it revise its sustainment plans to ensure that they include the key requirements and funding needed to fully implement its sustainment strategy. In January 2019, DOD issued an updated Life- Cycle Sustainment Plan for the F-35. The plan includes eight elements that DOD has identified as critical to enabling the program to achieve its aircraft capability and affordability targets by fiscal year 2024, including accelerating supply chain and depot repair capabilities. <2.1.3. Challenges for Early Production Aircraft> The F-35 program is a highly concurrent program wherein aircraft, spare parts, and mission software continue to be developed and redesigned while fielded aircraft must be sustained. As a result, there are at least 39 different part combinations across the fleet. Additionally, DOD s training and operational squadrons are flying F-35 aircraft with three different blocks of mission software 2B, 3i, and 3F with Block 3F software having the full warfighting capability. According to the program office, DOD spent more than $15 billion to purchase F-35 aircraft from the earliest lots of production, specifically lots 2 through 5 (hereinafter referred to as early production aircraft ), but it faces challenges in providing enough spare parts for these aircraft. Early production F-35 aircraft have parts configurations and software that differ from those of later production aircraft, and they have faced more parts reliability issues and parts shortages than later-production aircraft. Figure 7 shows the differences in aircraft performance between early production aircraft and aircraft produced in production lot 6 or later (hereinafter referred to as later production aircraft ). According to program documentation, DOD plans to upgrade all of its early production aircraft to Block 3F software capability. These upgrades were initially scheduled to be completed by the end of 2021, but DOD is taking actions to accelerate these modifications with the plan to complete the upgrades in September 2020. That upgrade is expected to address some of the reliability challenges the older aircraft have experienced. However, program and contractor officials said that these upgrades are not a comprehensive solution, as there will still be many parts that are used on these early production aircraft that are not reliable and are in short supply. Accordingly, DOD is taking action to retrofit some other parts that are not addressed by the modifications. These challenges disproportionately affect the U.S. services training fleets, as the majority of U.S. early production aircraft are currently being used for that mission. For example, the training units at Eglin Air Force Base were unable to fly due to parts shortages about 56 percent of the time from May 2018 through November 2018. <2.1.4. ALIS Challenges> The Autonomic Logistics Information System is an information technology system that is central to the F-35 sustainment strategy. It is intended to provide the necessary logistics tools to F-35 program participants as they operate and sustain the F-35 aircraft. ALIS consists of multiple software applications designed to support different squadron activities, including supply chain management, maintenance, training management, and mission planning. Specifically, for supply chain management, ALIS was intended to automate a range of supply functions including updating the status of parts, generating supply work orders, and communicating critical data about parts. However, these capabilities are immature, resulting in numerous challenges and the need for maintainers and supply personnel at military installations to perform time-consuming, manual workarounds in order to manage and track parts. One Air Force unit estimated that it is spending the equivalent of more than 45,000 hours per year performing additional tasks and manual workarounds, including for supply-related functions, because ALIS is not functioning as intended. Supply and maintenance personnel we spoke with at various military installations cited challenges associated with ALIS, including the following: missing or corrupted electronic spare parts data that are required to install a part on an aircraft, necessitating extensive research and troubleshooting to resolve; maintenance and supply systems within ALIS not communicating with each other, resulting in difficulty in electronically tracking aircraft parts as they are physically moved between maintenance and supply locations at the same base; and limited automated capabilities, requiring manual and sometimes duplicative steps for receiving, tracking, and managing parts. We have previously reported on challenges related to ALIS. In April 2016, we reported that DOD did not have a plan to ensure that ALIS was fully functional as key program milestones approached. In October 2017, we reported that DOD faced delays in the development of required ALIS sustainment capabilities and uncertain funding for this development. We are currently conducting a separate review of ALIS, assessing how DOD is managing current and future issues related to the system. We plan to complete this review by the end of 2019. <2.2. DOD Will Likely Continue to Face Challenges in Achieving F-35 Performance Requirements with its Current Approach to Planning for and Allocating Spare Parts> In September 2018, the Secretary of Defense directed the services to achieve and maintain 80 percent mission capability for the F-35 fleet by the end of fiscal year 2019, which program and Office of the Secretary of Defense officials have told us will be difficult to accomplish, given the supply and maintenance challenges facing the fleet. DOD is pursuing a phased approach to achieving this requirement for the F-35 aircraft. DOD s first priority is to increase the capability of its operational fleet to achieve the 80 percent mission capability target by the end of fiscal year 2019, with the intent to increase the capabilities of its entire F-35 fleet to achieve the target by the end of fiscal year 2020. While DOD has ongoing efforts to increase the availability of spare parts as described above, it is likely to face additional challenges in meeting this requirement as well as the other warfighter aircraft performance requirements, because of the ways in which the program is planning for and allocating parts. <2.3. DOD Is Not Planning for Enough Parts in Its Spare Parts Projections to Meet Warfighters Performance Requirements> The F-35 program is not planning for the quantity of parts necessary in its spare parts projections to meet warfighter performance requirements. The program s S-rate requirement is used along with a number of other factors in an analytical model to determine the quantity of spare parts to be purchased. Based on this model, DOD is planning to purchase the quantity of parts necessary to achieve a fleet-wide S-rate of 20 percent meaning the program is buying only enough parts to enable about 80 percent of its aircraft to be mission-capable based on the availability of parts. According to program documentation, the maximum fleet-wide mission capability rates that can be consistently expected when modeling for a 20 percent S-rate is about 70 percent far lower than the warfighter s requirements. This is the case because the time during which aircraft are unable to fly due to maintenance is also a factor, which the program projects will be about 10 percent. Figure 8 shows the difficulty that DOD will face in meeting the Secretary of Defense s 80 percent mission capability target when planning for an S-rate of 20 percent given the time that is also required for maintenance. According to program and prime contractor documentation, DOD would need to model and fund the spare parts pool to achieve an S-rate of no higher than 10 percent in order to achieve requirements for aircraft performance, such as the mission capability target set by the Secretary of Defense and the services goals for air vehicle availability. Doing so would significantly increase the costs for spare parts. According to the prime contractor, in order to achieve a fleet-wide S-rate of 10 percent, the U.S. government would need to initially pay hundreds of millions of dollars to buy more parts for already-fielded aircraft. Costs would also increase on an annual basis above the nearly $1 billion the U.S. services collectively paid in fiscal year 2018 to buy more parts each year. The current projected costs of F-35 sustainment are not affordable for the services. In 2018, DOD established constraints based on the military services future budget projections that indicate that DOD needs to reduce F-35 sustainment costs per aircraft per year by 43 percent for the F-35A, 24 percent for the F-35B, and 5 percent for the F-35C in order for the aircraft to be affordable for the services. DOD will be challenged to support this increase in annual costs for spare parts given its need to make significant cost reductions. Furthermore, as part of DOD s fiscal year 2020 program budget review, DOD conducted modeling and analysis to project how various courses of action such as increasing purchases of spare parts to compensate for how long it actually takes to repair parts or reducing aircraft production would affect F-35 fleet performance. DOD s analysis projected that if no additional actions were taken beyond what the U.S. services had already planned for and funded, F-35 aircraft performance would increase for a period of time. However, it would then worsen significantly with the growth of the fleet. Officials from the Office of the Secretary of Defense said that, as a result of this analysis, DOD is considering some additional investments to increase the availability of parts that would result in increased funding requirements for the U.S. services, but that as of January 2019, decisions were not finalized. They further said that their recent modeling and analysis efforts for the fiscal year 2020 program budget review did not formally consider additional investments to lower the planned S-rate to 10 percent as a course of action, but that this misalignment between the quantity of parts that DOD is planning to purchase and what is needed will hinder DOD s ability to meet warfighter performance requirements. <2.3.1. DOD May Have Limited Options to Increase F-35 Spare Parts Availability for Its Operational Fleet> Supporting Recent F-35 Shipboard Deployments The F-35 program was not able to fill the Marine Corps afloat spares packages (packages of spare parts designed for aircraft stationed on ships) for the first F-35 deployments aboard the U.S.S. Essex and U.S.S. Wasp in 2018 in time to support those deployments. As a result, the F-35 program pulled spare parts from inventories at Marine Corps Stations Yuma, Arizona, and Iwakuni, Japan. Marine Corps officials stated that these actions reduced F-35 readiness in Iwakuni. Moreover, DOD may have limited options to increase spare parts availability for its operational fleet because of the way in which the program is currently structured to allocate parts. Within the F-35 program, the U.S. services do not have control over how F-35 parts are allocated, but rather share access to the parts along with the rest of the global fleet. The prime contractor is responsible for allocating parts to meet the requirements of all participants who share in the global spares pool. In response to parts shortages to date, Air Force and Marine Corps officials have said that the program has generally supported big events, such as the 2018 operational deployments of the U.S. services, by shifting parts to those units from the broader global spares pool (see sidebar). According to service officials, decisions to shift parts to different locations to support operational priorities could potentially be made by either a military service that owns those parts or DOD leadership within a legacy program. However, Office of the Secretary of Defense and program officials said that there is no mechanism within the current construct of the F-35 s global support strategy for program participants to optimize readiness for certain units by increasing the allocation of parts to those locations, short of deviating from existing program rules or contractual arrangements. As the size of the fleet and number of operational squadrons grow, the F-35 program will face increasing demands on its supply chain and competing operational priorities across participants that will likely make it more difficult for the program and the U.S. services to mitigate fleet-wide shortages of F-35 parts. GAO s Standards for Internal Control in the Federal Government states that agencies should define objectives clearly to identify risk, including considering external requirements and internal expectations, and to design and implement activities to respond to those risks. DOD guidance on performance-based arrangements also states that performance-based logistics arrangements should be structured to deliver outcomes that are tied to warfighter requirements. Taken together, the current supply chain challenges and the issues related to how the program is planning for and allocating parts expose a significant gap between the F-35 aircraft performance targets the U.S. services need to achieve and what the F-35 supply chain is positioned to deliver within affordability constraints. DOD s updated F-35 Life-Cycle Sustainment Plan identifies a number of actions needed to improve aircraft performance, such as those related to spare parts availability and repair capability. While the identification of such actions is a positive step, the plan also states that those actions do not take into account policy, program structure, or resource constraints, which could make them difficult to implement. Furthermore, DOD s recent modeling efforts have already identified the need for some initial additional investments that could further strain the services budgets. Without a comprehensive review to determine what additional actions are needed to close the gap between warfighter requirements for aircraft performance and what the F- 35 supply chain is capable of delivering, taking into account also the need to reduce the sustainment costs of the F-35, DOD risks that its F-35 fleet may fall short of the capability needed to support its critical national defense missions in the future. <3. DOD Has Supported Initial U.S. Deployments, but Faces Challenges in Managing and Moving Spare Parts to F-35 Aircraft around the World> <3.1. DOD s F-35 Supply Chain Has Supported Initial Deployments and U.S. and International F-35 Bases Overseas> DOD s F-35 supply chain has provided spare parts to support the few F- 35 deployments that have occurred to date, including the following: U.S. Air Force deployment of 12 F-35A aircraft to Japan, November U.S. Marine Corps deployment of six F-35B aircraft aboard the U.S.S. Wasp, March April 2018 (see figure 9); and U.S. Marine Corps deployment of six F-35B aircraft aboard the U.S.S. Essex, July 2018 February 2019. These units deployed with packages of parts to support the first 20 days of their deployment (that is, deployment and afloat spares packages), and then received replenishment parts from the broader global spares pool once their packages of parts were depleted. DOD officials generally characterized these deployments as operational successes and significant milestones for the F-35 program. In addition to these early deployments, the F-35 supply chain is also providing parts to activated U.S. and international F-35 bases in six different countries outside of the United States. <3.2. DOD Faces Challenges in Managing and Moving Spare Parts to an Expanding F-35 Global Fleet> DOD faces challenges in managing and moving parts to support a deploying and expanding global F-35 fleet. While the initial operational deployments have been successful and the program has established overseas F-35 bases in six different countries, these events have also highlighted several key risks that could hinder future F-35 fleet readiness. These risks are related to (1) the make-up of the afloat and deployment F-35 parts packages, (2) the prioritization process for distributing scarce parts among global F-35 participants, and (3) the F-35 program s global networks for moving parts. <3.2.1. Spare Parts for Deploying Aircraft Do Not Always Match Military Service Needs> DOD faces challenges in ensuring that the parts in its purchased afloat and deployment spares packages match the needs of deploying operational aircraft. According to Air Force and Marine Corps officials, ensuring that these parts packages are appropriately configured is of significant operational concern because units may be completely reliant on them while deployed to locations that the F-35 supply chain cannot yet readily support. The afloat and deployment spare parts packages are purchased according to a list of parts planned and paid for by an F-35 program participant at least 2 to 3 years in advance, aligning with the aircraft being purchased at that time and the best projections of what the demand for the parts will be. However, given the immaturity of the F-35 program, continued modifications to parts and aircraft can make such packages out-of-date by the time F-35 units are preparing to deploy. For example, Air Force officials told us that the spare parts packages for its November 2017 May 2018 operational F-35 deployment in Japan included parts that were not compatible with the aircraft with which they intended to deploy. Thus, the Air Force had to change its plans and deploy with older aircraft with less advanced capabilities that matched the parts in the package instead of the aircraft that best met their operational requirements. The Marine Corps faced similar challenges with its first shipboard deployments in 2018. Table 1 shows the number of parts and examples of parts in the Marine Corps afloat spares packages for the U.S.S. Wasp and U.S.S. Essex deployments that were not initially configured to be compatible with the Marine Corps deploying aircraft. Air Force and Marine Corps officials also said the quantity of parts within their parts packages were not fully reflective of the actual demands for certain parts, based on updated information about the reliability of certain parts and how frequently they needed to be replaced. In other words, the initially built packages did not have enough of the right parts to meet mission requirements. For example, Marine Corps officials said they were able to identify more than a dozen different parts in one of their afloat spares packages prior to deploying that were not provided in sufficient quantities because the program did not account for the actual fleet demand for these parts in its modeling for the afloat spares package. Air Force officials expressed similar concerns and said that they have had difficulty in getting information from the program that would enable the Air Force to assess whether there are enough of the right parts in its deployment spares packages relative to the actual demands for these parts. This is a concern for the Air Force as it prepares for its next F-35 deployment, because officials said that they cannot be sure that the package of parts with which they will deploy will have sufficient parts to support the deployment. The F-35 program does not have a process in place for changing out the parts within the afloat and deployment spares packages that are put on contract years before a deployment. Such a process is needed to ensure that the packages reflect the actual configurations of the deploying aircraft or updated demand projections for parts. Service and program officials said that such a process would need to include a review of the parts within the packages to ensure that they match deploying aircraft and aligning the funds to pay for any necessary updates or modifications to the parts, which could potentially cost tens of millions of dollars. F-35 program policy recognizes that the program may need to adjust the configurations or quantity of parts in the packages based on updated information, noting that such actions may necessitate contractual changes, but it does not specify the process for these adjustments. In our discussions with the prime contractor, program office, and military services, officials have lacked clarity regarding who is responsible for reviewing the parts in the package to ensure that they are appropriately configured and for determining whether additional contract actions or funding are needed to update the packages. In lieu of an established process to refresh these parts, service and contractor officials described an ad hoc and manual effort to review the packages prior to deployment. To address non-matching parts, contractor officials said that the program had to pull parts from the global and base spares packages to make exchanges. Officials said that this cuts into the parts that are available for the other F-35 units that rely on those packages, because the global and base packages are not stocked with the parts to support the deployments. For example, the program used 187 parts from the inventory at Marine Corps Air Station Iwakuni to backfill parts for the U.S.S. Wasp. The Marine Corps squadron in Iwakuni stated that this had a measurable effect on the squadron s readiness to support its operational requirements, as reflected by lower availability of parts within their inventory to support broken aircraft. Specifically, during the time of the U.S.S. Wasp deployment, only about 46 percent of the critical parts (that is, parts needed to fix aircraft that cannot fly) that the squadron at Iwakuni needed were available in its inventory, and the squadron had to wait an average of about 12 days to receive these parts from off-base. As the F-35 fleet continues to expand and the number of operational deployments increases, military service officials said that these manual workarounds and the singular focus on ensuring that one unit has the appropriate parts to deploy will not be tenable. Program officials said that they have started a working group to look at options for addressing this issue, but they could not provide a timeframe or details about this effort. DOD guidance for risk management in acquisition programs states that defense programs must anticipate and address risks on a continuing basis, and suggests that programs implement processes that include risk identification, analysis, mitigation, monitoring, and planning. Further, the services have recognized that, to meet operational readiness objectives in a deployed environment, it is critical to have mechanisms ensuring that spare parts packages with which units plan to deploy are built to support the configurations and expected missions of the deploying aircraft, and have established guidance and processes to that effect. DOD also has a separate, ongoing initiative to determine whether using risk-based assumptions can produce a more efficient and effective mix of parts within deployment parts packages across a range of weapon systems, including the F-35. While this effort is nascent, it could potentially offer insights for the F-35 program to consider when reviewing the make-up of the F-35 deployment and afloat spares packages. Without a process for DOD to modify the F-35 afloat and deployment spares packages, to include reviewing the parts within the packages to ensure that they match deploying aircraft and accounting for updated parts demand, and without aligning any necessary funding for needed updates, the military services face risk that the parts that they have specifically purchased to meet their operational requirements will not be sufficient to do so. <3.2.2. Uncertainty Exists about How Scarce Spare Parts Will Be Prioritized among All F-35 Customers> Uncertainty exists about how the program will prioritize scarce F-35 spare parts among global participants. The program has developed a set of business rules to govern the prioritization of scarce F-35 parts. The business rules are to differentiate between the relative significance of competing needs and create a structure to be responsive to customer requirements during both peacetime and war. These rules are critical to ensuring fair and transparent allocation of parts to all program participants, particularly given the significant shortages of spare parts throughout the F-35 program. Under these rules, F-35 units are assigned numerical designations based on the importance of their mission (that is, force activity designators), and their part requests are similarly assigned designations based on how important the part is to aircraft functionality (that is, urgency of need). Under these rules, the force activity designators of each unit and the urgency of need for each part request are combined to create an analysis that is applied to requests for scarce parts to determine which unit should receive the part. For example, according to such an analysis, a deployed F-35 unit that orders a part for an aircraft that cannot fly without that part would have priority over all other units. Conversely, an F-35 training unit that needs a part to replenish the inventory of parts on its shelves would have very low priority for the part relative to that of other units. See figure 10 for a general depiction of the prioritization scheme for F-35 parts. According to program and contractor officials, the prime contractor has been allocating parts according to these business rules, but these rules are not comprehensive. Officials from the Joint Staff, Office of the Secretary of Defense, program office, and military services cited a number of areas where the rules lack clarity and detail. For example, there is a lack of clarity around how force activity designations will be assigned and by whom. The business rules state that each unit s force activity designation will be assigned by the participant s national command authority, but they do not specify the process for doing so; provide for a clear role for the U.S. combatant commanders in the process; or specify the level of U.S. and international leadership required in order to make changes to this designation. In addition, stakeholders with whom we spoke said that the existing force activity designations do not provide for enough differentiation between types of activities or account for the unit s unique mission requirements when determining how important a part is to aircraft functionality. For example, military units that are engaged in combat operations are assigned the same force activity designations as units that are forward-based to react to potential threats. These officials expressed concern that as the global fleet expands and more units are engaged in operations, this practice could lead to a situation in which too many units are a priority at any one time. Stakeholders have also raised questions about whether and how F-35 participants should be charged for increases in their force activity designations, as this matter is not addressed within the current business rules. Furthermore, the F-35 Product Support Manager has at times waived these business rules to support deployments and other activities, such as aircraft operational tests. For example, the Air Force unit that deployed to Japan in 2017 experienced significant readiness challenges because the business rules had established the replenishment of its spare parts package as a low priority relative to other competing demands for scarce parts. Air Force officials said that this contributed to its aircraft being unable to fly due to shortages of parts more than 30 percent of the time (cumulative over a month). According to Air Force and contractor officials, Air Force leadership then made a number of calls to the program office to request that its replenishment requirements be given higher priority. Subsequently, the F-35 Product Support Manager directed that the contractor deviate from the business rules to place a higher priority on the replenishment of the deployed unit s parts package so that it could get parts faster. Service and program officials said that such deviations may be necessary to meet operational requirements, and that program leadership needs some flexibility in the business rules to make those decisions. According to program officials, the F-35 Product Support Manager has the authority to issue waivers to the business rules, but the business rules do not clearly grant this waiver authority to the Product Support Manager, or address how and when such waivers should occur. Stakeholders have been raising some of these concerns for several years. For example, the Office of the Secretary Defense and the Joint Staff developed related position papers that identified gaps in the business rules. Officials from these offices said that the papers were sent to the program office in 2014 and early 2017, respectively. In response, the F-35 program established a working group in May 2018 to begin revising the business rules. As of January 2019, program officials said that the revised business rules were undergoing internal review, but the date for completion was not yet determined due to potentially lengthy timeframes associated with obtaining formal approval through the F-35 governance process. This ongoing effort is promising, but the specific action items that the working group was tasked with incorporating into the business rules do not clearly address some of the areas of concern raised by stakeholders. For example, these action items do not include the issue of deviations from the business rules. DOD directs its components to comply with DOD s established materiel management guidance, which outlines DOD policy, assigns responsibilities and specifically provides procedures for how parts and materiel should be prioritized for responding to customer supply chain demands for all DOD components, including outlining the application of force activity designators and the role of the combatant commanders. The F-35 program s existing business rules incorporate many aspects of this standard DOD prioritization guidance, but they are not fully aligned with this guidance. For example, DOD s standard process outlines the use of five potential force activity designators, while the F-35 program provides for only three different designations. Additionally, Standards for Internal Control in the Federal Government states that agencies should design control activities to achieve objectives and respond to risks, including implementing control activities through policies. U.S. service and international officials said that, as the fleet and competition for spare parts increases, they are concerned that participants may try to manipulate the system due to the lack of clarity within the existing rules. Without ensuring that the revisions to its business rules for the prioritization of scarce F-35 parts across all program participants define stakeholder roles and responsibilities, the process for assigning and arbitrating force activity designations, and the manner in which deviations from the business rules will be conducted, the F-35 program may face challenges allocating parts to support competing U.S. and international warfighter requirements. Further, F-35 program participants may lack confidence in the equity of decisions regarding scarce parts that affect their operational requirements. <3.2.3. DOD s Networks to Move F-35 Parts around the World Are Immature> DOD is now moving F-35 parts around the world, but its global networks for doing so are immature and there is risk that they will not be fully capable to support an expanding fleet. The F-35 program has a growing number of U.S. and international participant bases outside of the United States and is providing supply support from its global spares pool for an increasing number of operational deployments. For its supply chain construct to work as intended, F-35 parts must be able to move freely and efficiently among U.S. and international program participants, suppliers, and repair facilities, regardless of the country or company of origin. The program has projected that F-35 parts could potentially be moved on 132 different paths between participating countries (for example, Italy to United Kingdom, Italy to Norway) and 2,162 paths between F-35 sites (for example, a warehouse in the Netherlands to a base in Norway). This will require the program to establish strategically located warehouses, synchronize global distribution networks, and navigate a complex web of import and export activities and international weapon control laws. However, the envisioned global network is not yet in place. For instance, regional warehouses planned for the Netherlands and Australia are not expected to reach initial operational capability until, at the earliest, late 2019 and 2020, respectively. Furthermore, the program is still working to establish functional shipping networks and locations at which to receive parts. It also does not have mechanisms in place to support the range of required import and export activities. Spare parts are instead being moved under a less efficient system, with the parts originating from and returning to the United States before being delivered to an international program participant. Figure 11 compares a depiction of the program s intent for the future global network for moving F-35 parts with the existing hub-and-spoke network. The immaturity of the global network has contributed to long wait times for parts for the U.S. and international F-35 squadrons that are deployed or permanently based overseas. The 2018 F-35 sustainment contract establishes minimum and objective targets for customer wait times across the F-35 fleet. The targets are the same regardless of whether the aircraft are located inside or outside of the United States, thus reflecting the intended global nature of the network. However, customer wait times for parts for units located outside of the continental United States have been significantly higher than those for units located inside of the continental United States, as shown in figure 12. Unless otherwise noted, the data are inclusive of customer wait times for both U.S. and international participants. Officials from Marine Corps, Air Force, and international F-35 squadrons that were based or deployed overseas in Japan and the United Kingdom described long wait times of up to 17 days well outside of the 6-and 10- day customer wait-time metric ranges for critical parts to receive available parts overseas that have degraded their readiness. They cited several reasons for these delays, such as export and import licenses not being in place, delays in customs, inefficient routing or processing of parts, and ineffective commercial freight forwarders. For example, Air Force and contractor officials said that it was initially taking parts up to 14 to 16 days to reach the deployed Air Force unit in Japan using a commercial shipper, which was hurting the unit s readiness. According to DOD and contractor officials, these concerns drove the prime contractor to start shipping parts via military air, which subsequently decreased customer wait times significantly. However, these officials said that the program did not have the appropriate contracting and funding mechanisms in place to utilize military air and had to return to using a different commercial shipper. The F-35 program s plan for full establishment of the global networks for moving parts is not complete. Program officials and contractor officials told us that planning for this network is 3 to 4 years behind the need because the program was more focused on producing the aircraft than on sustainment. Prime contractor officials also said that they did not realize the complexity of setting up the network, which will require them to establish export and import authorizations in every country and to work through the Department of State to establish export licenses. In addition, the construct necessitates that each of the international participants takes actions within its own government to ensure that the appropriate arrangements are in place, such as obtaining waivers for taxes, tariffs, and duties, or pursuing any necessary changes to its own government s laws. The F-35 program initiated its focused planning for this network in 2018, with the establishment of a working group tasked to develop plans for implementing the network. In January 2019, the F-35 program issued a high-level strategy that provided some limited information on the program s objective and key principles for the network. It also indicated that a forthcoming F-35 program instruction would provide a framework for executing the strategy, but it did not have a timeline or details for the completion of this instruction. Also in January 2019, DOD selected the U.S. Transportation Command and the Defense Logistics Agency as the entities responsible for the global transportation and distribution networks for F-35 parts a transition that is expected to occur over the next 12 to 24 months. According to Department of Defense documentation, existing U.S. Transportation Command and Defense Logistics Agency networks are already in place to support much of the required F-35 global parts movements, particularly for U.S. units and foreign military sales customers. However, these organizations will still be reliant on the F-35 program to establish the necessary licenses and legal frameworks for the movement of parts between partner countries. The program has established a target date of September 1, 2021 for full operational capability of the network, at which point spare parts are intended to be able to be moved freely throughout the F-35 enterprise. However, the program does not yet have a detailed plan with clear requirements and milestones or an integrated schedule to move the network from initial operational capability to full operational capability. Program officials stated that they believe this date is achievable, due to the increased emphasis on developing the network among all program participants. However, there are risks to the program s planning effort. Beyond the complexity of the network, the F-35 program office and contractors do not control all elements needed to support the successful implementation of the network. Specifically, each international partner is responsible for establishing the necessary legal framework in its own country to support the network, which can be a lengthy process. Program officials further noted that other international participants have national laws or have made decisions that are not conducive to the free flow of parts throughout the global network. F-35 program policy provides some provisions to address non-conformance by partners for example, stating that partners will be responsible for any taxes or tariffs charged to the program by their own countries. However, program officials said that the mechanisms to manage any such deviations will be complex to implement and are still being developed. Our prior work on acquisition management has identified a number of key program management practices that can improve program outcomes if implemented, such as clearly establishing well-defined requirements and developing realistic schedules that include risk analysis. DOD guidance related to managing risk in acquisition programs also states the importance of program managers taking actions to identify, manage, and mitigate programmatic risk, which can either be intrinsic to the program or arise from inadequate planning. The F-35 program s recent focused efforts in this area are positive steps, but its planning efforts still lack detail about how the network will be fully implemented. Furthermore, the schedule, planning, and risks associated with this delayed global network are not addressed in DOD s recently updated F-35 Life Cycle Sustainment Plan. Without completing a detailed plan for the establishment of the F-35 program s global network for moving parts that outlines clear requirements and milestones to get the network to full operational capability, and includes mechanisms to identify and mitigate risks of delays or gaps in the global network, the program cannot ensure that its supply chain will support U.S. and international program participants as intended. Furthermore, delays or gaps in in the establishment of the envisioned global network will likely result in increased costs associated with additional travel segments and delays to the warfighter in receiving spare parts that could hurt the operational readiness of the global F-35 fleet. <4. DOD Cannot Fully Account for F-35 Spare Parts within the Supply Chain and Their Associated Costs> DOD cannot fully account for F-35 spare parts within the supply chain and their associated costs. Specifically, the department does not have records indicating how many F-35 spare parts it has purchased, or where they are all located. In addition, DOD does not have comprehensive cost information for individual F-35 spare parts, and the military services cannot track the funds that they have spent on F-35 spare parts to the actual parts purchased by the program office on their financial statements and supporting documentation. Accountability of government property, such as F-35 spare parts, facilitates financial audits by providing the necessary documentation to ensure the accuracy of transactions for government property and contracted services. Congress required the Secretary of Defense to ensure that an external audit be performed on DOD s financial statements for fiscal year 2018, and to submit such audit to Congress no later than March 31, 2019. Congress directed this audit, in part, to help improve the accuracy and reliability of management information on DOD s mission- critical assets such as F-35 spare parts and services for which they contract. Subsequently, DOD completed its first consolidated, department-wide, full financial statement audit in November 2018. The DOD Office of the Inspector General reviewed the department-wide financial statements and identified 20 material weaknesses that is, serious problems with DOD s internal processes that hamper its ability to reasonably assure that its financial reporting is reliable including processes related to accountability for government property in the possession of contractors and the accuracy and completeness of financial statements. <4.1. DOD Does Not Know How Many F-35 Spare Parts It Has Purchased or Where All of Them Are Located> DOD cannot fully account for its spare parts within the F-35 supply chain, including the quantity of all the spare parts it owns and where they are located. The prime contractor manages the F-35 supply chain and the movement of all F-35 parts across the F-35 enterprise to meet warfighter needs. DOD initially did not intend to own the F-35 parts, but in 2012 the F-35 program s executive steering board issued a decision memorandum declaring the F-35 parts in the global spares pool to be titled to the U.S. government when they are not installed on an aircraft. However, program officials told us that DOD did not develop a corresponding plan to maintain accountability over the parts that it already owned or would purchase in the future. According to program officials, this is due in part to property accountability not being a priority for the program in its effort to field aircraft. This is evidenced by the number of staff within the program office dedicated to this mission; program officials said that until recently there was only one government official at the program office overseeing property accountability for the F-35 system. In order to maintain accountability for government property, such as the spare parts within the F-35 supply chain, DOD guidance requires that DOD components establish and maintain a physical inventory control program for assets within the DOD supply chain to serve as a key internal control for providing information to inform inventory financial statements. Defense Contract Management Agency officials also told us that in order to improve F-35 readiness and decrease costs, DOD must have an understanding of the F-35 spare parts it owns, where those parts are located, and how those parts are being used to support the weapon system. However, the F-35 program has not consistently followed DOD guidance for property accountability. For example: As of December 2018, the program office had not populated an accountable property system of record with data for its F-35 parts. DOD components are required to establish and maintain accountable property systems of record for property that DOD components own and manage. An accountable property system of record is required to contain information such as cost, location, and custodial ownership data for property, including individual parts, that meet certain criteria, and to provide a comprehensive log of transactions that can be audited. Such a system would allow the F-35 program office to have asset visibility for spare parts within the F-35 supply chain. The program office has identified a database to use as its accountable property system of record, but DOD officials stated that the program office does not have the data necessary to populate it. According to program officials, the prime contractor keeps some of the required data in proprietary databases to which the program office does not have access. In addition, DOD officials told us that the program office is working through some limitations that need to be addressed with the system the program office has chosen to be its accountable property system of record in order to properly maintain data records. The program office has not fully identified which spare parts the prime contractor is required to enter into DOD s Item Unique Identification registry (hereinafter referred to as DOD s central registry for government property). In addition to component-specific accountable property systems of record, DOD s central registry for government property is DOD s primary data source for government furnished property, and it is intended to provide department-wide asset visibility for all government property and links with financial and accountability systems in order to maintain accountability over the assets DOD owns. DOD guidance states that agencies are to require contractors to report government furnished property in DOD s central registry for government property. DOD guidance also states that DOD agencies are to identify which assets require unique item-level traceability. However, the program office has not clearly defined for the prime contractor all F-35 spare parts that should be entered into DOD s central registry. As a result, DOD officials said the prime contractor is not entering in information about all required parts. Moreover, a property accountability official said that the prime contractor is not consistently entering F-35 parts into DOD s central registry when the parts are delivered, because the prime contractor may delay entering information into DOD s central registry until all items associated with a specific contract line item have been delivered to DOD. This official also said that there are some contract line items dating back to the first production lot, which delivered aircraft in 2011, that remain open, and thus there are potentially thousands of F-35 parts that are being used within the global spares pool that have not been entered into the registry, thereby impeding DOD s visibility over these parts. DOD has not established a program policy that explicitly defines how it will maintain accountability of F-35 spare parts in accordance with DOD guidance. According to program officials, DOD has made some recent progress to address accountability issues, such as taking steps to bring contracts into compliance with property accountability regulations and increasing the number of staff focused on property accountability within the F-35 program office. However, DOD faces continued challenges in accounting for F-35 assets. In the absence of a program policy, the program lacks clarity on how to categorize assets and which property data the contractor is required to provide for those assets, how to implement policies and regulations, and how to define prime contractor roles and responsibilities. For example, F-35 contracts contain Federal Acquisition Regulation clauses that convey requirements for the prime contractor related to the accountability of government furnished property, including specifying the data that the contractor must maintain and provide to DOD. However, DOD officials said that the F-35 program office has not contractually established which items including spare parts are government furnished property, which has made it difficult for the program office to hold the contractor accountable for those required functions. As a result, the contractor has disputed which items should be considered as government furnished property, which has implications for how the prime contractor maintains accountability and provides data for F-35 spare parts it manages. Property accountability officials at the F-35 program office have developed a draft directive that seeks to address the factors currently impeding the program from being compliant with property accountability guidance by clarifying roles and responsibilities within the program office for maintaining accountability of all government furnished property and pooled assets, including the F-35 spare parts in the supply chain, and defining prime contractor responsibilities for managing these items and providing data to the program office for them. Officials told us, however, that the draft directive is undergoing internal review, and that its timeline for approval and implementation has not been established. Program officials said they are also in the process of developing a program instruction that may provide general procedures for implementing the policies that will be established in the directive. Furthermore, while the draft program directive defines property accountability goals for the F-35 program, it does not detail the actions the program office will take to achieve these goals. The program office will face challenges that may impede its ability to achieve the goals of the draft directive, both retroactively and prospectively, for the billions of dollars in F-35 spare parts for which it currently cannot fully account. For example, DOD officials said that the costs for the prime contractor to obtain the data required to meet DOD s requirements for property accountability will likely be high, as the prime contractor does not centrally maintain all the data, nor do they maintain the data in a readily usable format for property accountability purposes. The contractor has estimated that more than 450,000 hours of labor could be necessary to provide the data. Program officials also acknowledged that the successful implementation of the draft directive is dependent upon support from program office leadership to ensure that its guidance is followed by both program officials and the prime contractor. However, according to these officials, the program has not historically prioritized property accountability in negotiations with the prime contractor because the program office has been focused on the production and fielding of aircraft and developing contracts to which the prime contractor will agree. Standards for Internal Control in the Federal Government states that agencies should define objectives to identify risk, and to design and implement control activities to respond to those risks. These standards also state that without a strong tone at the top to support an internal control system, the entity s risk identification may be incomplete, risk responses may be inappropriate, control activities may not be appropriately designed or implemented, information and communication may falter, and results of monitoring may not be understood or acted upon to remediate deficiencies. DOD s recent efforts related to property accountability are positive, but DOD stakeholders have raised concerns about issues related to property accountability within the F-35 program dating back to 2012 that have not been resolved, such as the program s lack of a populated property system of record. As the fleet expands and the number of spare parts in the supply chain continues to grow, the program office will only continue to face increasing difficulty in obtaining accountability over its F-35 assets if it does not address these challenges. To address the scope of these challenges, DOD will need to establish a unified approach that provides clarity on how to categorize these assets, implement policies and regulations, and define prime contractor roles and responsibilities. Without developing a policy that clearly resolves these issues and defines how the F-35 program will maintain accountability for spare parts within the supply chain that is consistent with DOD guidance and identifying the steps that it will take to implement it retrospectively and prospectively, such as how the program will obtain the necessary data from the contractor DOD cannot ensure that it will be able to obtain and maintain comprehensive accountability and visibility over spare parts within the F- 35 supply chain. Moreover, without an understanding of the assets it owns and how those assets are being managed by the prime contractor, DOD cannot ensure that the prime contractor is providing sufficient readiness for its most expensive weapon system at a reasonable cost. <4.2. DOD Cannot Identify Costs nor Can the Military Services Track the Funds Spent on F-35 Spare Parts> DOD cannot identify individual costs for each F-35 spare part, nor can the military services track the funds that they have spent for the use of F-35 spare parts to the actual parts purchased on their financial statements and related documentation. According to contract administration officials, the ability to track costs and assets is also critical to understanding and improving F-35 fleet performance. <4.2.1. DOD Does Not Have Comprehensive Cost Information for Individual F-35 Spare Parts> DOD does not have comprehensive cost information for individual F-35 spare parts. DOD purchases a high volume of spare parts across several contracts each year. According to program documentation, DOD was appropriated more than $960 million for F-35 spare parts in fiscal year 2018 alone (see sidebar). DOD does not have a consistent, methodical process to identify and track the costs of individual F-35 spare parts, which would typically be done through the purchase contracts for the parts. However, the F-35 contracts do not identify the individual parts or their costs. Instead, these costs are aggregated under broad contract line items, such that individual pricing for spare parts cannot be determined. For example, the annual sustainment contract for fiscal year 2018 aggregates the costs to repair and replace spare parts for F-35A aircraft under one contract line item totaling $276 million. The contracts and related documentation do not specify how the money will be distributed among costs for repair or replacement, nor do they specify how many spare parts the contractor will purchase and at what cost. Program officials said that their system for contract management has limitations that make it difficult to separate individual F-35 parts into their own line items. Since those costs are not being specifically provided in the contracts, program officials said that DOD has relied upon several ad hoc, manual workarounds in an attempt to obtain such data for the thousands of F-35 spare parts it owns, but these efforts are not comprehensive. For example, a program official said that they are obtaining cost information from the inspection and receiving forms accompanying deliveries of F-35 spare parts and then manually entering these cost data into attachments to the sustainment contracts. However, DOD officials said that the inspection and receiving forms for deliveries of F-35 spare parts are often not being entered into the registry until years after the parts are delivered, because such forms are not required until the delivery of all parts purchased under the same contract line item are complete. Furthermore, DOD officials said that this process is not an effective long-term solution for maintaining cost data of the billions of dollars in F-35 spare parts that DOD owns, because data entered in the program s contract management system through manual workarounds do not automatically link to the program office s other data systems. Program officials said that such linkages are necessary to maintain proper accounting of F-35 spare parts, as cost data constitute one of the required data elements for an accountable property system of record. Similar to the challenges that DOD faces with property accountability, program officials said that DOD faces significant hurdles in obtaining cost data from the prime contractor for individual F-35 spare parts because the contracts have not been written to require those data from the outset of the program. According to program officials, the program office has attempted to negotiate for cost data for F-35 spare parts, but the attempts have not been successful because of the high price the prime contractor would have charged the government for these data. DOD guidance states that understanding program costs, such as those for F-35 spare parts, is critical to both achieving desired performance and supporting financial audits. Specifically, DOD guidance states that the government should clearly understand program costs in order to have effective performance-based arrangements. Along these lines, we have previously reported that DOD s limited understanding of the actual sustainment costs of the F-35 system will hinder its ability to accurately determine how much fleet performance should cost under performance- based contracts, thus putting DOD at risk of overpaying the prime contractor while not receiving the expected level of sustainment support. Additionally, DOD guidance requires that DOD agencies assign dollar values for spare parts in financial accounting systems. Without a methodical process for consistently obtaining comprehensive cost information from the prime contractor for individual F-35 spare parts, the program office will not be able to maintain financial or property accountability over these parts in accordance with DOD guidance. Furthermore, DOD will continue to face challenges in developing a complete understanding of the costs for the F-35 system, which will impede its ability to effectively negotiate with the prime contractor for sustainment support and to improve readiness of the expanding F-35 fleet. <4.2.2. Military Services Cannot Track the Funds Spent on F-35 Parts> The military services cannot track the funds that they have spent for the purchase of F-35 spare parts to the actual parts on their financial statements and related documentation due to the lack of an established accounting methodology for the parts within the global spares pool. Under this global spares pool construct, the military services and international partners each pay for access to the common pool of spare parts instead of owning the physical parts themselves. However, there is no established accounting methodology for defining how to track funding to the spare parts such that the military services can properly report assets on financial statements. DOD s Financial Management Regulation requires that DOD agencies such as the military services account for all spare parts they purchase for accountability and financial reporting purposes. According to DOD officials, the F-35 program and the DOD Comptroller have been working to develop a policy that provides such guidance since 2015, but it has not yet been finalized and the timeline for completion is unclear. Specifically, program officials said that they are waiting for the DOD Comptroller to finalize a memorandum that would identify the DOD component responsible for maintaining financial accountability of the F-35 spare parts in the global spares pool. According to DOD officials, the memorandum would include an attachment that defines a methodology for tracking funding contributed by the military services and international partners to F-35 spare parts. A draft of this memorandum has laid out a possible methodology to maintain financial accountability for the spare parts within the global spares pool that includes identifying the program office as the DOD component responsible for financial reporting for F-35 parts, but a program official said that the DOD Comptroller has not yet completed this memorandum because the DOD Comptroller is reconsidering the proposed approach. DOD Comptroller officials said that they are reconsidering the proposed approach based on input received from independent public accountants who performed the services financial statement audits, to consider having the Department of the Navy or the Air Force, rather than the program office, be the reporting entity for F-35 parts. Without a DOD Comptroller-approved methodology for the services to account for the funds they have spent on F-35 parts within the global spares pool on their financial statements, DOD will be hindered in its efforts to comply with financial improvement and audit readiness requirements, provide supporting details for its financial statement transactions, and render accurate cost information for DOD management, Congress, and others stakeholders to use in assessing and managing program costs and other financial activities associated with the F-35 program. We previously reported that F-35 sustainment costs are not fully transparent to the military services and recommended that DOD should take steps to improve communication with the military services about how the F-35 sustainment costs they are being charged relate to the capabilities received. Furthermore, discrete cost information and an ability to account for funds spent would help DOD in its efforts to decrease costs and make one of its most expensive weapon systems more affordable. <5. DOD Actions to Address Supply Chain Management Challenges Are Not Consistent with the Established F-35 Sustainment Strategy> <5.1. DOD Actions Related to Supply Chain Management Diverge from the Established F-35 Sustainment Strategy> Challenges related to readiness and costs including those we have discussed in this report are driving the Office of the Secretary of Defense and the services to take actions that diverge from the established F-35 sustainment strategy. These actions indicate a potential shift in DOD s intent for F-35 supply chain management and a growing desire for more direct involvement by the military services and access to program information from the prime contractor. reliant on the program office for information about system performance and costs. Furthermore, according to Office of the Secretary of Defense and service officials, many of the military services sustainment organizations that provide supply and maintenance support to other platforms have had almost no role in the planning for and establishment of sustainment capabilities or ongoing sustainment support for the F-35. Of these common items, more than 6,000 100,000 demands for these common items, 435 of which had impacts on fleet readiness. In April 2018, in a departure from the strategy and structure of the program and at the direction of the Assistant Secretary of Defense (Logistics and Materiel Readiness), the Defense Logistics Agency and the military services supply and sustainment organizations initiated planning efforts to develop an option for organic that is, DOD-managed supply chain management support that would include increased roles for the services supply organizations and the Defense Logistics Agency in assuming responsibility for F-35 supply chain management. In support of this effort, these organizations have begun to develop notional plans to provision an organic supply chain for F-35 aircraft, which includes determining how many parts are required to support the system and how they can be procured. In addition, the Defense Logistics Agency has begun to catalogue a limited portion of F-35 consumable parts from production lots 6 and 7 into DOD s supply system (see sidebar). However, officials from the Office of the Secretary of Defense and the Defense Logistics Agency said that this initial cataloguing effort only includes the level of detail necessary to support disposal of the parts, and that more comprehensive cataloguing would require DOD to have access to significantly more technical data than are currently available. Prior to this effort, parts used on F-35 aircraft were not tracked by DOD in its logistics information systems. Officials from the Office of the Secretary of Defense said that there are multiple reasons behind DOD s recent effort to develop an option for DOD-led, organic supply chain management, including DOD s need to significantly reduce sustainment costs and improve readiness. For example, according to DOD officials, DOD s early cataloguing efforts have identified more than 7,300 F-35 consumable items that are common to other DOD platforms. Defense Logistics Agency officials said that they are actively working with the program office and prime contractor to identify opportunities for the program to leverage the parts that are already on DOD s shelves. In the longer term, identifying common parts could potentially allow DOD to directly procure them at a lower cost rather than through the prime contractor, and thereby provide economies of scale across other aviation platforms. Furthermore, the prime contractor and F-35 Joint Program Office have not been able to deliver the supply chain performance that the services need under the current sustainment strategy and structure, as discussed earlier in this report. According to an official from the Office of the Secretary of Defense, DOD is supposed to have a viable back-up plan for contractor logistics support under performance-based logistics contracts, in case the contractor cannot meet the government s performance requirements. Prior to the ongoing effort, DOD did not have such a plan. Similarly, DOD guidance on performance-based agreements states that robust performance-based logistics solutions include appropriate criteria to cease the arrangement if necessary in order to manage risk. DOD officials involved in the cataloguing and provisioning efforts described a long-term (5 to 10 years) and phased approach to the potential development of DOD-led supply chain management capabilities for the F-35 that would require major changes to the F-35 program structure and contracts. It would also require DOD to obtain significant amounts of technical data on F-35 parts from the manufacturers of those parts (see sidebar). DOD has submitted a request to the prime contractor for a proposal regarding supplying the data necessary to provision an organic supply chain and to catalogue all F-35 parts into DOD s supply inventory, but as of October 2018, DOD officials said that the prime contractor had not yet provided the costs of these data. Officials from the Office of the Secretary of Defense told us that DOD had initially planned to negotiate for these data as part of the annual sustainment contract for fiscal year 2019, but that the prime contractor had cautioned that this could delay the awarding of the sustainment contract because of the complexity around the data negotiations. Officials said that there were also questions about the type of funds that should be used for the acquisition of these data (that is, procurement or operations and maintenance), and whether some data would need to be directly procured by DOD from the original equipment manufacturers. The lack of data from the contractor to support competition in the F-35 supply chain and DOD s understanding of the costs and performance of the system has long been a challenge, as we have previously reported. In September 2014, we recommended that DOD develop an Intellectual Property Strategy, to include identification of all critical technical data needs and associated costs. Further, in October 2017, we recommended that prior to entering into multi-year, fixed-price, performance-based contracts, DOD should ensure that it has sufficient knowledge of the actual costs of sustainment and technical characteristics of the aircraft after baseline development is complete and the system reaches maturity. DOD concurred with both recommendations but has not yet implemented them. In addition, ongoing dialogue among stakeholders within the Department of Defense demonstrates a growing desire for more direct military service influence and access to information within the F-35 program. In 2018, the Secretary of Defense directed the U.S. military service chiefs to correct the F-35 parts shortages and to be agents of change in pursuing 80 percent mission capability for the F-35 aircraft. In a September 2018 memorandum responding to the Secretary of Defense s direction to address F-35 parts shortages, the Air Force Chief of Staff, the Chief of Naval Operations, and the Commandant of the Marine Corps raised concerns about the program s inadequate supply chain and repair networks and reported on the funding that the services, as customers, provided to the Joint Program office to improve delivery of spare parts and accelerate depot maintenance capability. Furthermore, officials whom we interviewed from each of the military service headquarters expressed frustration with the current sustainment construct of the F-35 program in which they pay large sums of money for less-than-required readiness outcomes but have minimal influence on actions being taken to improve readiness and limited visibility into supply chain modeling and data to support their operational decisions. <5.2. DOD Has Not Determined the Actions and Investments Needed to Support Its Future Strategy for F-35 Supply Chain Management> DOD has not yet determined the actions and investments needed to support the F-35 supply chain in the future, because the department has not charted a clear strategy for F-35 supply chain management. There is a tension between two distinct sustainment concepts the official contractor logistics support construct and DOD s current effort to have greater involvement in supply chain management and F-35 program officials said that the program is caught between the two. In October 2018 DOD issued an updated F-35 Acquisition Strategy, but it did not clearly outline a shift in supply chain management. The new strategy includes references to the potential for increased organic support of the supply chain in the future but does not provide details about the actions or timelines necessary to support this while also reaffirming the current sustainment strategy of contractor logistics support for supply chain management. In addition, while the new strategy states the intent to support supply chain cataloguing and provisioning efforts, it does not provide detailed information regarding the investments in technical data necessary to support these efforts. In January 2019, DOD issued an updated F-35 Life-Cycle Sustainment Plan, which highlighted the absence of the technical data to support provisioning and cataloguing as a gap. The plan stated the intent to have all cataloguing and provisioning data available to the services by the end of fiscal year 2024. However, the plan did not provide details regarding how the data were to be procured or address DOD s future strategy for supply chain management. According to F-35 program, Office of the Secretary of Defense, and Air Force officials, DOD has to provide clear and consistent direction regarding its intent for F-35 supply chain management in order to guide investments in technical data, negotiations with industry, and program actions. In particular, F-35 program officials said that DOD s mixed messages about supply chain management have led to inefficiency as the F-35 program tries to support both the formal, current strategy and initiatives driven by the informal shift toward more DOD involvement in F- 35 supply chain management. According to program officials, the Product Support Manager organization at the F-35 Joint Program Office was structured for management of a program in which the primary contractors would be providing comprehensive contractor logistics support for the life of the program, and it has not grown in size as the fleet has grown. Furthermore, many of the positions at the program office that are critical to establishing and managing sustainment and supply chain capabilities are unfilled, even as the program office is taking on new responsibilities as Hybrid Product Support Integrator. For example, as of September 2018, Of the 16 positions on the product support maintenance team, which includes depot planning, three were vacant. Of the seven positions on the product support supply chain management team, two were vacant. As of January 2019 program officials said that the number of vacancies had grown to four of seven positions. Of the 42 positions in the directorate of sustainment strategy, 11 were vacant, including the lead roles for strategic planning and risk management and scheduling for the global support solution. In other cases, the numbers of staff dedicated to complex planning efforts are limited or have experienced frequent turnover. For example, officials said that there are only two officials within the program office dedicated to planning for the establishment of the program s delayed global networks for moving parts, and the lead role had changed four times in a year. Moreover, program officials said that they are inundated with requests for data and information from the Office of the Secretary of Defense and the U.S. military services, which they partially attributed to the informal shift in the program s strategic intent for sustainment, and to scrutiny related to sustainment performance failures. Officials said that the time spent in responding to requests for data is hindering their ability to focus on long- term actions to improve sustainment performance. The lack of clarity about the future F-35 sustainment strategy could also increase the risk perceived by industry, thus driving up tensions and potential costs in contract negotiations. Program officials said that the increasing technical data requests sent to the prime contractors to support DOD s provisioning and cataloguing efforts signal to industry a potential change from the acquisition strategy of contractor logistics support for supply chain management. According to Hybrid Product Support Integrator officials, mixed messages about the F-35 program s future supply chain strategy could make manufacturers reluctant to invest in increasing their capacity to produce new parts and to repair parts, if they do not have confidence in the scope of future business to warrant such investments. Many options for F-35 supply chain management are available to DOD on a spectrum ranging from full contractor logistics support to DOD-led supply chain management or a blend thereof, depending on the aircraft system or subsystem. DOD guidance for program managers states that a sound program strategy requires understanding and clarity of the program s desired outcomes, and the plans and resources necessary to achieve those outcomes. Furthermore, federal internal control standards demonstrate the necessity of programs defining a clear strategy in order to support program actions. Specifically, the standards state that management should define objectives clearly so that they are understood at all levels of the organization, to include defining what is to be achieved, who is to achieve it, how it will be achieved, and timeframes for achievement. Without clearly defining its strategy for how it will manage the F-35 supply chain in the future and updating key strategy documents accordingly, DOD will continue to face uncertainty about how F-35 sustainment support will be provided over the system s life cycle and the actions and investments needed to ensure that support. Such uncertainty could further hinder the program s efforts to improve supply chain performance and reduce costs. <6. Conclusions> The F-35 aircraft, with its advanced warfighting capabilities, is a critical component of the National Defense Strategy. However, DOD will need to overcome substantial supply chain challenges for the aircraft to perform its expected role. Current F-35 performance continues to fall short of warfighter requirements, largely due to spare parts shortages and delays in the development of key repair capabilities. Simply purchasing more F- 35 parts without other trade-offs may not be a viable long-term solution for DOD, given the steep reductions in sustainment costs that the military services have recognized are needed to make the aircraft affordable. These complex problems necessitate a comprehensive review by DOD to determine what actions should be taken to close the gap between warfighter requirements and the capabilities that the F-35 supply chain can deliver. Absent such actions, DOD risks that the F-35 will not be able to conduct the full range of intended missions. The military services are integrating the F-35 into their operations with recent deployments and the establishment of F-35 bases overseas, but these events have also highlighted key risks for DOD in how it is managing and moving aircraft parts around the world. If not addressed, these risks could hinder the readiness of the global fleet. To date, DOD has been able to mitigate some of these risks by placing singular focus on ensuring the success of early F-35 deployments, but this will not be possible with the rapid expansion of the fleet in the next few years. Specifically, without a process and funding to make changes to the spare parts within their afloat and deployment spares packages to ensure that these match their needs, the military services risk not meeting operational requirements during future deployments. Fleet-wide spare parts shortages are also putting the F-35 program s process for prioritizing scarce F-35 parts to the test. Absent comprehensive business rules, the F-35 program could face challenges in transparently allocating parts to support competing U.S. and international requirements. Further, because the F-35 program did not fully recognize the complexity of establishing a global network for moving F-35 parts, this network is now several years behind schedule. Without a detailed plan that includes clear requirements and milestones to fully establish the network, as well as mechanisms to identify and mitigate the risk posed by any gaps or delays, DOD cannot ensure that it will be able to take the network from concept to reality so that F-35 participants do not experience long wait-times for parts in order to fly their aircraft. Moreover, in its rush to field aircraft and its heavy reliance on the prime contractor, DOD has not focused on property and financial accountability of F-35 spare parts. Simply put, DOD does not have records of all the F- 35 spare parts it has purchased; where those parts are located; and how much the military services paid for them. Until DOD establishes a policy that clearly defines how the F-35 program will maintain accountability for spare parts within the supply chain and lays out the steps that it will take to implement that policy, DOD will continue to lack critical visibility of F-35 assets, which is necessary to hold the prime contractor accountable for providing sufficient readiness at a reasonable cost. Additionally, without a process to consistently obtain comprehensive cost information from the prime contractor for F-35 spare parts, DOD will not have a full picture of F-35 costs, which could impede its ability to effectively negotiate with the prime contractor for sustainment support and to improve readiness of the expanding F-35 fleet. Further, absent a DOD Comptroller-approved methodology for the military services to record on their financial statements the funds spent on F-35 parts, DOD will be hindered in its efforts to comply with financial improvement and audit readiness requirements. As a result, DOD will not be able to assure the taxpayer that it fully understands how funds have been spent on this costly weapon system. Finally, from the start of the F-35 program, the U.S. military services have been largely reliant on the prime contractor to manage the F-35 supply chain and to support their operations, with oversight from the program office. However, the Office of the Secretary of Defense and the services have grown dissatisfied with the program s inability to meet their readiness requirements and reduce costs, and they have begun to take actions that indicate the potential for a significant shift in DOD s F-35 sustainment strategy that would have far-reaching implications for the program. This shift, if fully implemented, would give more control of the supply chain to the federal government, but it also would run counter to the way in which agreements with industry and international participants have been constructed. Until DOD clearly defines its strategy for managing the F-35 supply chain in the future to include any additional actions and investments necessary to support that strategy the F-35 program will lack the certainty and unity of effort necessary to meaningfully improve supply chain performance and reduce costs. <7. Recommendations for Executive Action> We are making the following eight recommendations to DOD. The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, conducts a comprehensive review of the F-35 supply chain to determine what additional actions are needed to close the gap between warfighter requirements for aircraft performance and the capabilities that the F-35 supply chain can deliver, in light of the U.S. services affordability constraints. Potential actions could include adjustments to the quantities of parts DOD is planning to procure, or developing a mechanism for providing increased availability of parts to operational units, as a means to mitigate fleet-wide shortages. (Recommendation 1) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, develops a process to modify the afloat and deployment spares packages, to include reviewing the parts within the packages to ensure that they match deploying aircraft and account for updated parts demand, and aligning any necessary funding needed for the parts updates. (Recommendation 2) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, revises the business rules for the prioritization of scarce F-35 parts across all program participants so as to clearly define the roles and responsibilities of all stakeholders, the process for assigning force activity designations, and the way in which deviations from the business rules will be conducted. (Recommendation 3) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, completes a detailed plan for the establishment of the global network for moving F-35 parts that outlines clear requirements and milestones to reach full operational capability, and that includes mechanisms to identify and mitigate risks to the F-35 global spares pool. (Recommendation 4) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, issues a policy consistent with DOD guidance that clearly establishes how DOD will maintain accountability for F-35 parts within the supply chain, and identify the steps needed to implement the policy retrospectively and prospectively for example, how DOD will obtain the necessary data from the contractor. This policy should provide clarity on how F-35 parts will be categorized, specify how the program will implement DOD regulations, and define prime contractor roles and responsibilities. (Recommendation 5) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, develops a methodical approach to consistently obtain comprehensive cost information from the prime contractor for F-35 spare parts within the supply chain. (Recommendation 6) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the Department of Defense Comptroller, the Secretaries of the Air Force and Navy, and the F-35 Program Executive Officer, completes and formalizes a methodology for the U.S. services to use in recording on their financial statements the funds spent on F-35 parts within the global spares pool. (Recommendation 7) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, clearly defines the strategy by which DOD will manage the F-35 supply chain in the future and update key strategy documents accordingly, to include any additional actions and investments necessary to support that strategy. (Recommendation 8) <8. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix II, DOD concurred with our recommendations and identified actions that it was taking or planned in response. We are providing copies of this report to appropriate congressional defense committees; the Acting Secretary of Defense; the Under Secretary of Defense for Acquisition and Sustainment; the F-35 Program Executive Officer; the Secretaries of the Air Force and Navy; and the Commandant of the Marine Corps. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact 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. Staff members making key contributions to this report are listed in appendix III. Appendix I: Scope and Methodology For each of our objectives, we reviewed relevant F-35 sustainment and supply chain plans, program briefs, guidance, and other documentation and collected information by interviewing officials from the Office of the Secretary of Defense for Acquisition and Sustainment, the F-35 Joint Program Office, the U.S. Air Force, the U.S. Navy, the U.S. Marine Corps, and the prime contractor, Lockheed Martin. To interview officials and observe F-35 supply and maintenance operations, we conducted site visits to two F-35 operational locations Hill Air Force Base, Utah, and Marine Corps Air Station Yuma, Arizona; and one training location Luke Air Force Base, Arizona. We selected these locations to obtain perspectives from both operational and training units from multiple U.S. military services using different variants of the aircraft, and to gather insights of international partners co-located at these bases, among other factors. Additionally, we interviewed officials from the only overseas- based U.S. F-35 operational squadron at Marine Corps Air Station Iwakuni, Japan, by phone. A complete listing of organizations we contacted for this review is provided later in this appendix. In support of our objectives, we gathered various data related to the F-35 supply chain, such as parts availability, repair, aircraft performance, and customer wait time data. We gathered data for fiscal year 2018 (October 2017 September 2018) and available data from the F-35 program s 2018 sustainment contract period (May November 2018) in order to provide the most recent information for F-35 fleet performance and overall supply chain management available during our audit timeframes. To determine the reliability of these data, we collected information on how the data were collected, managed, and used through a questionnaire and interviews with relevant DOD officials and the prime contractor. Although we identified some limitations in the way that certain data are being collected and reported such as data related to aircraft performance, aircraft that are not mission capable due to a lack of parts, and parts cannibalization that could potentially result in inaccuracies we determined that they are sufficiently reliable for the way in which we reported them and our purposes of providing information on the progress and challenges within the program. Specifically, the parts cannibalization rates that we discuss are sufficiently reliable to discuss generally in comparison to program objectives. All other supply chain and performance data presented in our report are sufficiently reliable to present as specific data points. To assess the extent to which F-35 performance is meeting warfighter requirements and any challenges with spare parts availability, we reviewed DOD and contractor sustainment and supply chain plans, briefings, and reports, and interviewed Office of the Secretary of Defense, U.S. service, program office, and prime contractor officials to determine the degree to which the supply chain is currently able to provide parts to meet the U.S. services requirements. In addition, we obtained data related to F-35 parts availability and aircraft performance data for May through November 2018 and compared these to the program s target and the U.S. services requirements for these metrics to identify any gaps between requirements and actual performance. We also obtained data related to 3-month average part repair times and part repair backlogs as of November 2018 the most currently available data at the time of our review. In order to assess the extent to which the supply chain is positioned to meet future warfighter requirements, we examined program plans, briefs, and other related documentation, and we interviewed Office of the Secretary of Defense, U.S. service, program office, and prime contractor officials to identify the actions that DOD is taking to increase the availability of F-35 spare parts, DOD s projections for when these actions will result in improvements in F-35 aircraft performance, and ongoing areas of challenge that could create risk for the program in meeting future warfighter requirements. Finally, we used principles from the Standards for Internal Control in the Federal Government and DOD guidance for performance-based arrangements related to how programs should be structured to meet requirements and respond to risk as a basis to determine whether DOD needs to take further actions to ensure that the F-35 supply chain is positioned to meet future warfighter requirements. To assess the extent to which DOD can effectively manage and move F- 35 parts to support aircraft around the world, we reviewed military service and program briefings and data related to DOD s fiscal year 2018 F-35 operational deployments, and we interviewed service, program office, and contractor officials about how the F-35 supply chain and its global spares pool were able to support these deployments, including the extent to which the packages of parts that the military services purchased to support these deployments were built to meet their requirements. We reviewed DOD guidance related to managing risk in acquisition programs and the Navy s process and guidance for ensuring that the packages of parts for legacy aircraft are built to meet the requirements of deploying aircraft, and we assessed the F-35 program s processes for identifying and addressing risks related to the sufficiency of its deployment parts packages against these criteria. We also reviewed the F-35 program s business rules for allocating and prioritizing scarce F-35 assets and related documentation, and we interviewed officials from the Joint Staff, Office of the Secretary of Defense, the services, the program office, and the prime contractor to understand how the business rules are being applied and to identify any related F-35 program participant perspectives about or gaps in the rules. We also reviewed DOD guidance related to prioritizing materiel and parts to identify standard DOD policies for legacy aircraft, and Standards for Internal Control in the Federal Government, and we used these as a basis to assess whether the F-35 program s business rules for allocating scarce F-35 parts are sufficiently clear and comprehensive. In addition, we reviewed available plans, briefs, and other documentation to understand the F-35 program s envisioned global network for moving F-35 parts, the current state of the network, and the program s projections for full implementation of the network. Further, we obtained data from December 2017 through November 2018 related to customer wait times for parts to determine whether program participants located outside of the continental United States are waiting longer for parts than those located inside of the continental United States. We also interviewed officials from the program office, prime contractor, Office of the Secretary of Defense, the services, and U.S. Transportation Command to discuss the progress being made and challenges the program faces in developing the global network to move F-35 spare parts. Finally, we assessed DOD s plans for establishing its global network for moving parts against key acquisition program management practices that can improve program outcomes if implemented and DOD guidance related to managing risk in acquisition programs. To assess the extent to which DOD can account for F-35 spare parts within the supply chain and their associated costs, we reviewed program briefs, DOD guidance and the Federal Acquisition Regulation, and sustainment contracts and related documentation, and we interviewed program and contractor officials to determine how the program office is maintaining accountability for F-35 spare parts, to include roles and responsibilities for property accountability and any associated challenges. In addition, we reviewed draft guidance and program briefs and documentation, as well as interviewed officials from the program office, to identify the actions the program is taking to improve its ability to maintain accountability of parts in the F-35 program. We compared these efforts against criteria in DOD guidance for property accountability and Standards for Internal Control in the Federal Government to assess whether the program s current efforts to obtain and maintain accountability for F-35 spare parts are sufficient to bring the program into alignment with DOD guidance, and whether any additional actions are needed. To assess the extent to which DOD is maintaining accountability over costs associated with F-35 spare parts, we reviewed program plans and documentation related to the construct of the global spares pool. We also reviewed sustainment contracts and supplemental contract documentation, and we interviewed officials from the program office, Office of the Secretary of Defense, and Defense Contract Management Agency to determine what information DOD has been able to obtain about the quantity and cost of F-35 spare parts and the approaches that DOD uses to collect such information. Additionally, we identified criteria within DOD guidance for performance-based arrangements and the DOD Financial Management Regulation to serve as a basis to assess whether the program office s approach for obtaining cost information is sufficient to support program and financial management requirements. We also reviewed DOD and program office documentation and spoke with officials from the program office and the Office of the Under Secretary of Defense (Comptroller) to determine the extent to which the program office has developed a methodology to track the funds paid by the U.S. military services for F-35 parts to the actual parts within the global spares pool. Finally, we used the DOD Financial Management Regulation as a basis to assess whether the program has the ability to adequately track funds paid by the U.S. military services for F-35 spare parts to the actual parts within the global pool to support financial audits. To assess the extent to which actions DOD is taking to address supply chain challenges are consistent with the established F-35 program sustainment strategy, we reviewed key F-35 program strategy, planning, and structure documents such as the 2016 and 2018 F-35 Acquisition Strategies, the Life-Cycle Sustainment Plan, and program office organizational structures and F-35 sustainment contracts to determine the program s formal strategy and structure for F-35 supply chain management. We also reviewed documentation related to DOD s efforts to develop an option for DOD-management of the F-35 supply chain, such as data requests and a memorandum, and we interviewed officials from the Office of the Secretary of Defense for Acquisition and Sustainment, Defense Logistics Agency, military service sustainment commands, the program office, and the prime contractor to understand the extent to which DOD is pursuing a DOD-managed F-35 supply chain, whether these efforts are aligned with the established F-35 program strategy, and the effects of such actions on the program office s ability to execute F-35 sustainment with the prime contractor, Lockheed Martin. In addition, we assessed DOD s efforts to establish a DOD-managed option for supply chain management against principles from DOD planning guidance and Standards for Internal Control in the Federal Government for defining objectives and clearly aligning actions and resources to meet those objectives. <9. Department of Defense and Other Organizations with Whom GAO Conducted Interviews> In support of our work, we interviewed officials from the following DOD organizations and other organizations during our review. We selected these organizations based on their oversight, planning, and execution roles related to F-35 sustainment, supply chain management, and operations. <9.1. DOD Organizations> <9.2. Contractor and Other Organizations> United Kingdom Ministry of Defence We conducted this performance audit from January 2018 to April 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <10. GAO Contact> <11. Staff Acknowledgments> In addition to the contact named above, Alissa Czyz (Assistant Director), Vincent Buquicchio, Kasea Hamar, Amie Lesser, Sean Manzano, Michael Silver, Tristan T. To, and Cheryl Weissman made key contributions to this report. Related GAO Products F-35 Joint Strike Fighter: Development Is Nearly Complete, but Deficiencies Found in Testing Need to Be Resolved. GAO-18-321. Washington, D.C.: June 5, 2018. Warfighter Support: DOD Needs to Share F-35 Operational Lessons Across the Military Services. GAO-18-464R. Washington, D.C.: April 25, 2018. Military Aircraft: F-35 Brings Increased Capabilities, but the Marine Corps Needs to Assess Challenges Associated with Operating in the Pacific. GAO-18-79C. Washington, D.C.: March 28, 2018. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. F-35 Joint Strike Fighter: DOD s Proposed Follow-on Modernization Acquisition Strategy Reflects an Incremental Approach Although Plans Are Not Yet Finalized. GAO-17-690R. Washington, D.C.: August 8, 2017. F-35 Joint Strike Fighter: DOD Needs to Complete Developmental Testing Before Making Significant New Investments. GAO-17-351. Washington, D.C.: April 24, 2017. F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans to Begin Development of New Capabilities. GAO-16-390. Washington, D.C.: April 14, 2016. F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016. F-35 Joint Strike Fighter: Preliminary Observations on Program Progress. GAO-16-489T. Washington, D.C.: March 23, 2016. F-35 Joint Strike Fighter: Assessment Needed to Address Affordability Challenges. GAO-15-364. Washington, D.C.: April 14, 2015. F-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.: September 23, 2014. F-35 Joint Strike Fighter: Slower Than Expected Progress in Software Testing May Limit Initial Warfighting Capabilities. GAO-14-468T. Washington, D.C.: March 26, 2014. F-35 Joint Strike Fighter: Problems Completing Software Testing May Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322. Washington, D.C.: March 24, 2014. F-35 Joint Strike Fighter: Restructuring Has Improved the Program, but Affordability Challenges and Other Risks Remain. GAO-13-690T. Washington, D.C.: June 19, 2013. F-35 Joint Strike Fighter: Program Has Improved in Some Areas, but Affordability Challenges and Other Risks Remain. GAO-13-500T. Washington, D.C.: April 17, 2013. F-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March 11, 2013. Joint Strike Fighter: DOD Actions Needed to Further Enhance Restructuring and Address Affordability Risks. GAO-12-437. Washington, D.C.: June 14, 2012. Joint Strike Fighter: Restructuring Added Resources and Reduced Risk, but Concurrency Is Still a Major Concern. GAO-12-525T. Washington, D.C.: March 20, 2012. Joint Strike Fighter: Implications of Program Restructuring and Other Recent Developments on Key Aspects of DOD s Prior Alternate Engine Analyses. GAO-11-903R. Washington, D.C.: September 14, 2011. Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Is Still Lagging. GAO-11-677T. Washington, D.C.: May 19, 2011. Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Still Lags. GAO-11-325. Washington, D.C.: April 7, 2011. Joint Strike Fighter: Restructuring Should Improve Outcomes, but Progress Is Still Lagging Overall. GAO-11-450T. Washington, D.C.: March 15, 2011.

Why GAO Did This Study DOD's F-35 fighter jet provides key aviation capabilities to support the U.S. National Defense Strategy. The F-35 is also DOD's most costly weapon system, with sustainment costs estimated at more than $1 trillion over a 60-year life cycle. The F-35's supply chain has a unique design. Rather than owning the spare parts for their aircraft, the Air Force, Navy, and Marine Corps—along with eight international partners and other foreign military sales customers—share a common, global pool of F-35 parts that are managed by the prime contractor. You asked us to review the F-35 supply chain. This report assesses, among other things, the extent to which (1) F-35 performance is meeting warfighter requirements and any challenges related to the availability of spare parts; (2) DOD can effectively manage and move F-35 spare parts to support aircraft around the world; and (3) DOD can account for F-35 spare parts and their costs within the supply chain. GAO reviewed DOD and contractor documentation, analyzed performance data, and interviewed relevant officials. What GAO Found F-35 aircraft performance is falling short of warfighter requirements—that is, aircraft cannot perform as many missions or fly as often as required. Figure: F-35 Fleet Aircraft Performance, May 2018 — November 2018 This lower-than-desired aircraft performance is due largely to F-35 spare parts shortages and difficulty in managing and moving parts around the world: Spare parts shortages and limited repair capabilities. F-35 aircraft were unable to fly nearly 30 percent of the May—November 2018 time period due to spare parts shortages. Also, the Department of Defense (DOD) had a repair backlog of about 4,300 F-35 parts. DOD is taking steps to fix these issues, such as improving the reliability of parts. However, it has not fully determined actions needed to close the gap between warfighter requirements and the performance the F-35 supply chain can deliver. Mismatched parts for deploying aircraft. DOD purchases certain sets of F-35 parts years ahead of time to support aircraft on deployments, including on ships. But the parts do not fully match the military services' needs because F-35 aircraft have been modified over time. For example, 44 percent of purchased parts were incompatible with aircraft the Marine Corps took on a recent deployment. Without a process to modify the sets of parts for deployments, DOD may be unable to meet the services' operational needs. An immature global network to move F-35 parts. DOD's networks for moving F-35 parts around the world are immature, and overseas F-35 customers have experienced long wait times for parts needed to repair aircraft. Without a detailed plan for the network, DOD may not be ready to support an expanding fleet. In addressing these challenges, DOD must grapple with affordability. The Air Force and Marine Corps recently identified the need to reduce their sustainment costs per aircraft per year by 43 and 24 percent, respectively. DOD has spent billions of dollars on F-35 spare parts but does not have records for all the parts it has purchased, where they are, or how much they cost. For example, DOD is not maintaining a database with information on F-35 parts the U.S. owns, and it lacks the necessary data to be able to do so. Without a policy that clearly defines how it will keep track of purchased F-35 parts, DOD will continue to operate with a limited understanding of the F-35 spare parts it owns and how they are being managed. If left unaddressed, these accountability issues will impede DOD's ability to obtain sufficient readiness within affordability constraints. What GAO Recommends GAO is making eight recommendations, including that DOD determine actions to close the gap between warfighter requirements and F-35 supply chain performance; and address challenges with deployments, global parts movement, and spare parts accountability. DOD concurred with all of GAO's recommendations.

gao_GAO-20-202

gao_GAO-20-202_0

<1. Background> <1.1. OJJDP Programs and Grants> In fiscal year 2018, OJJDP administered 16 programs, which collectively included 53 grant solicitations and 295 associated awards. As shown in table 1, the 16 programs included the Title II Formula Grant Program, two discretionary grant programs for youth mentoring and missing and exploited children that awarded the most funding, and 13 other discretionary grant programs to support efforts such as helping opioid- affected youth, victims of child abuse, and girls in the juvenile justice system. For a complete list of OJJDP programs and grants in fiscal year 2018, see appendix I. On December 21, 2018, the Juvenile Justice Reform Act of 2018 ( Reform Act ) enacted various requirements to strengthen accountability and oversight in OJJDP grant programs, including grants to states under the Title II Formula Grant Program. The Reform Act expressed the sense of Congress that OJJDP must restore meaningful enforcement, and states must exercise vigilant oversight, to ensure compliance with core requirements of the Title II Formula Grant Program. Among the measures the Reform Act put into place to achieve this goal was a requirement that states maintain an effective system of monitoring compliance a requirement that became effective for fiscal year 2020 awards. In contrast, the requirement prior to fiscal year 2020 was for states to maintain an adequate system of monitoring compliance, which was the requirement that applied to the grant performance period reviewed for this report (October 2015 through September 2018). This report is one of many called for by the Reform Act to improve oversight of OJJDP grant programs, including the Title II Formula Grant Program. Other oversight requirements in the Reform Act are addressed to OJJDP; OJP s Office of Audit, Assessment, and Management; and the DOJ OIG. Appendix III provides information on selected Reform Act requirements that relate to accountability and oversight in the Title II Formula Grant Program, and the status of efforts to implement them. <1.2. OJP Grant Monitoring and Compliance Auditing Activities> All OJP grantees and awards are subject to grant monitoring. Grant monitoring consists of (1) programmatic and (2) financial monitoring, and according to OJP officials, helps ensure the programmatic and financial integrity and accountability of grantees. OJP policy requires programmatic desk reviews on all open awards each fiscal year and in- depth monitoring consisting of enhanced programmatic desk reviews or site visits on at least 10 percent of the total number and dollar amount of open and active awards annually. In addition, OJP s Office of the Chief Financial Officer plans to financially monitor at least 10 percent of the award population annually. States awarded Title II Formula Grants are subject to an additional form of monitoring compliance auditing which is conducted by OJJDP annually to fulfill statutory requirements unique to the program. Specifically, compliance auditing refers to OJJDP s process for (1) auditing the compliance monitoring systems used by states, and (2) evaluating states compliance with four core requirements specified in law. See appendix IV for more information on compliance auditing in the Title II Formula Grant Program associated with the performance period we reviewed. Both the grant monitoring and compliance auditing broadly consist of three parts: (1) desk reviews that occur annually, (2) risk assessments that assist officials in determining what additional monitoring or auditing activities to perform or how to prioritize them, and (3) additional monitoring or auditing activities, such as enhanced desk reviews or site visits (see figure 1). <1.3. Fraud Risk Management and Related Guidance> Fraud and fraud risk are distinct concepts. Fraud obtaining something of value through willful misrepresentation is challenging to detect because of its deceptive nature. Fraud risk (which is a function of likelihood and impact) exists when individuals have an opportunity to engage in fraudulent activity, have an incentive or are under pressure to commit fraud, or are able to rationalize committing fraud. Fraud risk management is a process for ensuring program integrity by continuously and strategically mitigating the likelihood and impact of fraud. When fraud risks can be identified and mitigated, fraud may be less likely to occur. Although the occurrence of fraud indicates there is a fraud risk, a fraud risk can exist even if actual fraud has not yet been identified or occurred. According to federal standards and guidance, executive-branch agency managers including those at DOJ, OJP, and OJJDP are responsible for managing fraud risks and implementing practices for addressing those risks. Federal internal control standards call for agency management officials to assess the internal and external risks their entities face as they seek to achieve their objectives. The standards state that as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks. We issued our Fraud Risk Framework in July 2015. The Fraud Risk Framework provides a comprehensive set of leading practices, arranged in four components, which serve as a guide for agency managers developing efforts to combat fraud in a strategic, risk-based manner. The Fraud Risk Framework is also aligned with Principle 8 ( Assess Fraud Risk ) of Standards for Internal Control in the Federal Government. The Fraud Reduction and Data Analytics Act of 2015 requires agencies to establish financial and administrative controls that are aligned with the Fraud Risk Framework s leading practices. In addition, guidance under Office of Management and Budget Circular A- 123 affirms managers should adhere to the leading practices identified in the Fraud Risk Framework. <2. OJJDP Has Goals and Measures to Assess the Performance of Individual Programs, But Has Not Set Corresponding Performance Targets> <2.1. OJJDP Has Established Goal Statements and Performance Measures for Individual Programs> OJJDP has established goal statements and performance measures for individual programs. Goal statements broadly convey a program s overall intent, and performance measures assess program outputs or outcomes. Figure 2 below shows current goal statements and performance measures for the Youth Mentoring Program, for example. OJJDP requires grantees to report on performance measures which are listed in grant solicitations. OJJDP has designated 15 of its measures as core measures that are generally applicable across most OJJDP programs. OJJDP aggregates data from some of these core measures across all applicable programs collectively to assess progress toward office-level targets. Targets represent outputs or outcomes expressed as a numeric goal. For example, OJJDP has office-level targets for the percent of youth who offend and reoffend, as well as the percent of grantees that have implemented an evidence-based program. OJJDP obtains, reports on, and uses OJJDP program performance data, as shown in figure 3 below. <2.2. OJJDP Is Taking Steps to Address Limitations in Grantee-Submitted Program Performance Data> We reviewed a selection of performance data that grantees provided to OJJDP for three programs: Title II Formula Grant Program, Youth Mentoring Program, and Gang Prevention Program. As a result of our review which covered data from October 2015 through December 2018 we determined that these data were not sufficiently reliable for the purpose of providing examples of performance results in this report. For example, we found that grantees reported inconsistent information, such as different numbers of youth served for different performance measures within the same data collection period. Further, some performance measures double-count youth when presenting data by year. OJJDP collects data from discretionary grantees during two 6-month reporting periods and some measures are not designed to be aggregated across time periods. Nevertheless, we found that OJJDP was aware of most of the issues we identified and is taking steps to improve the reliability of grantee- submitted data. For instance, beginning October 2017 (for formula grant programs) and July 2018 (for discretionary grant programs), OJJDP implemented a process to identify inconsistent or otherwise questionable data and reach out to grantees for verification. Appendix II includes information about the issues we found with the data we reviewed and steps OJJDP is taking to improve the reliability of these data. <2.3. OJJDP Has Not Set Program-Level Targets, Which Limits Its Ability to Assess Progress toward Program Goals> While OJJDP has established goal statements and performance measures, it has not set numeric targets by which it can assess progress for each individual program. For example, one stated goal of the Title II Formula Grant Program is to prevent youth already in the juvenile justice system from reoffending. OJJDP s annual Title II Formula Grant Program performance reports state the percentage of youth who reoffended, the performance measure for this goal; however, the reports do not provide a target against which to evaluate whether the result reflects progress toward the stated goal. Further, while OJJDP has set several office-wide targets for all programs collectively, these targets may not be appropriate for assessing the progress of individual programs because programs vary in size. For example, according to grantee-submitted performance data, the Title II Formula Grant Program served approximately 100,000 youth in fiscal year 2018, while the Gang Prevention Program served about 1,000 youth in calendar year 2018. Thus, office-level targets, while useful, may be more representative of the performance of OJJDP s largest programs and obscure the results of individual programs. Since June 2019, OJJDP has been reviewing individual program goal statements and performance measures as part of an OJP-wide review, but this review does not include setting program-level targets. OJJDP officials said that they have not set program-level targets for two reasons: (1) there was uncertainty about whether OJJDP had the authority to do so (versus OJP s Office of the Chief Financial Officer), and (2) setting such targets has not been a priority for OJJDP in the past, in part, due to a lack of resources. In October 2019, OJP clarified that the OJJDP Administrator has authority for OJJDP performance measurement, including setting program-level and office-level targets. OJJDP officials also stated that program oversight has recently become a higher priority and they plan to bring on new staff; and they agreed with the need to set program-level targets. Tracking performance measures against established numeric targets is a leading practice in performance management. Numeric targets establish standards against which federal programs can measure progress towards goals because comparisons can be easily made between projected performance and actual results. Thus, updating program goal statements and performance measures would be more effective with related numeric targets. One goal of the OJP-wide review is to increase accountability for achieving results. Setting program-level targets could help OJJDP meet this goal by establishing a clear means by which progress toward goals can be measured. <3. DOJ Has Taken Steps to Consider Fraud Risks Relevant to OJJDP Grant Programs, but Has Not Determined a Fraud Risk Tolerance> <3.1. Tools Used in OJP s Grant Monitoring and Compliance Auditing Efforts Provide Insight on Grant Risks Affecting OJJDP Grant Programs> According to OJP officials, some of the tools it uses in grant monitoring and compliance auditing consider fraud risk affecting OJJDP grant programs. As previously discussed, OJP s grant monitoring and compliance auditing broadly consist of three parts: (1) desk reviews that occur annually, (2) risk assessments that assist officials in determining what additional monitoring or auditing activities to perform or how to prioritize them, and (3) additional monitoring or auditing activities, such as enhanced desk reviews or site visits. To carry out these efforts, OJP relies on various tools to assess the overall risk of grantees and awards. Figure 4 provides additional information on the tools that provide insight on fraud risks, according to OJP officials. According to OJP officials, pre-award and ongoing risk assessment processes that apply to all OJJDP grantees are the primary way in which the office identifies fraud risks. The bullets below describe the nature of the primary tools used during these risk assessment processes for all OJJDP grantees and how they provide insights into potential fraud risks. Financial Capability Questionnaire: This questionnaire includes 28 questions designed to provide insight on the financial systems and internal controls a grantee has in place prior to receiving an award. OJP developed the current version of this questionnaire in part as a response to a 2013 DOJ OIG audit, according to OJP officials. All applicants for OJJDP awards are required to fill out this questionnaire, and new grantees pre-award risk scores and corresponding risk levels rely, in part, on the applicants responses to it. These include detailed questions related to the capabilities of the applicant s financial management system, such as whether it has the capability to record expenditures by budget cost categories. According to OJP officials, if an applicant s accounting system cannot do so, the opportunity for fraud increases because the commingling of funds between budget categories would make it difficult to determine whether federal funds were spent in accordance with the approved budget. The questionnaire also includes items related to procurement, travel policy, and subrecipient management and monitoring. These questions may similarly indicate increased fraud risk depending on how the applicant responds. For instance, according to OJP officials, questions related to procurement are designed to determine whether the applicant employs a fair, transparent, and competitive procurement process. If an applicant s procurement standards do not meet these criteria, the likelihood of fraudulent activity may increase. Grant Assessment Tool: The Grant Assessment Tool helps assess open/active OJJDP awards and grantees against 38 risk criteria. OJP officials identified 14 of these criteria as being indicators of potential fraud risks, such as the results of recent audits, whether the award has subawards or subcontracts, and whether grantees have completed progress reports on time. Officials explained that progress report delinquencies, for example, may be an indicator that a recipient does not have adequate internal controls to handle federal awards, which may provide a greater opportunity for fraud. The Grant Assessment Tool generates a risk score and corresponding monitoring priority for each open/active grantee and award quarterly. According to OJP officials, Grant Assessment Tool criteria have evolved over time in response to common audit or monitoring findings, as well as ongoing coordination with the DOJ OIG, as discussed later. For the Title II Formula Grant Program, grantees are also assigned risk assessment scores and audited using the compliance auditing tools described in the bottom half of figure 4. OJP officials stated that certain responses to any of the questions in the tools used during compliance auditing may indicate inadequate program management or weak internal controls, which may increase the risk of fraudulent activity. OJP officials use a variety of other tools during grant monitoring to monitor each OJJDP grantee or award (see tools in the top half of figure 4). The tools used differ depending on the type and level of monitoring being performed. According to OJP officials, all of the monitoring and auditing tools include detailed questions that provide insight about the strength of a grantee s internal controls. In cases where a grantee is unable to provide adequate documentation in response to these questions, OJP officials stated that they may have weak internal controls which may increase the risk of fraudulent activity. <3.2. OJP Coordinates with the DOJ OIG> OJP regularly coordinates with the DOJ OIG on issues related to fraud risk affecting OJJDP grant programs through meetings, trainings, and reviews of OIG audits. Specifically, according to officials, staff from OJP s Office of Audit, Assessment, and Management meet with the OIG two to three times per year to discuss fraud allegations and ongoing fraud investigations related to OJJDP grant programs. These discussions assist OJP officials in determining their monitoring or auditing plans, but also provide insights about the types of issues that are being referred to the OIG for investigation, which can then inform needed changes to monitoring and auditing tools, according to OJP officials. The OIG also provides training to OJP staff every other year on how to identify and report potential fraud. Additionally, Office of Audit, Assessment, and Management officials regularly review OIG audit findings pertaining to individual grantees and compare them to grant monitoring findings for the same grantees. According to OJP officials, the purpose of these reviews is to evaluate where OJP may be able to improve its monitoring processes. Officials stated that one example of an outcome from such a review is the previously discussed Financial Capability Questionnaire. <3.3. DOJ Has Not Determined the Department s Fraud Risk Tolerance> According to JMD officials, the department is implementing fraud risk management requirements through an iterative process that will be completed over multiple years, which leverages the department s overall ERM processes. Leading practices for planning and conducting fraud risk assessments acknowledge that assessing fraud risks is an iterative process. According to JMD officials, as a result of this iterative approach, the fraud risk assessments JMD conducted in fiscal years 2017 and 2018 did not fully align with selected leading practices in the Fraud Risk Framework, which include documenting a fraud risk profile. Although the Department continued to implement additional leading practices from the Fraud Risk Framework by developing a fraud risk profile as part of the fiscal year 2019 fraud risk assessment, the fraud risk profile did not include any consideration of DOJ s fraud risk tolerance another leading practice identified by the Fraud Risk Framework. <3.3.1. 2017 Fraud Risk Assessment> In fiscal year 2017, JMD conducted an assessment of fraud risks that consisted of four facilitated discussion groups with relevant officials. One discussion group was tailored to the specific concerns of grant programs which included grant programs managed by OJJDP as recommended by leading practices of the Fraud Risk Framework. During the grant-focused facilitated discussion group, participants identified five fraud scenarios relevant to DOJ grant programs, such as misdirection of funds, which occurs when a recipient deliberately misdirects funds in a manner inconsistent with the purpose outlined in the award agreement. After participants reached consensus on the fraud scenarios, they then ranked the inherent risk of each scenario, in alignment with leading practices of the Fraud Risk Framework. DOJ officials also told us that participants ranked residual risk using a voting tool, which required the participants to understand the various management controls in place to address a particular fraud risk. However, the documented outcomes of these discussions did not identify specific fraud risk controls or the extent to which those controls mitigate specific fraud risks, and as a result, it is unclear how these residual risk values were determined. Further, according to officials responsible for managing the fiscal year 2017 effort, the facilitated discussion group did not determine a specific and measurable fraud risk tolerance for DOJ grant programs generally nor discuss specific fraud risk management activities or controls for any specific grant programs. As discussed in greater detail later in this report, leading practices for fraud risk management state that managers should determine a fraud risk tolerance and Standards for Internal Control in the Federal Government states that managers should define risk tolerances in specific and measurable terms so they are clearly stated and can be measured. <3.3.2. 2018 Fraud Risk Assessment> The fiscal year 2018 effort to assess fraud risk at DOJ consisted of a brief survey about fraud-related issues that was distributed to all DOJ components and was more limited in nature than the fiscal year 2017 effort. Specifically, the fiscal year 2018 questionnaire did not ask the components to identify inherent or residual risks, as was done in the prior year. Further, for the grants category, JMD included four of the five fraud risk areas that were addressed in fiscal year 2017. However, the fiscal year 2018 questionnaire did specifically ask components to identify key fraud risk management activities designed to prevent, detect, or respond to fraud, which had not been part of the fiscal year 2017 effort. Including information about control activities indicates additional maturation of JMD s fraud risk management activities, but the questionnaire did not ask components to consider the extent to which these control activities mitigate the likelihood and impact of risk as recommended by leading practices of the Fraud Risk Framework. The questions asked in fiscal year 2018 are shown in table 2 below. According to JMD officials, the components responses to this questionnaire were summarized for internal purposes, but no additional analysis or work, such as defining a fraud risk tolerance and documenting a fraud risk profile, was completed for any of the categories listed in table 2. Further, JMD officials stated that the department does not believe a full-scale fraud risk assessment is warranted annually, and the fiscal year 2018 effort was designed to build on the prior year s assessment. According to officials, this is part of the department s iterative approach to implementing fraud risk management requirements, which, consistent with leading practices, may not necessarily incorporate all relevant leading practices in each iteration. <3.3.3. 2019 Fraud Risk Assessment and Profile> In December 2019, JMD officials provided the final summary of the fiscal year 2019 fraud risk assessment, which included a fraud risk profile as recommended by leading practices. According to JMD officials, to conduct the fiscal year 2019 fraud risk assessment, JMD officials first created a fraud risk profile template using information from the 2017 and 2018 assessments. Figure 5 shows an excerpt of JMD s draft fraud risk profile template, as of September 2019. After senior leadership reviewed the pre-populated template, JMD held a facilitated discussion with representatives from each component to evaluate the risk information presented in the template for each topic area. JMD identified several risks for each topic area, including the same five risks for the grants area that were identified in fiscal year 2017. Based on information provided, the fiscal year 2019 fraud risk assessment and resulting fraud risk profile incorporate many leading practices of the Fraud Risk Framework. These include consideration of inherent fraud risk, current fraud risk controls and their suitability (the extent to which control activities mitigate the likelihood and impact of risk), and residual fraud risk. However, the 2019 fraud risk profile did not determine a measurable fraud risk tolerance, or prioritize residual risk against that tolerance for any of the assessed categories, including grants. Managers defined risk tolerance may depend on the circumstances of individual programs and other objectives beyond mitigation of fraud risks. Leading practices for fraud risk management state that managers should define a fraud risk tolerance, examine the suitability of existing fraud controls, and then prioritize residual fraud risks. In doing so, managers should consider the extent to which existing control activities mitigate inherent risks and whether the remaining risks exceed managers tolerance. Based on this analysis and the defined risk tolerance, managers then rank residual risks in order of priority, and determine their responses, if any, to mitigate those risks that exceed their risk tolerance. JMD officials stated that they did not yet define the department s fraud risk tolerance for any of the assessed categories because they view it as the next step in the maturation of DOJ s fraud risk assessment processes. However, JMD did not provide details or documentation of its plans to develop a specific and measurable fraud risk tolerance for the next iteration of their fraud risk assessments. Although following an iterative approach to fraud risk management is consistent with leading practices, until DOJ defines a measurable fraud risk tolerance for the assessed categories, the department may not effectively allocate limited resources to address fraud risks including those associated with OJJDP grant programs. Specifically, by determining a measurable fraud risk tolerance for the grants category and assessing identified residual fraud risks against that tolerance to prioritize these risks, the department will help ensure that OJJDP s grant programs are not vulnerable to greater risks than DOJ is willing to tolerate. Doing so will also provide assurance that OJJDP does not unintentionally over-allocate limited funding to address fraud risks the department is willing to tolerate. <3.3.4. Plans for Conducting Future Fraud Risk Assessments> According to JMD officials, they are in the process of awarding a contract that will result in an implementation plan for addressing fraud risk management requirements in the future. Specifically, in July 2019, JMD released a Request for Quotes for a Blanket Purchase Agreement in support of DOJ s implementation of OMB Circular A-123. One of the deliverables JMD expects to order under this agreement is an implementation plan for addressing fraud risk management requirements, which will include developing a plan for conducting regular fraud risk assessments consistent with leading practices for fraud risk management. According to officials, they expect to award the agreement by the end of calendar year 2019, after which the contractor will perform task orders issued by JMD that will include details related to the methodology, timeframes, and staffing associated with each deliverable. Because neither the award nor the task orders were in place at the time of our review, we cannot determine whether DOJ s planned efforts will fully align with the leading practices of the Fraud Risk Framework, but we will continue to monitor DOJ s efforts during related ongoing work. <4. Conclusions> In fiscal year 2018, OJJDP made 295 awards totaling over $290 million to support programs intended to ensure youth are held appropriately accountable and empower youth to live productive lives. Performance measurement helps ensure funding achieves such outcomes and fraud risk management helps ensure funding is not improperly diverted from this intended purpose. Both of these management principles facilitate stewardship and accountability for federal funds. Since June 2019, OJJDP has been reviewing and updating goal statements and performance measures for individual programs. While OJJDP has office-level targets, it does not have program-level targets. Program-level targets (specific numeric goals) would help OJJDP assess progress toward individual program goals and increase accountability for achieving positive outcomes. Over the past few years, DOJ has taken steps to consider fraud risk for all DOJ grants, including OJJDP s. Determining a fraud risk tolerance and assessing residual fraud risk against that tolerance to prioritize these risks would help OJP calibrate resources to address grant fraud risk for OJJDP programs, helping ensure that resources are not under- or over- allocated. <5. Recommendations for Executive Action> We are making two recommendations, including one to OJJDP and one to JMD. Specifically: The OJJDP Administrator should set performance targets for individual grant programs. (Recommendation 1) The Assistant Attorney General for Administration should ensure that future department-level fraud risk profiles (1) determine the department s fraud risk tolerance for DOJ grants which include OJJDP grant programs, and (2) prioritize residual fraud risks based on an assessment against that tolerance, consistent with leading practices in GAO s Fraud Risk Framework. (Recommendation 2) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOJ for review and comment. In an email message, an official within JMD stated that the Department concurred with our recommendations. In written comments provided by OJP, which are reproduced in appendix V, the agency concurred with our recommendation that it set performance targets for individual OJJDP programs. Specifically, OJP stated that the OJJDP Administrator will set performance targets, to the extent practical, for OJJDP's current and new grant programs. Further, the OJJDP Administrator will ensure that the performance targets are reviewed annually. We believe this action, if implemented, would address our recommendation. DOJ also concurred with our second recommendation to include a fraud risk tolerance for DOJ grants in future department-level fraud risk profiles, but did not provide details as to how they will address it. DOJ also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Attorney General, and other interested parties. In addition, the report is available at no charge on GAO s website at https://www.gao.gov. If you or your staff have any questions about this report, please contact Gretta Goodwin at (202) 512-8777 [email protected] or Rebecca Shea at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Appendix I: Office of Juvenile Justice and Delinquency Prevention Programs and Grants in Fiscal Year 2018 Under the Department of Justice Appropriations Act, 2018, the Office of Juvenile Justice and Delinquency Prevention (OJJDP) administered 16 grant programs in fiscal year 2018, corresponding with a total of 53 grant solicitations and 295 awards. OJJDP issued certain grant solicitations to carry out the purposes of more than one program. Table 3 shows OJJDP s fiscal year 2018 programs and associated information, including the primary source of authority for each program, as identified by OJJDP. Appendix II: GAO Review of Performance Data and Steps Being Taken to Improve Data Reliability To provide examples of performance results from three of the Office of Juvenile Justice and Delinquency Prevention s (OJJDP) 16 programs funded in fiscal year 2018, we assessed the reliability of key data elements and methods used to calculate selected performance measures. We determined that data grantees submitted to OJJDP for the programs we selected were not sufficiently reliable for this purpose. Nevertheless, we present rounded numbers of youth served for two of the programs we selected (2018 data only), as we found these data to be reliable for the specific purpose of illustrating differences in the relative sizes of the programs. This appendix discusses our approach for selecting programs to review, identifying the timeframe of review, and selecting performance measures to review. It also discusses issues we found with the data we reviewed and steps OJJDP is taking to improve the reliability of data submitted by grantees. <7. Programs Reviewed> We selected three of OJJDP s 16 programs funded in fiscal year 2018 and listed in appendix I. Specifically, we selected the Title II Formula Grant Program because it is OJJDP s only formula grant program and because it is a comprehensive nationwide program. We selected the Youth Mentoring and Gang Prevention programs from among the 15 discretionary grant programs as a result of the following process: we ranked programs by total amount awarded during fiscal years 2016 through 2018 and randomly selected one program from the top 50 percent and one from the bottom 50 percent, and we excluded programs that we had recently reviewed in other reports such as the Tribal Youth and Victims of Child Abuse programs. <8. Timeframe of Review> We obtained performance data for the selected programs from OJJDP from October 2015 through December 2018. We chose this timeframe because 2018 was the latest full calendar year for which data were available, and looking back three years was sufficient to capture variations in the programs funding levels. <9. Performance Measures Reviewed> We selected seven of OJJDP s 15 core performance measures for review. Specifically, we selected measures that focus on youth and that objectively measure short-term outputs or outcomes, as follows: number of program youth served number and percent of youth with whom an evidence-based program number and percent of youth completing program requirements number and percent of program youth who offend (short-term) number and percent of program youth who re-offend (short-term) number and percent of program youth who are victimized (short-term); number and percent of program youth who are re-victimized (short- term) Not all of these performance measures are applicable to all programs. Performance measures that assess the number and percent of program youth who offend, re-offend, and are victimized measure both short-term and long-term outcomes, and we focused only on short-term because of the challenge that grantees face in tracking youth after they exit programs, as explained to us by OJJDP officials. <10. Review Process> We reviewed relevant performance measures, their definitions, and the methodology for calculating them. We reviewed data cleaning and validation procedures that OJJDP uses to verify data provided by grantees. We also tested grantee-submitted data provided to us by OJJDP for missing data, outliers, and inconsistencies. For example, we tested for illogical values, such as different numbers of youth served within the same time period, or numerators that were higher than the denominators (i.e. more youth successfully exiting the program than the total number exiting). Finally, we interviewed knowledgeable OJJDP officials and contractors on several occasions. <11. Results of Review> We determined that the data were not sufficiently reliable for the purpose of providing examples of program performance results due to several limitations (bulleted below). Although not every limitation applies to every program we reviewed, the number and significance of the collective issues identified led us not to use the data as examples of performance results in this report. Performance measure results for discretionary programs are often double-counted when presenting data by year. OJJDP collects data from discretionary grantees every 6-months; however, some performance measures are not designed to be aggregated across time periods. OJJDP acknowledges that aggregating data from two, 6-month time periods often results in double-counting when presenting annualized data. Some grantees report inconsistent numbers of youth served. For instance, in the Gang Prevention program, the total number of youth served from January through June 2018 was reported as 387 and 267 for different performance measures in the same data set (within one reporting period). We also identified instances where grantees reported inconsistent numbers of youth across reporting periods. Some grantees do not respond to requests to verify questionable data. According to OJJDP officials grantees may lack resources or staff capacity to collect data and track youth s outcomes. As a result, some grantees may submit incorrect data or submit data after the reporting deadline. Beginning October 2017 (for formula grant programs) and July 2018 (for discretionary grant programs), OJJDP implemented a process whereby contractors flag inconsistent or otherwise questionable data and reach out to grantees for clarification. However, according to officials, grantees do not face any consequences if they do not respond to requests from OJJDP for data verification. For instance, for Youth Mentoring program data submitted by grantees for July through December 2018, OJJDP contractors flagged 122 of 630 grantees as having potentially inaccurate data, but subsequently received responses from only 74 of the 122 grantees. Inconsistent performance measure definitions. We found inconsistencies in the definitions for the following performance measures: (1) number and percent of program youth who offend (short-term), and (2) number and percent of program youth who re- offend (short-term). For both measures, one documented definition states that they apply only to youth who offend or re-offend during the reporting period, and another documented definition states that it also applies to youth who exited the program 0-6 months ago. Reporting on a subset of youth not representative of all program youth. OJJDP uses the number of youth tracked as the denominator for several of its performance measures, including the number of youth who offend and reoffend. According to OJJDP, the number of youth tracked for the offend and reoffend measures should ideally be the same number as total youth served by a program. However, the number of youth tracked is usually lower than the number of youth served. As a result, the measure often reflects a subset of youth that, according to one official, may have characteristics that are not well understood such as youth or families who are more willing to be tracked because they have not offended recently and thus may skew the results. <12. OJJDP Steps to Improve Reliability of Grantee- Submitted Data> OJJDP acknowledges there are concerns with the quality of the grantee- reported performance measures data. According to OJJDP officials, the limitations are the result of several challenges which they are addressing: Replacing outdated data collection tool. Officials said their current data collection tool is outdated and can be unwieldy and confusing for grantees. Along these lines, the tool only includes automated error checks for a limited amount of data fields and does not include an auto-populate feature, which would prevent grantees from entering illogical or inconsistent data. However, according to Office of Justice Program (OJP) officials, as of October 2019, OJP is designing a new data collection tool for all OJP components including OJJDP that will include automated error checks and an auto-populate feature, and they plan to implement this tool beginning in October 2020. Updating performance measures. Officials said that some performance measures are also outdated, such as those that result in duplication when reported annually. Officials also said that some performance measures are confusing to grantees. Nevertheless, as part of an ongoing OJP-wide review of performance measures, OJJDP is in the process of reviewing and updating all OJJDP performance measures and plans to provide updated definitions and instructions to grantees. Increasing grantee response rate for data verification. To increase grantee response rates to data verification requests, OJJDP reported that it is exploring possible consequences for grantees if they do not respond, such as increased scrutiny by OJJDP staff who oversee awards or temporary withholding of funds until verifications are submitted. According to officials, whatever approach (or approaches) they decide on, they will implement them by March 2020. Appendix III: Selected Oversight Requirements Related to the Title II Formula Grant Program The Office of Juvenile Justice and Delinquency Prevention (OJJDP) within the Department of Justice is responsible for administering grant programs under the Juvenile Justice and Delinquency Prevent Act of 1974. One of these programs, the Title II Formula Grant Program, authorizes the award of formula grants to states to develop programs for juveniles and improve their juvenile justice systems. On December 21, 2018, the Juvenile Justice Reform Act of 2018 ( Reform Act ) enacted amendments to the Title II Formula Grant Program, including new accountability and oversight requirements for grantees and OJJDP. The amendments were not effective until the fiscal year 2020 grant award cycle and did not apply to the period of performance we evaluated for this report, which was through fiscal year 2018. Table 4 summarizes the accountability and oversight requirements now in effect for the Title II Formula Grant Program and the status of OJJDP s efforts to implement them. The Reform Act also requires several evaluations and assessments to help strengthen OJJDP s internal controls and identify fraud, waste or abuse in its programs. Table 5 summarizes selected oversight requirements related to the Title II Formula Grant Program. Appendix IV: Compliance Auditing Applicable to the Title II Formula Grant Program Prior to Fiscal Year 2020 <13. The Title II Formula Grant Program Prior to Fiscal Year 2020> The Title II Formula Grant Program so called because it was authorized by Title II of the Juvenile Justice and Delinquency Prevention Act of 1974 (JJDPA) is a state formula grant program, administered by the Office of Juvenile Justice and Delinquency Prevention (OJJDP). The program has been amended several times since 1974 most recently, by the Juvenile Justice Reform Act of 2018 ( Reform Act ), which also called for this evaluation of OJJDP s performance. The performance data we reviewed (which covers Title II Formula Grants from October 2015 through September 2018) corresponds with statutory requirements in effect at that time, not the current requirements, as amended by the Reform Act, which apply to grant awards made in fiscal year 2020 and subsequent fiscal years. To be consistent with the data we reviewed, this appendix presents information on program requirements that applied prior to fiscal year 2020. Because these requirements are no longer current, we will differentiate them from those that are by citing the superseded edition of the U.S. Code in which they appear (2012 & Supp. V 2018) in comparison to the 2018 Main Edition (2018), which contains the provisions now in force. <14. Statutory Basis for Compliance Auditing> The term compliance auditing refers to OJJDP s process for (1) auditing the compliance monitoring systems used by states, and (2) evaluating states compliance with four core requirements specified in law. During the grant application process, the four core requirements are among several (previously 28, now 33) that a state s 3-year plan must satisfy for the state to be eligible for award. However, unlike the other eligibility requirements, the four core requirements can trigger a reduction to a state s grant allocation unless the state maintains compliance during performance. States must provide adequate systems of monitoring their compliance with three of the four core requirements i.e. those related to when and where juveniles may be detained in detention or correctional facilities and OJJDP must audit the adequacy of states compliance monitoring systems. OJJDP must also determine whether states maintained compliance with each of the four core requirements and, if not, OJJDP must reduce the state s allocation the following fiscal year by at least 20 percent for each core requirement that the state failed to meet. During the period covered in our review (i.e., prior to fiscal year 2020), the four core requirements subject to compliance auditing were: 1. Deinstitutionalization of status offenders which prohibits states from using secure detention or correctional facilities to hold juveniles charged with status offenses (except for a listed few). This requirement also applies to juveniles not charged with an offense but who enter the justice system as aliens or as dependent, neglected or abused youths. 2. Separation of juveniles from adult inmates which prohibits a state from detaining or confining juveniles protected by the deinstitutionalization of status offenders requirement (see above), or juveniles who are alleged or found to be delinquent, in any institution where they have contact with adult inmates. 3. Removal of juveniles from adult jails and lockups which prohibits a state from detaining or confining juveniles in adult jails or lockups, except in limited circumstances and for specified periods of time, and only if the juvenile has no contact with adult inmates. 4. Addressing disproportionate minority contact which requires a state to address the disproportionate number of minority youth who come into contact with the juvenile justice system. <15. OJJDP s Compliance Auditing Process> OJJDP s compliance auditing process during the majority of the period of our review is set forth in a 2017 OJJDP policy document. According to this policy, OJJDP conducts a comprehensive assessment and makes a determination whether the state is in compliance with each of the four core requirements. The comprehensive assessment includes verification of the data submitted, an analysis of the data submitted by the state to evaluate compliance with each of the four core requirements, and a review to assess the adequacy of internal controls over the state s compliance monitoring process for collecting and reporting compliance monitoring data. According to this policy, the OJJDP Administrator issues correspondence annually regarding final compliance determinations. These determinations include, as necessary, specific details regarding why a state was determined to be out of compliance with any of the four core requirements or the required compliance monitoring system. Per the policy, a state s formula grant funding will be reduced by 20 percent for each core requirement with which OJJDP has determined a state to be out of compliance. Additionally, if OJJDP determines that the state has an inadequate system of monitoring, the state may have receipt of its formula grant funding withheld or may be deemed ineligible for a formula grant award. Finally, according to this policy, OJJDP conducts field audits on a rotating schedule. The purpose of the field audits is to confirm state compliance monitoring activity and practices through direct onsite observation and file review, and to identify needed areas for technical assistance. OJJDP anticipates, with available funding and resources, that every state will receive a field audit every three years. Appendix V: Comments from the Office of Justice Programs Appendix VI: GAO Contact and Staff Acknowledgements <16. GAO Contacts> <17. Staff Acknowledgements> In addition to the contacts named above, Tonny Conner-White (Assistant Director), Jonathan Oldmixon (Assistant Director), Jeff Jensen (Analyst-in-Charge), James Ashley, Dominick Dale, Christine Davis, Caroline DeCelles, Elizabeth Dretsch, Eric Hauswirth, Elizabeth Kowalewski, Ben Licht, Jan Montgomery, Heidi Nielson, and Abby Volk, made key contributions to this report.

Why GAO Did This Study OJJDP administers grant programs to improve positive outcomes for juveniles in the justice system. In fiscal year 2018, OJJDP made 295 awards across 16 programs totaling over $290 million. The Juvenile Justice Reform Act of 2018 included a provision for GAO to review OJJDP performance and internal controls intended to prevent fraud, waste, and abuse of grant funds. This report examines the extent to which (1) OJJDP has goals and measures to assess the performance of its programs, and (2) DOJ has considered fraud risks for OJJDP grant programs. GAO reviewed DOJ documentation, such as OJJDP's Performance Measures Manual and OJP's risk management policy. GAO also reviewed performance data from selected OJJDP programs from October 2015 through December 2018, and interviewed DOJ officials. What GAO Found The Department of Justice's (DOJ) Office of Juvenile Justice and Delinquency Prevention (OJJDP) has goal statements and performance measures for each of its programs, but has not established corresponding program-level targets (specific numeric goals). Rather, OJJDP has established several office-level targets to help assess progress across OJJDP grant programs collectively. For example, OJJDP has a target for the percent of youth who offend and reoffend across all applicable grant programs. Such office-level targets, while useful, might obscure the results of individual programs. Setting program-level targets would help OJJDP assess the progress of each program and reach its goal of increasing accountability for achieving results in individual programs. DOJ's Office of Justice Programs (OJP) and DOJ's Justice Management Division (JMD) have taken steps to consider fraud risk affecting OJJDP programs. Specifically, OJP—the grant-making component in which OJJDP resides—has tools it uses to monitor grantee performance and compliance with award terms and conditions. According to OJP, these tools—such as checklists used during desk reviews and site visit audits—provide insight into grant fraud risks. Additionally, JMD—the component that manages fraud risk assessment across all components within DOJ—has taken steps to assess fraud risks affecting OJJDP grant programs. Specifically, JMD conducted department-wide fraud risk assessments in fiscal years 2017, 2018, and 2019. These assessments addressed all DOJ grants, including OJJDP's. DOJ's 2017 assessment identified fraud risk scenarios and assessed their likelihood and impact—leading practices in GAO's Fraud Risk Framework. Building on the 2017 assessment, the 2018 assessment identified key fraud risk management activities, and the 2019 assessment resulted in a fraud risk profile. However, these assessments did not determine a fraud risk tolerance—i.e. managers' willingness to accept a specific level of risk—as it relates to OJJDP grant programs. JMD officials said they view this as the next step in the maturation of DOJ's fraud risk assessment processes, but did not have details or documentation of plans to do so. Determining a fraud risk tolerance—and assessing fraud risks against that tolerance to prioritize them—would help OJP calibrate resources to address grant fraud risk for OJJDP programs, helping ensure that resources are not under- or over-allocated. What GAO Recommends GAO recommends that (1) OJJDP set performance targets for individual grant programs, and (2) DOJ determine the agency's fraud risk tolerance for all grants—which include OJJDP grant programs—and prioritize fraud risks based on an assessment against that tolerance. DOJ concurred with both recommendations.

gao_GAO-20-305

gao_GAO-20-305_0

<1. Background CNMI Geography, Population, and the 2018 Typhoon> Part of the Mariana Islands Archipelago, the CNMI one of five U.S. territories consists of 14 islands in the western Pacific Ocean, just north of Guam and about 3,200 miles west of Hawaii. In 2018, the CNMI had an estimated total population of 51,994, according to the U.S. Census Bureau. According to the CNMI s 2016 Household, Income, and Expenditures Survey, 89 percent of the population lived on the island of Saipan, with an additional 6 percent on the island of Tinian and 5 percent on the island of Rota (see fig. 1). On October 24, 2018, Super Typhoon Yutu made landfall in the CNMI causing widespread damage to the islands. Saipan, Tinian, and Rota experienced heavy rainfall and extremely high winds, which caused damage to homes, businesses, and critical infrastructure. The typhoon severely damaged utility infrastructure on all three islands, including downed power lines, transformers, and poles, which caused power outages across all the islands (see fig. 2). Damage from Yutu also closed the Saipan International Airport, which was unable to restore full flight services until March 2019, according to the Marianas Visitors Authority. <2. U.S.-CNMI Relations> The United States captured the Northern Mariana Islands from Japan during the latter part of World War II. After the war, the U.S. Congress approved a trusteeship agreement making the United States responsible to the United Nations for the administration of the islands. In 1976, the District of the Mariana Islands entered into the Covenant with the United States establishing the island territory s status as a self-governing commonwealth in political union with the United States. This Covenant grants the CNMI the right of self-governance over internal affairs and the United States complete responsibility and authority for matters relating to foreign affairs and defense affecting the CNMI. The Covenant initially made many federal laws applicable to the CNMI, including laws that provide federal services and financial assistance programs. However, the Covenant preserved the CNMI s exemption from certain federal laws that had previously been inapplicable to the Trust Territory of the Pacific Islands, including certain federal minimum wage provisions and immigration laws, with some limited exceptions. Under the terms of the Covenant, the federal government has the right to apply federal law in these exempted areas without the consent of the CNMI government. <3. Application of Federal Immigration Law to the CNMI> In 2008, the CNRA amended the joint resolution approving the U.S. CNMI covenant to apply federal immigration law to the CNMI, with a transition period for foreign workers that would end on December 31, 2014, unless extended by the U.S. Secretary of Labor. To provide for an orderly transition from the CNMI immigration system to the U.S. federal immigration system under the immigration laws of the United States, DHS, through USCIS, established the CW-1 program in 2011. The transition period was previously extended through December 31, 2019, under the Consolidated and Further Continuing Appropriations Act, 2015. Through the program, employers petition for nonimmigrant CW-1 permits that allow foreign workers who meet certain requirements to work temporarily in the CNMI. Since 2008, Congress has amended the CNRA several times, with provisions that affected the length of the transition period, the number of CW-1 permits allocated, and the distribution of permits. The CNRA, as amended by the Northern Mariana Islands U.S. Workforce Act of 2018, extends the CW-1 program through December 31, 2029, defines the number of permits DHS may issue annually, and reduces that number each year until the end of the transition period. In addition, the Northern Mariana Islands Long-Term Legal Residents Relief Act of June 2019 established a new category of long-term residents in the CNMI, assuming they met certain qualifications (see table 1). Figure 3 shows the numerical limits on CW-1 permits established by DHS and the numerical limits for permits specified in the Northern Mariana Islands U.S. Workforce Act of 2018. The limits shown are the maximum number of permits available for each fiscal year through the end of the transition period and may not reflect the number of permits for which employers would petition and that DHS would approve. <4. Trends in the CNMI Economy The CNMI Economy Grew between 2012 and 2017, but Declined in 2018> The CNMI s GDP, adjusted for inflation, grew every year from 2012 to 2017, but declined in 2018, according to BEA. GDP, in 2018 inflation- adjusted dollars, grew from $1.022 billion in 2015, to $1.311 billion in 2016, and to $1.646 billion in 2017, before contracting to $1.323 billion in 2018. See figure 4 below for CNMI inflation-adjusted gross domestic product over this time. BEA estimates that the CNMI s GDP, adjusted for inflation, increased by 28.4 percent in 2016 and by 25.5 percent in 2017 (see fig. 5). BEA attributes this economic growth to exports of services, which reflected continued growth in visitor spending, particularly for casino gambling. In 2018, inflation-adjusted GDP fell by 20 percent, which reflected decreases in exports of services and private fixed investment. According to BEA, exports of services decreased 39 percent, due to a drop in visitor spending, in particular spending on casino gambling where revenues fell over 50 percent in 2018. <5. The CNMI Economy Increasingly Relies on Tourism, but the Casino Operation Faces Challenges Accommodations and Amusement Was 45 Percent of CNMI GDP in 2017> BEA data on the value added to GDP by individual industries show the change in the composition of the CNMI economy as accommodations and amusement became the largest component of the economy and garment manufacturing declined. In particular: From 2007 to 2017, the contribution to GDP by accommodations and amusement, which partially includes the tourism sector, grew from less than 12 percent to 45 percent. From 2007 to 2017, the contribution to GDP by manufacturing declined from 19 percent to 1 percent, according to BEA. This reflects the decline of the garment manufacturing industry. Between 2007 and 2017, the contribution to GDP by government declined from about 24 percent to 16 percent of GDP. See figure 6 for value added by industry as a percentage of CNMI GDP. <5.1. CNMI Visitor Arrivals Declined in Fiscal Years 2018 and 2019> Following a period of growth in visitor arrivals from about 338,000 in fiscal year 2011 to more than 653,000 in fiscal year 2017 visitor arrivals dropped in fiscal year 2018 to about 607,000 and in fiscal year 2019 to less than 425,000 (see fig. 7). According to BEA, the decline in visitors in early fiscal year 2019 was attributable to Super Typhoon Yutu, which devastated the CNMI in October 2018. In November 2018, following Super Typhoon Yutu, visitor arrivals in the CNMI plummeted from the previous month s total of 32,108 to 5,595. This drop also represented an 88 percent decline from November 2017, when 48,039 visitors arrived in the CNMI. See figure 8 below, which compares monthly visitor arrivals for fiscal years 2018 and 2019, which started on October 1, 2017 and October 1, 2018, respectively. The composition of visitors by country of residence has also significantly shifted since 2005. Data from the Marianas Visitors Authority show that the decline in Japanese arrivals from fiscal years 2005 to 2019 was offset by the increase in arrivals from China and South Korea (see fig. 9). In particular, Japanese arrivals declined from about 376,000 in 2005 (71 percent of total visitors) to about 12,000 in 2019 (3 percent). South Korean arrivals increased from about 65,000 in 2005 (12 percent) to about 192,000 in 2019 (45 percent). Chinese arrivals increased from about 32,000 in 2005 (6 percent) to 186,000 in 2019 (44 percent). While eligible Japanese and South Korean visitors enter the CNMI under a visa waiver program, Chinese visitors are ineligible for the program but can remain temporarily in the CNMI under DHS s discretionary parole authority, according to DHS officials. DHS exercises parole authority to allow, on a case-by-case basis, eligible nationals of China to enter the CNMI temporarily as tourists when there is significant public benefit, according to DHS. U.S. Customs and Border Protection, a DHS component, recently announced a reduction in the length of stay for Chinese citizens from 45 to 14 days for their entry into the CNMI under discretionary parole. CNMI s Comprehensive Economic Development Strategy 2019 Update indicates that visa-free access to Chinese visitors serves as the linchpin for the CNMI casino investment. On January 29, 2020, the Governor of the CNMI issued an executive order that declared a state of significant emergency in the Commonwealth related to the spread of the coronavirus from China. Among other measures, the Governor suspended the arrival of travelers from mainland China for a period of 30 days. The Governor also directed the CNMI Secretary of Finance and the CNMI Office of Management and Budget to undertake a cost-impact analysis on the effects the ban will have on the economy. <5.2. CNMI Licensed Casino Development on Two Islands, but Operations Have Faced Challenges> Within the tourism sector, the CNMI government has provided for the licensing of casinos on Tinian and Saipan, but both casinos have faced challenges. Tinian: Tinian Dynasty Hotel and Casino was established in 1998 to boost economic development. In operation for over a decade, the casino was investigated and cited by several federal agencies and closed in 2015. Most recently, following an Internal Revenue Service investigation, the U.S. Department of Justice filed a criminal complaint against the casino operator and two individuals on April 19, 2013, alleging that between September 2009 and April 2013 the casino failed to file reports on currency transactions greater than $10,000, and engaged in a pattern of accommodating gamblers in conducting transactions greater than $10,000. The U.S. Department of Treasury Financial Crimes Enforcement Network reported on June 3, 2015, that it had assessed a $75 million civil money penalty against the casino operator for willful and egregious violations of the Bank Secrecy Act. Saipan: In March 2014, while needing a new revenue source to fund government policies, such as a generous government retirement program, the CNMI government passed a public law that authorized and established an exclusive casino license in Saipan, which was awarded to Imperial Pacific International Holdings of Hong Kong. The operator began construction of a casino and hotel complex originally scheduled for completion no later than 36 months from the date of the casino license, or by August 2017. After facing construction challenges, the CNMI Casino Commission approved delays in the completion schedule. The new casino opened for business on July 6, 2017. As of August 2019, the casino was operating, but hotel construction had not progressed beyond the structural frame and a partial facade. According to a casino representative, labor shortages and Super Typhoon Yutu have delayed construction. Figure 10 shows the casino and hotel tower in August 2019. Several federal agencies have investigated and cited the casino operator and its construction contractors. The casino operator and its contractors have been fined for unfair labor practices: On May 30, 2017, the U.S. Department of Labor s Occupation Safety and Health Administration reported proposed penalties of $193,750 against three contractors that exposed workers to numerous workplace hazards at the casino site in Saipan. On March 5, 2018, the U.S. Department of Labor announced it had finalized a series of settlements with contractors that would pay $13.9 million in back wages and damages to thousands of Chinese employees who had come to build the Saipan casino and hotel. On April 25, 2019, the U.S. Department of Labor announced it had secured a $3.3 million consent judgment against the casino s developer for minimum wage, overtime, and recordkeeping violations of the Fair Labor Standards Act. On September 24, 2019, the U.S. Equal Employment Opportunity Commission filed suit against the casino, alleging the casino operator had violated federal law by subjecting female employees to sexual harassment, other sex-based discrimination, and retaliation. Financial reporting from the casino operator in 2019 included warnings about losses in 2018 and 2019. Specifically: On April 29, 2019, the casino operator released its 2018 Annual Report. In this report, independent auditors found that the casino operator had incurred a net loss of almost $3 billion in Hong Kong dollars, or about $379 million in US dollars, and had accumulated current liabilities greater than this amount, for calendar year 2018. The auditors concluded that these conditions, along with others noted in the report, indicate the existence of a material uncertainty, which may cast significant doubt on the operator s ability to continue in business. On August 9, 2019, the casino operator issued a warning to shareholders and potential investors that it expected to record a loss for the first 6 months of 2019 as compared to a profit for the same period in 2018. On August 30, 2019, the casino operator released its 2019 Interim Report. An independent auditor noted that during the 6-month period ending June 30, 2019, the casino operator incurred a net loss of almost $1.9 billion Hong Kong dollars, or more than $240 million in U.S. dollars. The auditor included the same warning of a material uncertainty reported in the 2018 Annual Report. On November 7, 2019, the casino operator posted an announcement to the Hong Kong Stock Exchange that it had assisted in an investigation at the request of local enforcement authorities, and provided relevant information and documents as required by the enforcement authorities. <6. Trends in CNMI Workforce The Ratio of United States to Foreign Workers in the CNMI Has Remained Close to 50 Percent from 2014 to 2018> Between 2014 and 2018, the ratio of United States to foreign workers in the CNMI remained close to 50 percent, according to CNMI Department of Finance tax data that identified the citizenship of workers. In 2018, United States workers constituted 49 percent of the workforce. These workers included U.S. citizens and nationals, and citizens from the Freely Associated States the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. The size of the CNMI workforce grew every year from 2014 through 2017 before contracting by about 2,000 workers, or 5.6 percent, in 2018, according to CNMI tax data. While the ratio between United States workers and foreign workers has remained steady over the past 5 years, the number and share of foreign workers in the overall CNMI workforce fell significantly from 2001 through 2018. Over this same period, the number of United States workers remained more stable, dropping from about 15,500 workers in 2001, to about 13,700 workers in 2018, or a 12 percent decline in total United States workers. United States workers represented 30 percent of the workforce in 2001 and 49 percent in 2018 (see fig. 11). On 2018 tax forms, the CNMI government started collecting information from employers on workers visa type, in response to the Northern Mariana Islands U.S. Workforce Act of 2018. According to a CNMI government report, the new information will help identify workers lawfully admitted for permanent residence. However, about one-third of the 2018 CNMI tax forms collected did not include information on the worker s visa type. According to the report, the missing data may be attributed to the new reporting procedure for the 2018 tax form. The report indicated that after Super Typhoon Yutu devastated the islands of Saipan and Tinian, there was very little time to adequately inform and prepare employers of the new procedure for the tax form before the end of tax year 2018. Although the CNMI Department of Labor conducted a training presentation in December 2018, not all employers attended and so were unaware of the new procedure. <7. Approved CW-1 Permits Rose for Fiscal Year 2019, after Falling for Fiscal Years 2017 and 2018> <7.1. Numbers of Approved CW-1 Permits Rose for FY 2019> The overall number of approved CW-1 permits fell from a high of 13,581 for fiscal year 2016 to 9,016 for fiscal year 2018. The number of approved permits rose by 23 percent for fiscal year 2019 to 11,093. However, the number of approved CW-1 permits for 2019 was about 2,000 below the updated 2019 cap established in 2018. As figure 12 shows, the number of CW-1 permits approved by USCIS for fiscal years 2012 to 2015 remained well under the annual numerical limits and exceeded or neared those limits for fiscal years 2016 through 2018. <7.2. Most CW-1 Permit Holders Were Born in the Philippines or China and Most Commonly Worked in Building or Food Services in Fiscal Year 2019> According to USCIS data, most individuals with approved CW-1 permits for fiscal year 2019 were born in the Philippines or China. In addition, as table 2 shows, the number of permits approved for workers born in China was four times higher for fiscal years 2016 and 2017 than for fiscal year 2015, although that number fell by more than half for fiscal year 2018. As we reported in 2017, firms involved in building the casino in Saipan have primarily employed Chinese workers. CW-1 permit data for fiscal year 2019 show that the CW-1 permit holders most commonly worked in building service or food service. See table 3 for the top 10 occupations for CW-1 permits for 2015 through 2019 based on 2019 s top 10 occupations. <7.3. Construction Worker Constraints Continue> In 2017, Congress amended the CNRA to, among other things, restrict future CW-1 permits for workers in construction and extraction occupations (as defined in the U.S. Department of Labor s Standard Occupational Classification system) to allow extensions only of those permits first issued before October 1, 2015. This restriction was later modified in 2018 to only allow permits for construction and extraction occupations to be issued for those who qualified as long-term workers, those being workers who were admitted as CW-1 workers during fiscal year 2015 and during every subsequent fiscal year beginning before July 24, 2018. The number of CW-1 permits for construction trades fell from 3,119 for fiscal year 2017 to 347 for fiscal year 2019 (see table 3 above). According to CNMI officials, the islands continue to rebuild following the devastation of Super Typhoon Yutu in late 2018. These officials noted that one of their challenges is the limited number of construction workers. We have previously reported on the limited number of construction workers in the CNMI. In 2017, when Congress restricted the use of CW-1 permits for the construction trade, employers could continue to petition for construction workers using H-2B visas. In January 2019, because of concerns about overstays and human trafficking, DHS removed the Philippines from the list of countries eligible for the H-2B program. CNMI government officials, among others, had previously voiced concerns that the removal of the Philippines from the list would make it more difficult to hire construction workers in the aftermath of Super Typhoon Yutu. On September 24, 2019, a bill, H.R.4479 the Disaster Recovery Workforce Act, was introduced in the House of Representatives that would increase by 3,000 the number of CW-1 permits available for construction and extraction occupations for fiscal years 2020 through 2022, and also included an exception to the restriction on issuing such permits to individuals other than long-term workers for those fiscal years. On December 20, 2019, an amended version of this bill, which retained the 3,000 permit increase and the exception, was signed into law as part of the Further Consolidated Appropriations Act, 2020. <7.4. Fewer Than a Quarter of FY 2019 CW-1 Permit Holders Had Maintained Continuous Employment in the CNMI since 2015> As provided in Public Law 115-218, long-term workers may obtain CW-1 permits valid for up to 3 years and may renew their permits for up to 3 years during the transition program. About 23 percent of FY 2019 CW-1 permit holders had maintained continuous employment in the CNMI since 2015. USCIS CW-1 permit data for fiscal years 2015 through 2019 show that, of the 11,093 foreign workers with CW-1 permits approved by USCIS for fiscal year 2019, 2,517 workers (22.7 percent) had maintained continuous employment in the CNMI since fiscal year 2015, as shown in table 4. Public Law 115-218 defines a long-term worker as an alien who was admitted to the CNMI as a CW-1 worker during fiscal year 2015 and every subsequent fiscal year prior to enactment of the law in 2018. Agency Comments We provided a draft of this product to the CNMI government, and the U.S. Departments of Commerce, Homeland Security, and the Interior for comment. The CNMI government and the Department of the Interior told us they had no comments on the draft report. The Departments of Commerce and Homeland Security provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Governor of the CNMI, the Secretary of Commerce, the Secretary of Homeland Security, and the Secretary of the Interior. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you and your staff 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. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Objectives, Scope, and Methodology The Northern Mariana Islands U.S. Workforce Act of 2018 included a provision for GAO to biennially report on the ratio between United States workers and other workers in the Commonwealth of the Northern Mariana Islands (CNMI) workforce during each of the previous 5 calendar years. This report examines (1) economic trends in the CNMI and (2) trends in the composition of the CNMI workforce, including the ratio of United States workers to foreign workers in the CNMI during the previous 5 calendar years. To examine the trends in the CNMI economy, we reviewed prior GAO reports and we obtained and analyzed data from the Department of Commerce s Bureau of Economic Analysis (BEA) on the Gross Domestic Product (GDP) of the CNMI, including contributions to GDP by select industries, for calendar years 2007 through 2018. We converted the GDP figures from 2009 base year dollars to 2018 base year dollars. We also obtained and analyzed data on visitor arrivals from the Marianas Visitor Authority for fiscal years 2005 through 2019. We compared the data against data we have previously reported. As it relates to visitor arrivals, we discussed with officials from the Mariana Visitors Authority whether Super Typhoon Yutu disrupted the collection of data. All data were deemed reliable for our purposes. To examine the CNMI casinos, we reviewed annual reports from the Saipan casino operator, U.S. and CNMI government documents, press releases and news reports. We also interviewed CNMI government officials from the Departments of Finance and Labor, the Commonwealth Casino Commission, and a casino representative in Saipan, and reviewed documents from U.S. government agencies, to understand potential challenges that could affect the CNMI economy. To examine the trends in the CNMI workforce, we obtained and analyzed data from the CNMI government and the Department of Homeland Security (DHS). Specifically: We obtained summary level tax data from the CNMI government on December 18, 2019, which included information on the number of workers in the CNMI and their citizenship, to examine the ratio between United States and foreign workers in the CNMI workforce. These data were compiled by the CNMI Department of Finance, and were rolled up to provide counts of workers based on the workers reported citizenship. The data available for inclusion in this report do not match the definition of United States worker established in the 2018 Act. The Act defines a United States worker as any worker who is: a citizen or national of the United States; an alien who has been lawfully admitted for permanent residence; or a citizen of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau who has been lawfully admitted to the United States pursuant to their respective compacts of free association. In 2018, the CNMI government began collecting data on worker visa status recorded on employee tax documents filed by the employer. But about one-third of collected tax forms did not include information about the visa type or status of the worker. Therefore, with incomplete data, we could not identify people lawfully admitted for permanent residence who remain foreign citizens. The summary-level citizenship data have been used in prior GAO reports. We reviewed those reports to ensure that the data were being collected using the same procedures as in the past, and we were using the data in the same manner. We also interviewed knowledgeable CNMI officials about the data collection methods and how the data were extracted from CNMI government data systems, and checked available documentation from those prior GAO reports to confirm our use of them. We found the data were sufficiently reliable for our purposes of summarizing the numbers of United States workers and foreign workers. We obtained record-level data (such as worker s name, worker s date of birth, and petition receipt number) from DHS s U.S. Citizenship and Immigration Services (USCIS) for fiscal years 2012 through 2019 to examine CNMI-Only Transitional Worker (CW-1) program information on workers since the program began. We compared the annual number of approved CW-1 permits with the annual numerical limit, or cap, on CW-1 permits that USCIS set for fiscal years 2012 through 2019. Using computerized algorithms, we analyzed the data for key characteristics of workers who were granted CW-1 permits, such as years of continuous employment in the CNMI. To assess the reliability of the USCIS data, we tested the data electronically to identify and resolve inconsistencies in personally identifiable information for permit holders and to ensure accuracy in tracking these individuals over time, and we discussed our results with USCIS officials. We have previously used the same methods for assessing the reliability of this data, and USCIS had agreed with that methodology. We determined that the USCIS data were sufficiently reliable for our purposes of reporting on characteristics of CW-1 permit holders for fiscal year 2019 and for identifying trends over time. We conducted this performance audit from August 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. Appendix II: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Emil Friberg (Assistant Director), Joshua Akery, Kathryn H. Bernet, Martin de Alteriis, Christopher Hayes (Analyst in Charge), Christopher Keblitis, Andrew Kurtzman, Moon Parks, Aldo Salerno, and Alexander Welsh made key contributions to this report.

Why GAO Did This Study The Consolidated Natural Resources Act of 2008, which amended the 1976 covenant between the United States and the CNMI, established federal control of CNMI immigration beginning in 2009. Under the act, the Department of Homeland Security began implementing a foreign worker permit program that was specific to the CNMI. The Northern Mariana Islands U.S. Workforce Act of 2018 extended the CNMI-Only Transitional Worker (CW-1) program for 10 additional years, through the end of 2029. The Northern Mariana Islands U.S. Workforce Act of 2018 included a provision for GAO to examine the ratio of United States workers to other workers over the 5 previous calendar years in the CNMI. This report examines (1) recent economic trends in the CNMI through 2018, and (2) recent trends in the composition of the CNMI workforce from 2001 through 2018, including the ratio of United States workers to foreign workers for each of the 5 previous calendar years. GAO analyzed CNMI government and U.S. agency data, prior GAO reports, and interviewed officials from the CNMI government, and the U.S. Departments of Commerce, Homeland Security, the Interior, and Labor. What GAO Found Although the Commonwealth of the Northern Mariana Islands (CNMI) economy grew in 2016 and 2017, it declined in 2018. The U.S. Department of Commerce's Bureau of Economic Analysis (BEA) reports that the CNMI's gross domestic product (GDP) grew 28.4 percent in 2016 and 25.5 percent in 2017, which reflected continued growth in visitor spending, particularly for casino gambling. However, BEA estimates that GDP in the CNMI fell by 20 percent in 2018, with a sharp drop in tourist spending and casino gambling revenues following the severe damage of Super Typhoon Yutu, which made landfall in October 2018. According to BEA, revenue from casino gambling dropped over 50 percent in 2018. In August 2019, the parent company of the casino in the CNMI warned shareholders and potential investors that it expected to record a loss for the first 6 months of 2019 as compared with a profit for the same period in 2018. The company's independent auditor also concluded that the financial information for the first 6 months of 2019 might cast significant doubt on the ability of the company to continue as a going concern. The ratio of United States workers to foreign workers in the CNMI remained close to 50 percent from 2014 through 2018, with United States workers making up 49 percent of the workforce in 2018, according to CNMI tax data. The size of the workforce grew each year from 2014 through 2017, before contracting by almost 2,000 workers in 2018. For 2018, the Department of Homeland Security approved about 9,000 CW-1 foreign worker permits, and approved more than 11,000 permits for 2019.

gao_GAO-20-295

gao_GAO-20-295_0

<1. Background> <1.1. The Defense Personal Property Program> DOD currently relies on more than 900 commercial industry transportation service providers (TSPs) to move and store servicemembers and their families household goods. About 40 percent of DOD s annual household goods moves occur during the 14-week annual peak moving season, which runs from May 15 through August 31. As figure 1 shows, servicemember survey satisfaction scores declined in 2018 during the peak moving season. According to TRANSCOM officials, this decline in satisfaction scores during the peak moving season has persisted for years. Under the current DP3, the military services own, operate, and staff most of the infrastructure involved in managing and overseeing the movement and storage-in-transit of DOD s household goods, including the personal property processing offices and personal property shipping offices. The military services processing offices, among other things, ensure that the servicemembers reassignment orders and paperwork authorizing a move are in order, and that their application is accurate and complete. The processing offices also provide counseling, including advising servicemembers on the DP3 process, entitlements, and restrictions so they can make informed decisions about their moves. The military services shipping offices work with TSPs to schedule moves, monitor TSP performance, and take or recommend punitive action against poor performing TSPs. <1.2. Recent DOD Efforts to Address Long-Standing DP3 Performance Issues> DOD has conducted and sponsored several studies to help address persistent DP3 performance issues, including those related to servicemember satisfaction and challenges with meeting capacity demands during the peak summer months. For example, LMI and the Institute for Defense Analyses (IDA) produced reports on behalf of DOD in 2012 and 2018, respectively, to analyze DP3 performance issues and make recommendations to improve DP3. In its report, LMI outlined the impact of a range of options for contracting out some or all of the management of DOD s household goods movement and storage activities. IDA recommended that DOD create consistent performance metrics, unify its DP3 operating structure, and improve servicemember support. Concurrent with pursuing its Global Household Goods Contract, TRANSCOM has several ongoing initiatives intended to improve servicemember satisfaction in general, and household goods loss and damage specifically. According to survey data, loss of and damage to household goods is the number one reason servicemembers cite for dissatisfaction. Ongoing TRANSCOM initiatives to improve servicemembers moving experiences that are independent of the Global Household Goods Contract include the following: Increasing the use of shipping containers in domestic household goods moves to reduce the number of servicemember loss and damage claims. According to TRANSCOM officials, in the past TRANSCOM has primarily used shipping containers only for international moves. Replacing the internet-based system used to manage DOD household goods moves, the Defense Personal Property System, with a new, mobile-friendly information technology operating system platform called MILMOVE. MILMOVE is intended to provide servicemembers and their families with more reliable information about their planned and ongoing household goods moves through access to all phases of the move process via their personal smartphones or tablets. Tracking whether quality inspections occur in person or via telephone, and requiring that at least 50 percent of all shipments have an in- person quality inspection. Increasing the liability limits for damaged or lost household goods shipments to $6 per pound and the total loss cap to $75,000 per shipment, when claims are filed within a specified time. <1.3. TRANSCOM Efforts to Develop the Global Household Goods Contract> In November 2018, TRANSCOM, in coordination with OSD and the military services, began planning and developing requirements for the Global Household Goods Contract. According to TRANSCOM officials, the goal was to have the contract in place in time for the 2021 peak moving season. TRANSCOM announced that in April 2020 it would award a Global Household Goods Contract to a single commercial move manager to oversee DP3 activities that relate to the movement and storage-in-transit of household goods. The proposed contract includes an initial 9-month transition period that will commence in May 2020, a 3-year base period, three 1-year option periods, two 1-year award terms, and an option to extend the contract 6 months. Including all option periods and award terms, the contract is expected to be completed at the end of January 2029 or, if the option to extend services is exercised, by the end of July 2029. The 9-month transition period is intended to give the Global Household Goods contractor sufficient time to, among other things, integrate its information technology systems with existing DOD information technology systems. During the initial years of the contract, the contractor s volume of workload will incrementally increase, including the volume of household goods moves that it will handle. The Global Household Goods Contract is not intended to replace DP3 in its entirety. Activities that are planned to be a part of the contract include the movement and storage-in-transit of household goods, direct procurement method shipments, and some level of servicemember counseling. DP3 activities that are not to be a part of the Global Household Goods Contract include the long-term storage of household goods (referred to as non-temporary storage) and the movement and storage of servicemembers privately owned vehicles. Additionally, while the contract is expected to include counseling to servicemembers, the military services will also perform some counseling. According to TRANSCOM and military service officials, they are working to determine the amount of counseling that will be retained by the military services. <1.4. Key Differences in How Household Goods Are Moved and Stored in DP3 Currently and under the Planned Global Household Goods Contract> The movement and storage-in-transit of household goods in the current DP3 differs in key ways from the approach under the planned Global Household Goods Contract, as shown in table 1. <2. TRANSCOM Has Taken Steps to Determine the Cost Implications Associated with Moving to a DP3 That Incorporates the Global Household Goods Contract, but Plans Not to Determine Some Cost Estimates for Years> TRANSCOM has developed preliminary and refined cost estimates for determining the cost implications associated with moving to a DP3 that incorporates the Global Household Goods Contract. According to TRANSCOM officials, they began developing preliminary cost estimates in December 2018 in order to (1) create a baseline cost estimate for the movement and storage of household goods under the current DP3, (2) create a cost estimate for those DP3 activities that will be a part of the Global Household Goods Contract, and (3) serve as a point of comparison between the two estimates to determine the cost implications of moving to the Global Household Goods Contract. TRANSCOM s preliminary cost estimates for the current DP3 and for the activities that will be a part of the Global Household Goods Contract included costs associated with the movement and storage of household goods and government personnel costs associated with the military services personal property processing and shipping offices. TRANSCOM developed these preliminary cost estimates in part by requesting and collecting information from the military services about their current costs under DP3. Some DP3 costs were not included in the preliminary cost estimates, such as infrastructure and vehicle costs because these assets are used to support multiple programs and could not be easily isolated. However, our assessment of the preliminary DP3 cost estimates associated with moving to the Global Household Goods Contract found that TRANSCOM may not have accurately calculated some costs because of unanswered questions about how certain activities will be performed. TRANSCOM s cost estimates associated with the number of government personnel that (1) will counsel servicemembers and (2) oversee contractor performance under the contract had weaknesses. Specifically, these estimates relied on assumptions that may have resulted in over- or underestimating some costs. First, TRANSCOM s preliminary DP3 cost estimates associated with moving to the Global Household Goods Contract assume that DOD s costs related to government personnel will be equivalent to those under the current DP3. However, TRANSCOM officials acknowledge that this assumption is based on discussions with military service officials that occurred before the Global Household Goods Contract draft request for proposals was issued in April 2019. Furthermore, military service officials told us they have not decided how much of the counseling function their service has provided will be moved to the planned contract, and the services approaches will likely differ. TRANSCOM officials pointed out that while the Global Household Goods contractor will perform some level of servicemember counseling, the contract will allow the individual military services to decide how much of the counseling responsibility to retain. Second, TRANSCOM s cost estimates do not account for the number of DOD contracting officer s representatives and quality assurance evaluators required to oversee contractor performance under the contract. According to TRANSCOM officials, the command s preliminary cost estimates assume that government personnel who have been relieved of servicemember counseling responsibility will perform contract oversight and quality assurance responsibilities under the planned contract. For example, TRANSCOM officials told us that quality assurance inspectors under the current DP3 will transition to serve as quality assurance evaluators once the contract is in place. However, TRANSCOM officials acknowledge that it is possible that workload (and personnel costs) for the military services under the current DP3 will change under the planned contract. Moreover, if government personnel do switch roles and responsibilities, TRANSCOM did not take into account the cost to transition and train personnel to execute their contracting officer s representative and quality assurance evaluator responsibilities under the contract. TRANSCOM officials told us that they were unable to determine with any precision the number and associated costs of government personnel required to counsel servicemembers and oversee the contract because of the fractured nature of the current DP3. Nonetheless, in September 2019, TRANSCOM tasked LMI with developing a BCA with refined cost estimates. LMI finalized the BCA and we received it on January 17, 2020. When we assessed the BCA, we found that like us LMI determined that it did not have complete information to fully calculate the cost of a DP3 that incorporates the Global Household Goods contract. Specifically, LMI acknowledged some of the same limitations in its cost estimates that we identified in TRANSCOM s preliminary cost estimates, such as uncertainty about the number of government personnel required to oversee the Global Household Goods Contract. For example, LMI states in its BCA that the Global Household Goods Contract may reduce DOD staffing requirements for functions such as counseling; however, roles such as quality assurance evaluators and contracting officer s representatives to oversee contractor performance may increase DOD staffing requirements. When we raised concerns about these unanswered questions and their potential cost implications with TRANSCOM officials, they told us that the move to the Global Household Goods Contract is less about saving money than it is about representing the best value to DOD when both cost and program performance are considered. They also told us they have developed a plan of action for the phase-in of the Global Household Goods Contract, and that plan includes conducting a manpower study during the third year of the contract. As described earlier in this report, the initial 3 years of the contract involve a gradual phase-in of household goods move volume for the contractor, and in the third year the contractor will be responsible for all of DOD s household goods move volume. According to these officials, by waiting until year 3 of the contract to conduct a manpower study, DOD will have data to more precisely determine the number (and cost) of government personnel required to counsel servicemembers and oversee the contract, such as contracting officer s representatives and quality assurance evaluators. However, we have determined that TRANSCOM does not have a process in place to track data that would inform its manpower study in year 3, such as how many personnel within each military service are needed to perform contract oversight duties and the costs associated with these personnel. We have reported that organizations should determine their personnel requirements as part of a systematic requirements- determination process that includes (1) identifying an organization s mission, functions, and tasks and (2) determining the minimum number and type of personnel military, civilian, and contractor needed to fulfill those missions, functions, and tasks by conducting a workforce analysis. Without a way to track key data, DOD risks conducting a manpower study that does not allow it to fully understand the personnel and cost implications of its move to a DP3 that incorporates a Global Household Goods Contract. Notably, in its BCA LMI recommended that DOD reexamine the BCA when additional relevant information becomes available, such as when DOD completes its manpower study. TRANSCOM officials told us they are in agreement with this recommendation. However, if TRANSCOM does not have a process in place to collect key pieces of data during the first 3 years of the contract, a reexamination of the BCA will be less fruitful than it otherwise might be. <3. TRANSCOM Has Developed Performance Metrics to Assess Some but Not All DP3 Activities, and Not All of TRANSCOM s Overarching Program Goals Have Clearly Associated Performance Metrics> First, TRANSCOM has developed performance metrics referred to as performance indicators for its Global Household Goods Contract, and has developed performance metrics for some, but not all, activities that fall outside of the contract. TRANSCOM s draft quality assurance surveillance plan for the Global Household Goods Contract, which was developed in coordination with the military services, outlines how the contractor s performance will be assessed against performance indicators. These performance indicators set measurable standards for, among other things, information technology systems availability, claims settlement timeliness for lost and damaged goods, and the timeliness of household goods pick-up and deliveries. Examples of performance indicators include: settling 90 percent of all loss and damage claims valued at less than $1,000 within 30 days and settling 95 percent of all claims, regardless of value, within 60 days; delivery of household goods on the scheduled date 95 percent of the time per month; and overall customer satisfaction rating of satisfactory at least 95 percent per month. Based on a DP3 briefing TRANSCOM provided us, the command has also developed metrics for assessing other contracted DP3 activities, such as the transport of privately owned vehicles and non-temporary storage, which TRANSCOM captures under contracts separate from the Global Household Goods Contract. For example, TRANSCOM tracks the number and cost of non-temporary storage lots maintained annually to support its storage requirements. However, TRANSCOM officials acknowledge that the command has not developed metrics for other activities that government personnel will continue to perform in DP3, once a Global Household Goods Contract is in place, such as servicemember counseling and claims resolution. Although TRANSCOM s draft quality assurance surveillance plan includes a performance indicator to assess the contractor s performance with respect to servicemember counseling, TRANSCOM officials told us the command has not developed commensurate metrics to assess the military services performance in providing servicemember counseling. TRANSCOM officials also noted that while the military services claims offices will be responsible for handling unresolved loss and damage claims between the servicemember and the contractor, the command has not developed metrics associated with this DP3 activity. Second, we found that, while TRANSCOM has articulated overarching DP3 goals, it has not clearly articulated how its performance metrics align with each of these goals. According to TRANSCOM officials, they decided to move certain DP3 activities to the Global Household Goods Contract because doing so could positively impact the program s five goals regarding cost, quality, capacity, accountability, and responsibility, terms described in LMI s BCA as shown below: Cost considers the potential financial impact, including either opportunities or risks to the future-state costs and any savings the program is likely to achieve. Quality encompasses the value of a move, typically measured by customer (i.e., servicemember) satisfaction. Quality may improve with on-time performance and minimized loss or damage. Capacity is the availability of industry providers to meet the program s demands at a given time. This can be during peak or non-peak season. Accountability refers to the government s ability to affix responsibility to the contractor and their supplier network for performance. Responsibility encompasses the authority of the government and how each government stakeholder will be held responsible for accomplishing their assigned tasks. Planned contract performance indicators and metrics are intended to assess contractor performance, but they may also provide information that TRANSCOM could use to more broadly assess the extent to which DP3 is meeting its overarching program goals. However, TRANSCOM has not clearly articulated which of the performance metrics it has established under the Global Household Goods contract align with which program goals. For example, one performance indicator for the Global Household Goods Contract is for contractor delivery of household goods to be on-time at least 95 percent of the time. While it appears that this performance indicator could relate to the quality and capacity goals, TRANSCOM has not established linkage between this performance indicator and either of these goals. Determining how it will assess improved capacity is particularly important. When we spoke with them about the move to the Global Household Goods contract, some military service officials, representatives of the moving and storage industry, and members of TRANSCOM s Personal Property Relocation Advisory Panel told us that they doubt whether the Global Household Goods Contract will, indeed, improve capacity. Moreover, none of the existing performance indicators appear to relate to TRANSCOM s responsibility goal. It is not surprising that the Global Household Goods Contract does not include performance indicators on how government stakeholders are to be held responsible for various program activities, because indicators under the contract are intended to evaluate contractor performance. However, we would expect to see performance metrics outside of the contract to measure government stakeholders performance. When we spoke with TRANSCOM officials about the gaps we identified in their performance assessment approach, they agreed that clarifying the linkage between performance metrics and the overarching program goals and ensuring there are performance metrics for assessing each of the goals would improve the command s ability to assess overall program performance. While the performance indicators and metrics related to the various contracts, including the Global Household Goods Contract, are intended to assess contractor performance, they could also provide information that TRANSCOM could use to more broadly assess the extent to which DP3 is meeting its overarching program goals. DOD Instruction 4500.57, Transportation and Traffic Management, calls for TRANSCOM, in coordination with DOD components, to conduct annual program reviews to ensure the overall effectiveness of the DP3. The instruction calls for these reviews to include a metrics-based evaluation of the program, and assessments of TSP and service-provider cost and performance, information technology systems and contracts that support DP3, and external factors that impact the program such as industry capability and changes to servicemember shipping entitlements. Moreover, the Standards for Internal Control in the Federal Government call for management to define objectives (or metrics) in terms of what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement so that performance toward achieving those objectives (or metrics) can be assessed. We have also previously reported on the importance of linking lower-order performance metrics and higher-order strategic goals to achieve desired outcomes. Without performance metrics that account for those DP3 activities that fall outside of the Global Household Goods Contract and other DP3 contracts and without clearly articulating the linkage between performance metrics and program goals, TRANSCOM s ability to assess progress toward, and take actions to help achieve, its overarching program goals will be hindered. The need to take these steps is particularly important, given some of the skepticism that TRANSCOM faces with its move to a DP3 that incorporates the Global Household Goods Contract. Further, because TRANSCOM officials have determined that the move to the Global Household Goods contract is about delivering better value, rather than just saving money, it is imperative that they have a robust performance assessment approach in place. <4. Conclusions> DOD has experienced long-standing quality issues moving and storing the household goods of servicemembers and their families, despite numerous reform efforts. To address persistent quality-of-service issues, such as late pick-up and deliveries and high claims costs for lost and damaged goods, TRANSCOM intends to award a multi-year Global Household Goods Contract, under which a single commercial move manager would oversee the movement and storage of household goods shipments. DOD has been working to award its Global Household Goods Contract in time to meet the fiscal year 2021 peak season demand, and will award the contract without precise information on the number and cost of government personnel required to counsel servicemembers and oversee the contract. Given this determination, it is particularly important that DOD put in place a process to track key data during the first 3 years of the contract to inform its planned manpower study, so that it can fully determine the cost implications of this shift in DP3. Moreover, because DOD has stated that the purpose of the move to the Global Household Goods contract is to provide better value for the customers, DOD should ensure that it has in place performance metrics to assess all DP3 activities, including those that fall outside of the Global Household Goods contract, and clearly articulate the linkage between performance metrics and overarching program goals. Without doing so, TRANSCOM will be hindered in its ability to assess whether a DP3 that incorporates the Global Household Goods Contract is an improved program, particularly as it relates to the moving experiences of servicemembers and their families. <5. Recommendations for Executive Action> We are making the following three recommendations to the Secretary of Defense: The Secretary of Defense, in coordination with the Chairman of the Joint Chiefs of Staff, should ensure that the TRANSCOM Commander, in coordination with the military services and the Coast Guard, develop a process for tracking data during the first 3 years of the Global Household Goods Contract to inform its planned manpower study during the third year of the contract to more precisely determine DP3 manpower needs and associated costs. (Recommendation 1) The Secretary of Defense, in coordination with the Chairman of the Joint Chiefs of Staff, should ensure that the TRANSCOM Commander develop performance metrics for those DP3 activities that will not be a part of the Global Household Goods Contract, such as servicemember counseling and claims resolution that will, at least in part, continue to be performed by the military services. (Recommendation 2) The Secretary of Defense, in coordination with the Chairman of the Joint Chiefs of Staff, should ensure that the TRANSCOM Commander articulate the linkage, where appropriate, between DP3 performance metrics, including Global Household Goods Contract performance indicators, and overarching program goals. (Recommendation 3) <6. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for comment. In its comments, which are reproduced in Appendix III, DOD concurred with all of our recommendations and described ongoing and planned actions to address them. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense, the Chairman of the Joint Chiefs of Staff, and the Secretaries of the Army, the Navy, and the Air Force; and the Commandant of the Marine Corps. 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) 512-2775 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology Our review focused on household goods movement and storage-in-transit for servicemembers in the Army, the Navy, the Air Force, the Marine Corps, and the Coast Guard. We did not evaluate Department of Defense (DOD) Defense Personal Property Program (DP3) activities that will not be a part of the Global Household Goods Contract, which include the long-term storage of household goods and the movement and storage of servicemembers privately owned vehicles. We did, however review metrics being tracked for these activities to determine the U.S. Transportation Command s (TRANSCOM) ability to assess performance for the broader DP3. During our review, we coordinated with officials from the DOD Office of the Inspector General to gain an appreciation for the objectives, scope, and methodology of their ongoing audit on the timeliness of household goods deliveries and claims resolution under the current DP3. The resulting audit report contained several recommendations, including that TRANSCOM issue warnings or letters of suspension to transportation service providers (TSPs) within 14 days of missing the agreed-upon delivery date from storage, and that TRANSCOM help servicemembers and their families file inconvenience claims with TSPs within 14 days of a missed delivery date. To inform both of our objectives, we met with officials from the Office of the Secretary of Defense (OSD), TRANSCOM, the military services, the Coast Guard, and the DOD Office of the Inspector General. We also met with external stakeholders, including associations representing the moving and storage industry, the Small Business Administration, the American Federation of Government Employees, and members of TRANSCOM s Personal Property Relocation Advisory Panel. For objective one, we assessed preliminary cost estimates TRANSCOM developed in connection with the move to a DP3 approach that incorporates the planned Global Household Goods Contract against best practices in the GAO Cost Estimating and Assessment Guide. The guide states that valid and useful historical data are important in developing sound cost estimates, and that risk and uncertainty and sensitivity analyses should be performed to mitigate the effects of changing assumptions. We analyzed TRANSCOM s preliminary cost estimates, and discussed with TRANSCOM officials assumptions that were used to develop the estimates and techniques that were applied to account for variability in the assumptions. Given that TRANSCOM s cost estimates were preliminary and likely to change based on the Logistics Management Institute s (LMI) ongoing business case analysis (BCA), we did not conduct a reliability assessment of TRANSCOM s cost estimates. We instead focused on TRANSCOM s treatment of evolving assumptions in its preliminary cost estimates. We met with representatives from LMI to discuss their process for updating TRANSCOM s preliminary cost estimates as part of a BCA that it was preparing for the command. We evaluated these cost estimates, including the cost estimates in the BCA that was issued in January 2020, using criteria from GAO s Assessment Methodology for Economic Analysis that outlines five key elements for an economic analysis. Our assessment of LMI s BCA is included in appendix II. For objective two, we reviewed relevant DOD guidance, including DOD Instruction 4500.57, Transportation and Traffic Management. The instruction requires TRANSCOM, in coordination with the DOD components, to annually evaluate the effectiveness of the DP3. We also reviewed the Global Household Goods request for proposals and TRANSCOM s draft quality assurance surveillance plan. The draft quality assurance surveillance plan outlines how DOD will oversee the move manager s performance under the Global Household Goods Contract and describes the performance indicators that will be used to assess contractor performance. Using the Standards for Internal Control in the Federal Government, which calls for management to define objectives (or metrics) in terms of what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement so that performance toward achieving those objectives can be assessed, we also assessed DOD s DP3 performance metrics. Additionally, we discussed with TRANSCOM officials their approach for overseeing the Global Household Goods Contract, including the linkage between performance measures for those DP3 activities that will and will not be a part of the contract and DP3 s overarching goals. We conducted this performance audit from May 2019 to April 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. Appendix II: GAO s Assessment of the Logistics Management Institute s (LMI) Business Case Analysis (BCA) Appendix II: GAO s Assessment of the Logistics Management Institute s (LMI) Business Case Analysis (BCA) We assessed the cost and benefit information in LMI s BCA against our Assessment Methodology for Economic Analysis. Our assessment methodology identifies the following five key components of an economic analysis: We found that the BCA informs decision-makers and stakeholders, with caveats, about the economic effects of the proposed Global Household Goods Contract. Further, we found that the BCA fully met four and partially met one of the five key components of an economic analysis. A summary of our rationale for these assessments is outlined in table 2. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments <7. GAO Contact:> Elizabeth A. Field, (202) 512-2775 or [email protected]. <8. Staff Acknowledgments:> In addition to the contact named above, GAO staff who made key contributions to this report include Marc Schwartz, Assistant Director; Pedro Almoguera, John Bumgarner, William Cordrey (retired), Tim DiNapoli, Jennifer Echard, Christopher Gezon, Mae Jones, Jason Lee, Ned Malone, Tara Porter, Oliver Richard, Mike Shaughnessy, Susan Tindall, Nate Tranquilli, John Van Schaik, and Mary Weiland.

Why GAO Did This Study DOD, through its DP3, arranges for the movement and storage of about 400,000 personal property shipments of servicemembers and their families annually—40 percent of them during peak moving season. DOD has identified problems meeting peak season demand and addressing long-standing quality-of-service issues. TRANSCOM announced that in April 2020 it would award a Global Household Goods Contract to a single commercial move manager to oversee DP3 activities that relate to the movement and storage-in-transit of household goods. GAO was asked to evaluate matters related to DOD's plans to implement the Global Household Goods Contract. GAO assessed the extent to which TRANSCOM has (1) determined the cost implications of moving to a DP3 that incorporates the Global Household Goods Contract and (2) developed metrics to assess program activities and that relate to overarching DP3 goals. GAO evaluated TRANSCOM's cost estimates against the GAO Cost Estimating and Assessment Guide and a DOD business case analysis against GAO's Assessment Methodology for Economic Analysis. What GAO Found The U.S. Transportation Command (TRANSCOM) has developed cost estimates to assess the cost implications of adjusting the Defense Personal Property Program (DP3), its program to move and store servicemembers' household goods, to incorporate a single move manager approach through the Global Household Goods Contract. However, TRANSCOM may not have accurately calculated some Department of Defense (DOD) costs because of unanswered questions about how tasks related to counseling servicemembers and overseeing contractor performance will be performed. DOD plans to conduct a manpower study in the third year of the contract to determine the number and cost of government personnel required to perform these tasks. However, TRANSCOM does not have a process in place to track data over the initial years of the contract to inform its manpower study, such as the number and associated cost of military service personnel needed to perform contract oversight. We have reported that organizations should determine their personnel requirements by identifying the minimum number and type of personnel needed to fulfill their missions, functions, and tasks by conducting a workforce analysis. Without a way to track key data, DOD risks conducting a manpower study that would result in less than a full understanding of the personnel and cost implications of the move to the Global Household Goods Contract. TRANSCOM has developed performance metrics for assessing some, but not all, DP3 activities. For example, TRANSCOM has developed indicators for assessing contractor performance, including the timeliness of household goods deliveries under the Global Household Goods Contract. However, TRANSCOM has not developed metrics for other activities that DOD personnel will continue to perform at least partially once the contract is in place, such as servicemember counseling. Further, TRANSCOM has not articulated how existing metrics link to TRANSCOM's program goals that relate to servicemembers' household goods movement and storage experience (see fig.). Without developing performance metrics for all DP3 activities, and articulating the linkage between metrics and goals, TRANSCOM will have limited ability to assess whether a DP3 incorporating the new contract is an improved program for servicemembers. What GAO Recommends GAO makes three recommendations–that DOD collect and track data to more precisely determine DP3's manpower needs and costs, develop performance metrics for DP3 activities not part of the contract, and articulate the linkage between performance metrics and program goals. DOD concurred with all three GAO recommendations.

gao_GAO-20-96

gao_GAO-20-96_0

<1. Background> To ensure sound management and long-term stability in their operations, organizations track their financial activities (transactions), such as expenses they incur and income they generate. Organizations record their daily transactions, which increase or decrease account balances, in their accounting systems. For example, an organization s cash balance account increases when customers make payments due for goods or services previously provided, while other account balances, such as accounts receivable (the amount owed to an organization for goods or services provided), decrease because customers are paying part of what they owed to the organization. At DOD, as seen in figure 1, this daily process of recording transactions in accounting systems occurs at individual DOD components. These components use multiple accounting systems to record and summarize their financial transactions. Each month, quarter, and year, components send summarized financial information to DFAS, the DOD agency that provides accounting support for DOD. DOD s core financial reporting system consolidates the summarized financial information from individual components into DOD s department-wide financial information. Financial statements provide information about an organization s financial position such as assets (what it owns) and liabilities (what it owes) as of a certain point in time, in addition to the financial results of its operations such as revenue (what came in) and expenses (what went out) over a period of time, such as a fiscal year. Financial statements are prepared based on the summarized, or consolidated, financial information from an organization s accounting systems. Their reliability depends on there being accurate financial information in the accounting systems. Federal agencies such as DOD combine summarized financial information from their subsidiary organizations (e.g., DOD s military components Army, Air Force, Navy, and Marine Corps) to produce consolidated financial statements, as seen in figure 2. Agency management takes steps to ensure that the financial information contained in financial statements is reliable and accurate. Federal agencies submit their financial information to the Department of the Treasury (Treasury), which then combines the information for presentation in the consolidated financial statements of the U.S. government. Reliable and complete financial information is necessary to help agency management and Congress understand the agency s finances, make informed policy and resource decisions, and hold agency officials accountable for their use of these resources. <1.1. The Role of Accounting Adjustments in the Financial Statement Process> Accounting adjustments are used to record corrections or adjustments to transactions in an accounting system. They are usually prepared at the end of an accounting period to adjust ending account balances. For example, accounting adjustments can be recorded monthly, quarterly, or annually to record or accrue an activity that is not accounted for in the organization s accounting systems, such as certain payroll expenses; correct errors identified in processing financial information; record transactions based on the result of reconciliations; record additional information at the request of a subsidiary organization; or record necessary accounting adjustments caused by accounting system limitations or timing differences. Organizations often record such accounting adjustments when preparing financial statements. For example, adjustments to eliminate intragovernmental transactions, such as accounts receivable and sales, may be recorded. These adjustments are particularly necessary to consolidate information from subsidiary organizations and properly present consolidated financial statements. At DOD, components record accounting adjustments within their own accounting systems, and DFAS records adjustments at the consolidated level in DOD s core financial reporting system. DFAS often has to reformat the summary information it receives from the components accounting systems before DOD s core financial reporting system can accept and process it. To address these or other issues in the financial information it receives as part of the consolidation process, DFAS records accounting adjustments. See figure 3 for an example of where accounting adjustments can be recorded during the consolidation process. DFAS records accounting adjustments both manually and automatically in an accounting system. DFAS personnel record manual adjustments to (1) adjust errors identified during the financial statement compilation process, (2) record necessary accounting adjustments caused by system limitations or timing differences, and (3) prepare required month-end and year-end closing adjustments. System-generated adjustments are automatically recorded in the accounting system without manual involvement. DFAS uses system-generated adjustments when the volume of adjustments needed for a particular purpose is too high and labor-intensive for the adjustments to be recorded manually. For the fourth quarter of fiscal year 2018, DFAS processed 18,521 manual and 181,947 system-generated adjustments at the consolidated level. <2. Some Types of Adjustments That DOD Routinely Records Indicate Critical Weaknesses in DOD s Processes and Affect the Reliability of Its Financial Information> During the fourth quarter of fiscal year 2018, as noted above, DFAS recorded, at a DOD consolidated level, over 200,000 accounting adjustments in DOD s core financial reporting system. The large volume of these adjustments is one of the major impediments to DOD maintaining accurate and reliable financial information. While some of these adjustments are expected in the routine course of business, others such as those DOD records to force account balances to match are not. We found that DFAS s lack of reliable business processes and limitations in the source-level accounting systems that DOD components use to process financial information leads them to record adjustments to remove and replace component-submitted financial information in order to force account balances to agree with Treasury balances. The recording of these types of adjustments was identified as a material weakness in DOD s internal control over financial reporting in its fiscal year 2019 financial statement audit. While DOD has taken steps to address this issue, because of the multitude of contributing factors involved, DOD faces significant challenges in its effort to successfully reconcile its account balances with Treasury and eliminate the need for recording these adjustments. <2.1. Some Adjustments Are Expected and Routine, While Others Are Not> Some manual and system-generated accounting adjustments are expected in the routine course of business and are recurring in nature. For example, elimination adjustments for intragovernmental balances, as previously discussed, are necessary in order to avoid overstating the account balances of subsidiary organizations in the consolidated financial information. The need for these types of adjustments occurs on a regular basis when two or more DOD components enter into business transactions with each other. For example, when the Army purchases weapons from the Defense Logistics Agency, the Army records the transaction as an expense while the Defense Logistics Agency records this transaction as revenue in its accounting system. At the DOD consolidated level, both the revenue and expense reported at the subsidiary level need to be eliminated to avoid overstating revenue and expense for DOD as a whole. These elimination adjustments are routine, expected, and recurring because they must be prepared every time DFAS compiles DOD s quarterly and annual consolidated financial statements. Other adjustments, such as those DFAS records in order to force account balances to match (forced-balance adjustments) are not expected within the routine course of business. DOD defines a forced-balance adjustment as any amount recorded, usually at a summary level, to eliminate differences between the component s general ledger balance and Treasury s control total. Such adjustments, recorded without adequate supporting documentation at the transaction level, are commonly referred to by the accounting community as plugs. Fund Balance with Treasury (FBWT) adjustments are one example of forced-balance adjustments DFAS records to eliminate differences between its cash balances and the amounts Treasury reported. In the federal government, Treasury acts as the government s bank and keeps an official record of the remaining spending authority for each agency. Consequently, reconciling an agency s FBWT account with Treasury- reported amounts is similar to an individual reconciling a checkbook to a bank statement. Treasury requires agencies to reconcile their cash balances each month with the balances reported in Treasury s records. However, DOD generally records adjustments to make its FBWT agree with Treasury s records rather than performing proper research to identify what caused the differences. (See fig. 4 for more information on forced- balance adjustments.) <2.2. DOD s Use of Certain Forced-Balance Adjustments May Indicate Critical Weaknesses> The use of forced-balance accounting adjustments affects the reliability of an organization s financial information and may indicate weaknesses within its systems and processes. Over the years, DOD s practice of recording forced-balance adjustments has been questioned by GAO and by DOD s auditors. For example, in an audit of the Army General Fund s reconciliation process for the FBWT account, DOD s Office of Inspector General (OIG) stated that the Army and personnel in DFAS s Indianapolis office make forced-balance adjustments, which are unsupported manual and system-generated adjustments. GAO and an independent accounting firm both reported similar practices at the Navy and Marine Corps. These audits have repeatedly identified limitations within the source-level accounting systems that DOD components use and the multitude of legacy systems (computer systems that are outdated or that can no longer receive support and maintenance but are still essential for an organization) as the main contributing factors for the use of forced- balance adjustments. DOD s Financial Management Regulation (FMR) states that a forced- balance adjustment does not represent an adequate reconciliation. Instead, DOD components are required to maintain detailed reconciliation documentation to provide an adequate audit trail. Further, according to the FMR, a reconciliation is not complete until all differences are identified, accountability is assigned, differences are explained, and appropriate adjustments are made to records. These activities are needed to establish an adequate audit trail. Despite this policy, during the fourth quarter of fiscal year 2018, we found that DFAS recorded approximately 36,000, or over 17 percent of the total accounting adjustments, to force the FBWT accounts to agree with Treasury. Out of the 242 fiscal year 2018 fourth quarter accounting adjustments we selected for testing, nine were FBWT forced-balance accounting adjustments related to undistributed collections and disbursements. Based on our review of these adjustments, we found that DFAS continues to rely on forced-balance adjustments to correct the differences between amounts DOD recorded and those that Treasury reported without properly investigating and resolving the differences. Specifically, we found that DFAS systematically recorded forced-balance adjustments to replace information that DOD components submitted with the amounts that Treasury reported without reconciling and researching the causes of differences and making any appropriate adjustments. DFAS indicated that it performs reconciliations on the FBWT accounts when compiling financial statements and researches the causes of any differences arising from these reconciliations after it records the forced-balance adjustments. However, for our sample of nine FBWT forced-balance adjustments related to undistributed collections and disbursements, DFAS was unable to provide evidence that these reconciliations were performed or that the causes of differences were researched or resolved. Rather, DFAS provided a general description of the reconciliation process it expects each of the three DFAS sites to perform. <2.3. DOD Has Started Addressing FBWT Issues, but Many Challenges Remain> According to DOD officials, DOD has identified some key causes of the long-standing challenges in reconciling its account balances with Treasury. As noted above, many of these challenges are caused by timing issues, limitations in the source-level accounting systems that DOD components use, or the multitude of legacy systems that different DOD components use. To address these challenges, DOD is currently implementing enterprise resource planning (ERP) systems in the military services, such as the Defense Enterprise Accounting and Management System that the Air Force uses. These systems will replace the current legacy systems across DOD with the expectation of a full transition to ERP systems at all military services by 2025, at which point DOD expects the need to record forced-balance adjustments to decrease. OUSD (Comptroller) has a plan for implementing ERP systems at smaller DOD components that also use legacy systems. However, the challenges that legacy systems cause are likely to continue until the ERP transitions are completed and ERP systems are fully implemented at the military services and smaller DOD components. A DFAS official stated that until DOD fully implements the ERP systems, DFAS does not have any plans to modify the current financial management environment to eliminate the recording of these types of adjustments. As noted earlier, as part of the routine course of business certain adjustments will still need to be made following the full implementation of the ERP systems. Along with DOD s implementing of the ERP systems, DOD officials stated that some DFAS sites, in coordination with various DOD components, have implemented tools to help them reconcile FBWT balances and research the causes of any differences arising during these reconciliations. According to DOD officials, these tools have the ability to produce supporting documentation for management and auditors to use when reviewing FBWT accounts. However, DFAS did not provide supporting documentation for these reconciliations in order for us to verify that they had been performed. Until DOD consistently performs and documents the required reconciliations to identify the causes for these types of adjustments and takes a holistic approach to resolving them, DOD s financial management issues such as those associated with FBWT are likely to continue, resulting in a continued inability to produce reliable and auditable consolidated financial statements. <3. DOD and DFAS Policies and Procedures for Recording Accounting Adjustments Are Inadequate and Inconsistently Followed> Establishing clear policies and procedures for recording accounting adjustments is crucial for (1) ensuring that accounting adjustments are properly recorded and adequately supported with documentation; (2) identifying the underlying causes for the recording of adjustments; and (3) developing, implementing, and monitoring action plans to reduce the need for accounting adjustments. We found that DOD and DFAS policies and procedures for recording accounting adjustments were insufficient, outdated, and not consistently implemented. Additionally, we found that DOD and DFAS lacked policies and procedures in certain key areas, such as performing cause analyses and developing action plans to reduce the need for accounting adjustments. By not ensuring that policies and procedures are up-to-date and consistently implemented, DOD faces an increased risk that inaccurate, invalid, or unapproved adjustments will be recorded in its core financial reporting system, resulting in misstatements in its consolidated financial statements. <3.1. Policies and Procedures for Maintaining Adequate Supporting Documentation for System-Generated Accounting Adjustments Are Insufficient> System-generated accounting adjustments are recorded automatically in an accounting system and have unique characteristics and processes that differ from those applicable to manual accounting adjustments. Unlike manual adjustments, which are initiated, recorded, and approved in the accounting system by a person, system-generated adjustments are guided by business rules embedded in an accounting system. These business rules drive the accounting adjustment process and are configured to record the adjustment when certain conditions are met. We found that DFAS lacked documentation to support the business rules, such as documentation of programming logic that creates the system- generated adjustments. Based on our review of accounting adjustments at DOD, we found that system-generated adjustments are recorded in large numbers and account for the majority of the accounting adjustments that DFAS recorded. For example, for the fourth quarter of fiscal year 2018, system- generated accounting adjustments accounted for over 90 percent of the total volume of adjustments recorded in DOD s core financial reporting system at the consolidated level. Given the magnitude and unique characteristics of system-generated adjustments, developing and maintaining adequate supporting documentation are critical. According to the FMR, adjustments to the accounting records should be supported with sufficiently detailed written documentation to provide an audit trail to the source transaction that requires the adjustment. Further, the FMR requires supporting documentation to include information such as the reason for the adjustment, calculation of the adjustment amount, and evidence of managerial review and approval of the adjustment. To support certain types of recurring system-generated adjustments, DFAS developed eight standardized narratives that include the reasons for the adjustments and the documentation DFAS considers necessary to support the adjustments. Other recurring system-generated adjustments are recorded based on System Change Requests, which are proposals to modify information in an accounting system such as revising programming logic and coding changes. In the fourth quarter of fiscal year 2018, DOD determined that 74 percent of the recorded system- generated adjustments related to four of the eight standardized narratives. Most of the System Change Requests we tested related to financial information migration from a legacy system to a new responsible work area for the U.S. Army Corps of Engineers. DFAS annually selects and reviews a random sample of 40 system- generated adjustments related to each type of narrative for which supporting packages are prepared. According to DFAS officials, the supporting package preparation for the selected sample involves verifying that the adjustments impacted the intended accounts. If no issues are identified, DFAS concludes that the core financial reporting system recorded the adjustments as intended, the desired results were achieved, and the adjustments were supported. Within a given year, if DFAS sample testing demonstrates that a certain type of system-generated adjustment was supported, DFAS categorizes all the accounting adjustments that relate to this particular type as supported for the rest of the year. We found that other than the supporting packages created specifically for the periodic random samples, DFAS maintains no other documentation to support the system-generated adjustments related to each of the eight narratives. As part of our audit, we selected for testing 242 accounting adjustments that impacted the financial statements for the fourth quarter of fiscal year 2018, of which 93 were system-generated accounting adjustments. Of these 93 adjustments, DFAS categorized 42 as unsupported and 51 as supported. DFAS categorized adjustments as either supported or unsupported depending upon the circumstances. The circumstances considered include whether it relates to one of the eight narratives or to specific System Change Requests. When the eight narratives are tested, if no issues are identified as part of the testing, the transactions linked to that narrative are considered supported. However, we determined that the corresponding narratives and System Change Requests were insufficient support for the 51 adjustments categorized as supported because we were unable to verify the validity and accuracy of the adjustments with supporting documentation. In addition, we found that DFAS did not maintain evidence demonstrating the review and approval of the programming of predefined business rules in the systems that recorded the adjustments. When our results are projected to the fiscal year 2018 fourth quarter population of 181,947 system-generated adjustments, we estimate that at least 96 percent of the system-generated accounting adjustments were recorded without adequate supporting documentation, which is required by DOD s policy and procedures and federal internal control standards. In 2018, DFAS s auditor issued a finding identifying similar issues with DFAS s system- generated adjustments related to the scope of the eight narratives. As of November 2019, this finding was still open. Standards for Internal Control in the Federal Government requires that management design control activities to achieve objectives and respond to risks, such as designing controls to help ensure accurate and timely recording and maintenance of appropriate transaction documentation. Although the FMR has guidance on supporting documentation requirements for accounting adjustments, we found that DOD s FMR does not clearly define or include examples of what constitutes adequate supporting documentation of system-generated accounting adjustments. Specifically, the FMR does not differentiate between documentation requirements for manual and system-generated accounting adjustments. Rather, it states that reporting organizations must maintain adequate documentation, audit trails, and internal controls, and that the documentation must be made available upon request. Because system- generated accounting adjustments consist of summary-level financial information, DFAS officials stated that maintaining documentation at a detailed level would be impractical given the large volume of transactions at DOD. However, without adequate supporting documentation for the business rules driving the recording of these adjustments, such as documentation of the programming logic for these adjustments, management and others cannot determine whether an adjustment was recorded for a valid reason or for the correct amount. <3.2. DOD s Policies and Procedures for Categorizing Accounting Adjustments Do Not Reflect the Current Financial Reporting Environment> The March 2002 version of the DOD s FMR, volume 6A, chapter 2, established 10 category codes that are used to identify the circumstances under which accounting adjustments may be recorded. For example, DFAS uses category A for reversing entries for a prior reporting period and category B for data call adjustments. Additionally, the FMR specifies the required documentation needed to support each category. For example, for category A adjustments, adequate documentation includes information on the original entry and a statement that the adjustment is a reversing entry, whereas for category B adjustments, documentation requirements include information on the summarized amount and identification of the source or location of the transaction-level detail for the adjustment. DOD s core financial reporting system is designed to allow a DFAS accountant to select one of these 10 codes when recording an adjustment. Since these codes are used to identify the required documentation to support the adjustments, it is important that the codes are periodically reviewed to ensure that they are still relevant in DOD s current financial reporting environment and that supporting documentation requirements are appropriate. We found that some of the category codes were rarely used and new codes may need to be added to reflect the current financial reporting environment. For example, we found that of the 18,521 manual adjustments recorded in DOD s core financial reporting system during the fourth quarter of fiscal year 2018, category F (supply management inventory) was used only four times. According to DFAS officials, this code was primarily used to adjust the purchase cost of certain supplies, but those adjustments are now rarely needed. DFAS officials stated that the codes had not been reviewed for continued relevance since they were first established and expressed a need to revisit the current categorization scheme to determine whether the codes should be redefined. The most recent update of FMR, volume 6A, chapter 2, in June 2019 included the addition of category M, the first code added since 2002. According to DFAS officials, this code was not added based on a thorough review of the existing codes but because there was already a substantial volume of data call adjustments taking place in the Data Collection Module. Further, a DOD official suggested that an additional code may be needed for tie-point adjustments, which DFAS accountants frequently record as a result of tie-point reconciliation. We found that 34 of the 149 manual accounting adjustments we tested related to tie-point adjustments. Because there is not a designated category code for tie-point adjustments, we found that accountants used various other category codes when recording the 34 tie-point adjustments, including D (Recognition of Undistributed Disbursements and Collections), E (Reconciliation of Trial Balance and Budget Execution Reports), G (Reclassification of Accounts), H (Identified Errors and Reasonableness Checks), I (Adjustment to Balance Reports Internally), or at times no category code. As a result, there may be inconsistency in the documentation maintained to support tie-point adjustments. Having a single category code for tie-point adjustments could standardize recording by accountants, enabling DFAS to identify the frequency with which tie- point adjustments are recorded and ensure that it maintains adequate supporting documentation. Standards for Internal Control in the Federal Government requires that management implement control activities through policies. To do this, management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the organization s objectives or addressing related risks. The DOD FMR Revision Standard Operating Procedures indicates that the FMR is reviewed every 2 years. However, based on our discussion with DOD officials, a thorough review of the category codes has not been performed and is needed to ensure the ongoing applicability of current category codes or the need for additional codes to reflect the current financial reporting environment. Without category codes for accounting adjustments that reflect current business needs, there is an increased risk that the reasons for recording these adjustments will not be properly captured and adequate supporting documentation will not be specified or maintained, hindering DFAS s ability to provide DOD management or auditors with reliable information about recorded accounting adjustments. <3.3. Policies and Procedures for Recording Accounting Adjustments Were Not Consistently Implemented> The FMR identifies critical elements that need to be included as part of the supporting documentation package when recording manual accounting adjustments. These elements include (1) correct appropriation and accounting information, (2) balanced adjustments, (3) approvals, (4) supporting documentation, and (5) valid U.S. Standard General Ledger (USSGL) account numbers. The FMR further states that supporting documentation included in the package must include, among other things, elements to enable the assessment of the (1) accuracy and completeness of financial information recorded, (2) applicable criteria to support the reason for recording the adjustment, (3) specific expenditure or receipt accounts used, and (4) calculation of the dollar amount of the adjustment. For the fourth quarter of fiscal year 2018, we selected a sample of manual and system-generated adjustments to determine if the supporting documentation for these adjustments included the critical elements described in DOD s FMR. We found that DFAS accountants did not consistently follow the DOD FMR and DFAS s policies and procedures for some of these critical elements, resulting in (1) the failure to maintain adequate supporting documentation, (2) the recording of out-of-balance accounting adjustments, and (3) the use of account numbers that do not comply with the USSGL. Inadequate supporting documentation: We found that 51 of the 87 manual adjustments we reviewed that DFAS categorized as supported did not contain supporting documentation required by the DOD FMR. For example, we found instances where supporting documentation packages were missing information to support the reason for recording the adjustment or detailed worksheets to support the calculation of the adjustment amount. DFAS officials explained that 30 of the 51 adjustments resulted from a major change in how DFAS processes U.S. Army Corps of Engineers financial information. Because of time sensitivity and based on a risk analysis, management decided to process over 3,000 manual adjustments for the fourth quarter of fiscal year 2018, including the 30 that were selected for our sample, without preparing supporting documentation for these individual adjustments. We also found that not all supporting documentation packages included a DFAS Form 9339, DFAS Journal Voucher Catalog and Checklist, as required by DFAS s Interim Policy Memorandum. This memorandum requires that all manual accounting adjustments, whether classified as supported or unsupported by DFAS, include a Form 9339 to help ensure the inclusion of the appropriate supporting documentation. We reviewed 149 manual adjustments and found that 94 included a Form 9339. Our review of these 94 accounting adjustments found that 28 lacked the required information. For example, nine packages did not include one or more of the necessary elements required by Form 9339. We found instances where source information, customer coordination, document labeling, before and after trial balances, narratives, or a combination of these were missing. For six of the nine packages, DFAS agreed that some of the necessary data elements were missing; for the remaining three packages, DFAS s response did not fully address the reasons for the missing documentation. DFAS officials stated that one of the reasons why these errors may have occurred was because the implementation of the Interim Policy Memorandum was in its beginning stages when we selected our fourth quarter fiscal year 2018 sample. The policy memorandum was dated June 11, 2018, and was effective immediately. We also found that 19 adjustments lacked the required root cause indicator code on the Form 9339. According to DFAS officials, DFAS Cleveland prepared those 19 forms. DFAS Cleveland officials explained that in collaboration with the Navy Financial Management Office, DFAS Cleveland s senior leadership decided to deviate from the Interim Policy Memorandum and not include the root cause indicator code in the Form 9339 when recording Navy s related accounting adjustments. Rather, DFAS Cleveland developed its own system to identify root causes by using a unique identifier code. However, the Interim Policy Memorandum does not exclude any DFAS site from adhering to the requirement, and DFAS was unable to provide documentation to demonstrate that DFAS Cleveland had authorization to deviate from this policy. According to DFAS officials, DFAS Cleveland will begin including the root cause indicator code on the Form 9339, starting second quarter of fiscal year 2020. Out-of-balance adjustments: We found that about 2,800 manual adjustments, or approximately 15 percent of all manual adjustments recorded at the DOD consolidated level for the fourth quarter of fiscal year 2018, were out-of-balance. For example, we identified one adjustment in which DFAS decreased its FBWT account by $14,232,000 without recording a change to a corresponding account. DOD s FMR requires that all recorded accounting adjustments be balanced. Additionally, we found that the FMR does not identify any situations where an out-of-balance adjustment is allowable, despite DFAS officials stating that out-of-balance adjustments are sometimes necessary. Auditors of the military services found that reasons for out-of-balance financial information include (1) service-level general ledger systems are not effectively designed to prevent incomplete transactions from being recorded and (2) controls are not in place at the service level to detect these errors in a timely manner. According to DFAS officials, out-of-balance adjustments are recorded to correct out-of-balance financial information received from DOD components accounting systems. Use of non-USSGL-compliant accounts: During our review of fourth quarter fiscal year 2018 manual and system-generated adjustments, we found that over 13,000 adjustments (over 6 percent) recorded at the DOD consolidated level used non-USSGL-compliant accounts, which are not allowed by the Treasury Financial Manual or DOD FMR. The Federal Financial Management Improvement Act of 1996 requires certain federal agencies, such as DOD, to use the specific and standardized set of accounts referred to as the USSGL in their financial reporting systems. Treasury maintains this set of accounts annually to help ensure the comparability of financial information across the federal government. DFAS officials stated that these noncompliant accounts are referred to as memo accounts and were primarily used for management planning purposes. They further explained that DOD had controls in place to prevent financial information recorded in memo accounts in DOD s core financial reporting system from being transferred into the financial reporting systems, which Treasury uses to compile the U.S. government consolidated financial statements. DOD OIG also reported issues related to DOD s use of noncompliant accounts, which it identified in fiscal year 2018. In addition, in DOD s Fiscal Year 2018 Agency Financial Report, management acknowledged that DOD s financial management systems did not comply with the USSGL at the transaction level. In response, the DOD Deputy Chief Financial Officer issued a memorandum on March 15, 2019, acknowledging that DOD components must use the established USSGL accounts identified in the Treasury Financial Manual for financial reporting purposes. Additionally, the memorandum stated that supporting documentation must be maintained for any accounting adjustments recorded using memo accounts. However, for the seven non-USSGL-compliant adjustments included within our sample of manual and system-generated adjustments, we found that documentation had not been maintained. Proper recording of adjustments is crucial for ensuring that the financial information accurately reflects the financial transactions that have occurred. This includes maintaining adequate supporting documentation and implementing review procedures to help ensure controls are in place to detect errors in a timely manner. Failure to fully adhere to established procedures increases the risk that inaccurate accounting adjustments will be recorded, thereby reducing the reliability of reported financial information and potentially causing misstatements in the DOD consolidated financial statements. <3.4. DOD and DFAS Lack Policies and Procedures for Analyzing and Addressing Necessary Root Causes of Accounting Adjustments> Organizations use root cause analysis as a tool to identify and evaluate systems, processes, or both that prompted the recording of an accounting adjustment. For certain adjustments, it may be determined that a root cause analysis or action plan is not necessary for instance, if the adjustment is onetime or nonroutine. However, information obtained through a root cause analysis may be used to make system or process changes within a specific program, thus reducing the need to record adjustments. Once a root cause has been identified and analyzed, an organization should create an action plan that describes the steps to be taken to address the root cause and monitors the effectiveness of the actions taken. Figure 5 illustrates the identification, implementation, and monitoring of accounting adjustment root causes and related action plans. We found that although DFAS headquarters and its individual sites perform root cause analysis and develop and take some actions to address the identified causes, neither DOD nor DFAS has established policies and procedures that require staff to perform root cause analysis; develop and implement action plans for issues that DFAS staff identified; or monitor the effectiveness of action plans in eliminating the need for accounting adjustments. DFAS officials acknowledged that there are no policies in place requiring DFAS to perform root cause analyses that would permit them to compare root causes for accounting adjustments at a consolidated level across the DFAS sites. DFAS and its sites identify root causes for individual accounting adjustments when accountants select a root cause indicator code when recording the adjustment. DFAS staff also identify root causes for accounting adjustments at an aggregate level when preparing summary metrics on adjustment types. For example, we found that in addition to the requirements previously discussed, Form 9339 requires accountants across all DFAS sites to prepare white papers/narratives (white papers) each time a manual adjustment is recorded. Our review of these white papers identified that some DFAS sites use the white papers to document the root cause analyses while others do not because DFAS has not provided a template that identifies the minimum required information to be included in the white papers. As a result, we found that individual DFAS sites do not use standardized white paper templates and that the information included in the white papers was not always consistent between and within the DFAS sites. Inconsistency between DFAS sites: Our review of 52 white papers found that DFAS Indianapolis was the only site to include information such as scope, source system, and financial statement impact of the accounting adjustment in its white papers, while DFAS Columbus was the only site that included corrective actions taken. (See fig. 6.) Inconsistency within a DFAS site: Our review of 52 white papers found that DFAS Indianapolis did not consistently include background, purpose of the adjustment, a description of the root cause, posting logic, financial statement impact, pending action, source system, and scope in all white papers it prepared. Some white papers had these elements and others did not. We found similar issues with the white papers prepared by DFAS Columbus and DFAS Cleveland. Figure 7 illustrates information included in white papers that was inconsistent within a DFAS site. We also found that DFAS does not have policies and procedures requiring the identification and implementation of action plans to address the cause of and need for accounting adjustments that staff identified internally. This resulted in inconsistencies in how the different DFAS sites developed and implemented action plans. For example, we found that 73 of the 98 manual and system-generated unsupported adjustment packages that included a root cause analysis that we reviewed did not include an action plan to address the root cause. Based on this testing, we estimate that at least 88 percent of fourth quarter fiscal year 2018 unsupported adjustments for which a root cause analysis was performed did not have a documented action plan. For the remaining 25 packages with documented action plans, we found that only two included steps documenting how the action plan was to be implemented. The remaining 23 packages with documented action plans lacked implementation details, and DFAS officials stated that they were waiting for resolution from the relevant DOD components. DFAS officials stated that they prepare and document action plans for issues that affect multiple accounting adjustments but not for issues that affect only one adjustment (unique root cause). Unique root causes do not necessitate action plans and are resolved the following month through DFAS working with the affected DOD components. According to DFAS officials, many of the action plans are discussed in biweekly and monthly meetings, but these action plans are not documented. Finally, we found that DOD and DFAS do not have policies and procedures requiring management to monitor the results of action plans that individual DFAS sites prepared or to measure whether implemented action plans are effective in addressing the causes for accounting adjustments. DFAS management activities were limited to periodically reviewing summary metrics on the numbers and types of accounting adjustments recorded. These metrics did not contain detailed information, such as the causes of accounting adjustments to be addressed, accountable officials responsible for implementing action plans, expected time frames for the implementation of action plans, or specific steps to be performed to address the causes. Additionally, the metrics did not include any information on action plans to address system-generated accounting adjustments, which account for the majority of the adjustments. This type of detailed information is critical to DOD management and DOD external stakeholders for evaluating the department s progress in correcting the issues. GAO has previously reported that a lack of comprehensive information on corrective action plans limits DOD s and Congress s ability to evaluate DOD s progress toward fully, timely, and efficiently correcting its long-standing financial management deficiencies. Office of Management and Budget Circular A-123 requires agencies to perform cause analysis of deficiencies identified to ensure that subsequent strategies and plans address the causes of the problem and not just the symptoms. Additionally, Standards for Internal Control in the Federal Government requires that management implement control activities through policies. To do this, management documents in its policies the internal control responsibilities of the organization. In addition, management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity s objectives or addressing related risks. Without policies that require consistent processes across DOD for identifying and addressing the causes of accounting adjustments, from the identification of underlying root causes to the development, implementation, and monitoring of action plans, it is likely that DOD s efforts to reduce accounting adjustments will be inefficient and ineffective. <4. DOD and DFAS Have Taken Actions to Reduce Accounting Adjustments but Lack Procedures for Implementing a Department-Wide Strategy> The large number of accounting adjustments that are recorded in the preparation of DOD s financial statements presents audit challenges. To address this issue, DOD and DFAS have established multiple initiatives aimed at reducing accounting adjustments. While these initiatives have resulted in fewer adjustments of certain types being recorded at the component and consolidated levels, the current focus has been on reducing the number of adjustments recorded without adequate supporting documentation within their responsible work areas, not on reducing the need for recording accounting adjustments department-wide. Both DFAS and OUSD (Comptroller) have developed department-wide strategies to decrease accounting adjustments; however, neither DFAS nor OUSD (Comptroller) have developed procedures for implementing the department-wide strategies. Without a clear department-wide approach to reducing accounting adjustments across all DOD components, there is a risk that DOD s effort to reduce accounting adjustments will be unsuccessful, which in turn hinders its ability to produce reliable and auditable consolidated financial statements. <4.1. DOD Has Undertaken Initiatives to Reduce Accounting Adjustments> To reduce accounting adjustments, OUSD (Comptroller) and DFAS have undertaken many initiatives over the last few years. In fiscal year 2018, OUSD (Comptroller) determined that a large number of accounting adjustments at the consolidated level resulted from data calls. To decrease the need for recording these adjustments at the consolidated level, DOD established the Data Call Journal Voucher (JV) Migration Initiative with the goal of eliminating data call adjustments in its core financial reporting system to the maximum extent possible. The first phase of this initiative moved the recording of adjustments for the Federal Employees Compensation Act (FECA) liability to the DOD component level responsible for the underlying transaction. According to OUSD (Comptroller), this initiative resulted in the successful migration of the recording of the Missile Defense Agency s FECA liability from DOD s core financial reporting system to Missile Defense Agency accounting systems in the second quarter of fiscal year 2019, and has set the stage for 19 other components using the same accounting system as the agency to follow suit. Although this initiative may not reduce the overall number of accounting adjustments that DOD records, it will reduce the need for data call adjustments to be recorded at the consolidated level. OUSD (Comptroller) expects this initiative will also enhance the quality of the supporting documentation maintained for these types of adjustments because the underlying transaction-level detail for the adjustments will be available in the components accounting systems. Individual DFAS sites have also undertaken their own initiatives that eliminate the need for some accounting adjustments. For example, in fiscal year 2018, DFAS Indianapolis found that some financial information from the Army s accounting systems was improperly recorded, requiring adjustments to correct the errors when the financial information transferred into the DOD s core financial reporting system. DFAS Indianapolis staff worked with the Army to resolve the issue. As a result, adjustments are no longer needed at the consolidated level when the information transfers from Army s system into DFAS s system. According to DFAS Indianapolis officials, this initiative resulted in a significant decrease in accounting adjustments at the consolidated level for fiscal year 2019. <4.2. DOD and DFAS Lack Procedures for Implementing a Department-Wide Strategy to Reduce the Need for Accounting Adjustments> Developing and implementing a DOD department-wide strategy to reduce the need for recording accounting adjustments at the consolidated level requires DOD to identify the underlying root causes and risks associated with accounting adjustments and to prioritize efforts to address them. This involves clearly defining what is to be done, who is to do it, how it will be done, and the time frames for achievement. To address DOD s many financial management issues, including reducing accounting adjustments, OUSD (Comptroller) and DFAS have developed different strategies and business plans. However, these strategies and business plans do not include clearly defined expected outcomes or procedures for achieving stated goals. OUSD (Comptroller) issued the DOD Financial Management Strategy Fiscal Years 2016 2020 (Strategy) to help achieve a simplified, standard, affordable, auditable, and secure financial environment, which includes the reduction of accounting adjustments. The Strategy s JV initiative states that The purpose of this initiative is to determine why unsupported JVs occur and resolve them. However, we found that the Strategy did not provide clear direction to staff on how to achieve the JV initiative and did not call for a department-wide effort to address accounting adjustments recorded at the consolidated level. The Strategy also acknowledged that excessive adjustments can indicate underlying problems, such as weak internal controls, and may indicate that transactions are not captured, reported, or summarized correctly. However, we found that the focus of the Strategy was on reducing the number of accounting adjustments recorded without adequate supporting documentation rather than on reducing the overall need for recording accounting adjustments department-wide. In addition to following the OUSD s (Comptroller) Strategy, DFAS management has also developed the Fiscal Years 2017 2021Strategic Plan (Strategic Plan) and Fiscal Year 2018 Annual Business Plan (Business Plan), which include goals for reducing accounting adjustments, supplemented by bimonthly Strategy Updates. For example, DFAS s November 2017 Strategy Update outlined the Business Plan goals for fiscal year 2018 with regard to internal controls and business processes. In that update, DFAS set broad goals, such as executing plans to support or reduce system-generated and manual adjustments. However, we found that similar to the OUSD (Comptroller) Strategy, neither DFAS s Strategic Plan nor Business Plan included defined outcomes or clear procedures for accomplishing the stated goals. The primary focus of these goals was also to reduce the number of accounting adjustments recorded without adequate supporting documentation. We found that this lack of clear procedures led each DFAS site and DFAS headquarters to focus their initiatives on accounting adjustments that impacted their responsible work areas instead of reducing the need for recording accounting adjustments overall. According to DFAS site officials, in some instances, reducing the number of accounting adjustments recorded without adequate supporting documentation at their individual sites could have an impact on the need to record adjustments at the consolidated level; however, the effect at the consolidated level was not their primary focus. Standards for Internal Control in the Federal Government requires that management implement control activities through policies. To do this, management documents in its policies the internal control responsibilities of the organization. In addition, management periodically reviews policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity s objectives or addressing related risks. Without detailed documented policies and procedures for implementing its initiatives, and a complete understanding of the issues contributing to the recording of accounting adjustments (both supported and unsupported) across DOD, there is an increased risk that management efforts to reduce accounting adjustments at the consolidated level will be ineffective. <5. Conclusions> In the routine course of business, organizations often record accounting adjustments on a monthly, quarterly, and annual basis. Some adjustments are necessary so that financial information is presented meaningfully and accurately. However, an extensive use of accounting adjustments may indicate significant underlying problems. In order to produce reliable financial information that DOD management and Congress can use for decision-making, DOD needs to develop policies and procedures for recording accounting adjustments that are consistently implemented across the department and reflect the current DOD financial reporting environment. DOD also needs to address the issues that contribute to its need to extensively record accounting adjustments by implementing policies and procedures for the consistent identification of the causes for recording adjustments and the development, implementation, and monitoring of action plans to address the identified causes. If DOD does not address these issues, there is an increased risk that its financial information will be misstated and DOD will continue to be unable to prepare reliable and auditable consolidated financial statements. <6. Recommendations for Executive Action> We are making the following eight recommendations to DOD: The Director of DFAS should, in accordance with the FMR, implement procedures to help ensure that FBWT reconciliations are consistently performed and that all DFAS sites review and document research conducted on the causes of any differences arising from these reconciliations. (Recommendation 1) The Under Secretary of Defense (Comptroller) should update the FMR to clearly define the required supporting documentation for system-generated accounting adjustments, including the required documentation of business rules driving the recording of these adjustments, such as documentation of the programming logic. (Recommendation 2) The Under Secretary of Defense (Comptroller) should perform and document a comprehensive review of the FMR accounting adjustment category codes to determine their ongoing applicability or the need for additional codes to reflect the current financial reporting environment. (Recommendation 3) The Under Secretary of Defense (Comptroller) should establish procedures to help ensure the consistent implementation of the requirements of DFAS Form 9339. (Recommendation 4) The Under Secretary of Defense (Comptroller) should update policies and procedures to identify the causes of out-of-balance accounting adjustments and resolve the causes in a timely manner. (Recommendation 5) The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should develop and implement policies and procedures to help ensure that root cause analyses for accounting adjustments are consistently performed and documented across DOD. (Recommendation 6) The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should develop and implement policies and procedures to help ensure consistent development, implementation, monitoring, and documentation of action plans across DOD that address accounting adjustment causes that staff identified internally. (Recommendation 7) The Under Secretary of Defense (Comptroller), in conjunction with the Director of DFAS, should develop and implement procedures across DOD that include clearly defined outcomes focused on reducing accounting adjustments (supported and unsupported) with specific actionable steps and procedures for achieving stated goals. (Recommendation 8) <7. Agency Comments and Our Evaluation> We provided a draft of this report to DOD for review and comment. In written comments, DOD concurred with all eight of our recommendations and cited actions to address them. DOD s comments are reproduced in appendix II. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 11 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense (Comptroller), the Director of the Defense Finance and Accounting Service 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) 512-2989 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. Appendix I: Objectives, Scope, and Methodology This report examines (1) accounting adjustments and their effect on the reliability of the Department of Defense s (DOD) financial information, (2) the extent to which DOD has established and implemented policies and procedures for recording accounting adjustments, and (3) the extent to which DOD has taken actions to reduce accounting adjustments recorded at the consolidated level. To determine the accounting adjustments recorded and their effect on the reliability of DOD s financial information, we focused our review on the categories of accounting adjustments that DOD recorded at the consolidated level. We reviewed prior audit reports issued by GAO, DOD s Office of Inspector General (OIG), and independent public accountants for fiscal years 2015 through 2019 to gain an understanding of the types and categories of accounting adjustments. We also reviewed related policies and procedures, such as DOD s Financial Management Regulation (FMR); performed walk-throughs of the Defense Finance and Accounting Service s (DFAS) processing of accounting adjustments; and interviewed DOD officials to gain an understanding of the types of accounting adjustments. Additionally, we obtained and analyzed summary information on the adjustments affecting fiscal years 2017 and 2018 by quantity, dollar value, whether they were manual versus system- generated, and unsupported versus supported. To evaluate the extent to which DOD has established and implemented policies and procedures for recording accounting adjustments, we reviewed relevant notices of finding and recommendation that the independent public accountants and DOD OIG issued related to accounting adjustments for fiscal year 2018. We also reviewed DOD and DFAS policies and procedures and interviewed officials from DFAS and the Office of the Under Secretary of Defense (OUSD) (Comptroller) to identify issues surrounding accounting adjustments and the procedures used to process, review, and approve these adjustments in DOD systems. We also inquired about the procedures used to determine the underlying causes of accounting adjustments, if action plans to address the causes had been developed, and the status of these plans. In addition, we assessed DFAS s efforts to monitor the effectiveness of its action plans. To determine the specific internal controls DOD had in place over its accounting adjustment processes, we interviewed DFAS officials knowledgeable about the accounting adjustment processes and performed walk-throughs of these processes at DFAS. We evaluated the procedures observed during our walk-throughs and those that DOD officials described to determine whether DFAS recorded adjustments in accordance with established policies and procedures. For issues identified, we interviewed DOD officials to confirm our understanding and determined the reasons for the issues identified. To determine if DOD had designed and implemented internal controls over its accounting adjustment processes, we analyzed the information we obtained through the interviews and walk-throughs using relevant criteria, including the DOD FMR, the Treasury Financial Manual, and our Standards for Internal Control in the Federal Government. We also performed tests of controls on a random sample of 242 accounting adjustments from a population of 200,468 adjustments that DFAS recorded at the consolidated level that impacted the financial statements for the fourth quarter of fiscal year 2018. The selected adjustments were recorded in the Defense Departmental Reporting System (DDRS) Budgetary (DDRS-B), DDRS Audited Financial Statements (DDRS- AFS), and DDRS-AFS Beginning Balance Adjustment modules. From the DDRS-B and DDRS-AFS modules, we selected a random sample of 225 accounting adjustments, and from the DDRS-AFS Beginning Balance Adjustment module we selected all 17 accounting adjustments. From the three different sets of data, we stratified the selected accounting adjustments into six strata (see table 1). Of the total 242 adjustments, we selected all 17 adjustments in stratum 1, and 45 adjustments each from strata 2 through 6 for testing. We designed the sample to support estimation for all supported accounting adjustments with a margin of error no greater than plus or minus 11.7 percentage points at the 95 percent level of confidence, estimation for all unsupported accounting adjustments with a margin of error no greater than plus or minus 11.8 percentage points at the 95 percent level of confidence, and estimation overall for all accounting adjustments with a margin of error no greater than plus or minus 8.4 percentage points at the 95 percent level of confidence. 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 8 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. For the accounting adjustments in our sample that DOD considered supported, we reviewed underlying documentation to determine whether the adjustments were properly supported and contained all critical elements required by DOD policy. We then shared the results of testing with DOD and incorporated any applicable additional information DOD officials provided into our analysis, as appropriate. As part of our testing, we also reviewed documentation related to unsupported accounting adjustments selected in our sample and interviewed DFAS officials to determine if DOD had performed root cause analyses, developed action plans to address the identified causes, and taken any actions in response. We then shared the results of testing with DOD and incorporated any applicable additional information DOD officials provided into our analysis, as appropriate. To assess the reliability of the accounting adjustment information we received from DOD, we conducted interviews with relevant agency officials, compared summary-level dollar amounts and quantities to another DOD information source, performed electronic testing of the financial information, and reviewed related internal controls. On the basis of this work, we found the financial information to be sufficiently reliable to project results of our random sample testing to the population of accounting adjustments for the fourth quarter of fiscal year 2018. Margins of error varied depending on the specific stratum being projected and are disclosed with all estimates contained within the report. To determine the extent to which DOD has taken actions to reduce accounting adjustments recorded at the consolidated level that may affect the reliability of its financial information, we interviewed officials from DFAS and the OUSD (Comptroller) to identify initiatives aimed at reducing accounting adjustments. We further inquired about what tools DFAS used to measure its progress and analyzed summary metrics provided from fiscal years 2017 to 2018 to determine the effect of these efforts on the number of accounting adjustments recorded during these periods. We conducted this performance audit from November 2018 to January 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. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments <8. GAO Contact> <9. Staff Acknowledgments> In addition to the contact named above, Kimberley McGatlin (Assistant Director), Carl Barden, Rathi Bose, Veronica Cadiz-Rodriguez, Virginia Chanley, Benjamin Durfee, Patrick Frey, Maxine Hattery, Jason Kelly, Jason Kirwan, Zhen Li, John Lopez, Samuel Sawhook, Dacia Stewart, and Anne Thomas made key contributions to this report.

Why GAO Did This Study DOD remains the only major federal agency that has been unable to obtain a financial statement audit opinion. One of the contributing factors is DOD's large volume of nonroutine accounting adjustments, which are used for recording corrections or adjustments in an accounting system. This report examines accounting adjustments and their effect on the reliability of DOD's financial information, the extent to which DOD has established and implemented policies and procedures for recording accounting adjustments, and the extent to which DOD has taken actions to reduce adjustments recorded at the consolidated level. For this report, GAO reviewed DOD and DFAS's policies and procedures, interviewed DOD officials about the adjustment process, and reviewed initiatives to reduce the number of adjustments being recorded. GAO also selected a random sample of 242 adjustments recorded at the DOD consolidated level for the fourth quarter of fiscal year 2018 to determine whether the adjustments were recorded in accordance with established policies. What GAO Found While the use of accounting adjustments is a common practice, the Department of Defense's (DOD) reliance on a large volume of nonroutine adjustments to prepare its financial statements is primarily a result of deficient business processes and limitations in accounting systems that DOD components use to process financial information. For example, the Defense Finance and Accounting Service (DFAS) continues to rely on forced-balance adjustments to replace the financial information that DOD's components submit to force agreement with Department of the Treasury balances without reconciling and researching the cause of differences (see figure). The recording of these adjustments was identified as a material weakness in DOD's internal control over financial reporting in its fiscal year 2018 financial statement audit. GAO found that DOD and DFAS policies and procedures for accounting adjustments are insufficient, outdated, and inconsistently implemented. For example, DOD's current policies do not define what constitutes adequate supporting documentation for system-generated adjustments, nor have DOD and DFAS established policies for identifying the cause of the adjustments, developing and implementing action plans to reduce the need for adjustments, and monitoring the effectiveness of those action plans. Because DOD and DFAS are not ensuring that their policies and procedures are up-to-date and consistently implemented, there is an increased risk that inaccurate, invalid, or unapproved adjustments will be recorded in DOD's core financial reporting system, resulting in a misstatement in DOD's consolidated financial statements. DOD and DFAS have undertaken initiatives to address some of the issues that contribute to the need for adjustments. Both organizations have developed strategies to decrease adjustments; however, neither has developed specific outcomes or detailed procedures for achieving stated goals in the strategies. Without clear procedures on how to implement its initiatives and a complete understanding across DOD of the issues contributing to the need for accounting adjustments, there is an increased risk that management efforts to reduce adjustments at the DOD consolidated level will be inefficient and ineffective. What GAO Recommends GAO is making eight recommendations to DOD, which include updating and implementing policies and procedures on recording accounting adjustments and identifying steps to reduce the need for recording adjustments across the department. DOD agreed with all eight recommendations and cited actions to address them.

gao_GAO-19-388

gao_GAO-19-388_0

<1. Background> <1.1. Childhood Trauma> Trauma or adverse childhood experiences may include physical and sexual abuse, neglect, bullying, community-based violence, extreme poverty, the loss of a parent or primary caretaker, or natural disasters, among other things. These experiences may overwhelm a child s natural ability to cope and can cause stress reactions in children, including feelings of intense fear, terror, and helplessness. When children are exposed to chronic stressful events, their neurodevelopment can be disrupted. As a result, a child s cognitive functioning or ability to cope with negative or disruptive emotions may be impaired, causing long-term harm to their physical, social, and emotional well-being. These adverse effects may include changes in a child s emotional responses; ability to think, learn, and concentrate; impulse control; self-image; attachments to caregivers; and relationships with others. Traumatic experiences have been linked to a wide range of health-related conditions, including addiction, depression and anxiety, and risk-taking behavior, and may also increase the likelihood of chronic ill health conditions, such as obesity, diabetes, heart disease, cancer, and even early death. Not all children will experience all of these effects. Children s responses to traumatic events are unique and affected by many factors, including their age at the time of the event, the frequency and perceived severity of trauma, and the child s innate sensitivity, as well as protective factors such as the presence of positive relationships with healthy caregivers, physical health, and natural coping skills. While all children can be affected by trauma, trauma is common among children who enter the child welfare system. Many of these children have been abused or neglected, and involvement in the child welfare system, primarily through placements into a foster care home, may cause additional trauma due to the separation from family; changes in school placement, neighborhood, and community; as well as fear and uncertainty about the future. Child welfare experts generally believe that child welfare systems that use trauma-informed approaches are better able to address children s safety, permanency, and well-being needs. Although trauma-informed frameworks may vary, they generally include interventions as well as a change in culture; thus if an agency or organization is taking a trauma-informed approach, it is incorporating knowledge of trauma and its effects into its policies, procedures, and practices. A trauma-informed child welfare system may offer services to help identify and mitigate the effects of trauma, including screening and assessing children for trauma, and providing or referring children to services. These approaches may produce improved outcomes for children in the child welfare system, including fewer children requiring crisis services, such as residential treatment, and fewer foster home placements, placement disruptions, and reentries into foster care. Other trauma-informed approaches may result in reduced lengths of stay in foster care and improved child functioning and increased well-being. In addition to child welfare agencies, school staff and members of the school community can play a key part in recognizing and responding to children who have experienced trauma. In a 2017 report on child well- being, GAO reported that an expert noted that health and human service agencies are not the only entities needed to address child well-being and suggested that community stakeholders work together to determine what resources are needed for the children in their community. A trauma- informed school, characterized by an understanding and a commitment of teachers and staff to an awareness of how trauma affects students, is an example of a coordinated approach to trauma. Trauma-informed teachers and staff are aware of trauma s impact on students behavior, their relationships, their ability or inability to self-regulate behavior, and how it contributes to their classroom behavior. Specific elements of a trauma- informed school may include addressing and treating traumatic stress, developing partnerships with students and families, evaluating and revising school discipline policies and practices, and creating a trauma- informed learning environment. <1.2. Trauma Treatments and Approaches> Federal agencies, academic institutions, and community-based treatment centers have generated evidence-based trauma treatments that clinicians and therapists can use when working with children and their families. See table 1 for examples of treatments. Recent studies have also found that trauma-informed approaches that are infused into the practices and work of child welfare and school staff can help children, their families, and others. While these studies are limited in terms of the number of participants, they indicate the positive effects of including trauma-informed approaches into the work of child welfare staff and educators. For example, one study that used child welfare administrative data for about 1,500 children from Kansas found that implementing a trauma-informed approach was associated with improved child well-being and placement stability for children in foster care. Another study of two public child welfare agencies that involved 52 children, as well as child welfare staff, mental health providers, and foster parents and kinship caregivers, suggests, among other things, that fewer children exited foster homes for negative reasons, such as running away or moving to a group home, when families were trained in a trauma- informed approach. In addition, a study of 126 female youths residing in two treatment centers in Massachusetts suggests that the youth at the center receiving the trauma-informed approach experienced a reduction in post-traumatic stress disorder symptoms compared with the youth in the residential center that did not offer this approach. A study of five schools that adopted a trauma-sensitive approach also reported positive outcomes. For example, the study found a decrease in disciplinary actions, and staff at one school reported that the school felt safer and calmer. School staff also reported improved relations among colleagues and with students, as well as better relations between students and increased parent engagement. <2. HHS and Education Provide Grants, Disseminate Information, and Fund Training and Technical Assistance to Help State and Local Agencies Support Children Affected by Trauma> <2.1. HHS and Education Provide Multiple Sources of Funding That State and Local Agencies Can Use to Support Children Affected by Trauma> HHS s ACF and SAMHSA have awarded discretionary grants to states specifically to address childhood trauma. From 2011 to 2013, ACF awarded 20 state and local agencies and other organizations discretionary grants to address childhood trauma, according to ACF officials, totaling about $58 million. Each grantee, including two state child welfare agencies and a county agency as well as two universities in five of the six states we selected to review, received up to 5 years of funding. The grants were used to screen and refer children to treatment, implement or expand trauma-focused, evidence-based treatments, and bridge the gap between child welfare and mental health. According to HHS officials, funding for the last of these grants will end in September 2019. SAMHSA also awards discretionary grants specifically to address childhood trauma to state and local agencies, universities, and other organizations through an initiative to transform mental health care for children and adolescents affected by trauma. The National Child Traumatic Stress Network (NCTSN), a collaborative network of experts created through the National Child Traumatic Stress Initiative (NCTSI), conducts research on trauma treatment approaches and provides services to children affected by trauma. In fiscal year 2017, SAMHSA received over $48 million for the NCTSN, and it awarded four new grants and supported 82 5-year grant continuations through NCTSI. Officials that we spoke with from one state child welfare agency, three universities, and two nonprofits in four of the selected states received grants through this initiative. Several of these entities used these funds to train clinicians and educate other child serving professionals about trauma and mental health conditions. In addition to grants that were specifically meant to address childhood trauma, the selected states used other HHS discretionary grants to support children affected by trauma. For example, officials from five state education agencies in the selected states told us that they received SAMHSA s Project Advancing Wellness and Resilience Education (Project AWARE) grant. Wisconsin officials also said they received Education s School Climate Transformation Grant, which was used to create the state s trauma-sensitive schools initiative. Washington officials credited SAMHSA s Mental Health Transformation Grant with driving the state s initial trauma-informed work, including its guide about trauma in schools. State agency officials also reported using formula funds, meant for broad purposes like mental health, substance abuse, child welfare, and education, to support their work with children affected by trauma. Officials from five agencies in the selected states reported using formula funding from Title IV-E of the Social Security Act to help children affected by trauma. According to Colorado officials, the state s Title IV-E waiver has allowed child welfare workers to screen, assess, and provide interventions that are trauma-informed. Also, North Carolina officials told us that Title IV-E, combined with other funding sources, has helped pay for trauma-informed learning communities to help counties build trauma- informed programming. Two states reported using the Substance Abuse and Mental Health Block Grants. (See table 2 for additional grants states reported using to support children affected by trauma.) In addition to federal funding, officials in the six selected states reported receiving state funding to support children affected by trauma. For example, officials in North Carolina told us that, in 2013, the North Carolina General Assembly appropriated $1.8 million in annually recurring funds to train clinicians in evidence-based trauma treatments. Also, in Massachusetts, state funding may be used to create and support trauma- sensitive initiatives in schools, among other things. In addition to state funding, officials in three of the selected states reported using nonprofit funding to support their efforts. <2.2. HHS and Education Share Information and Fund Training and Technical Assistance to Help State and Local Agencies Support Children Affected by Trauma> HHS offers information and funds training and technical assistance to help state and local agencies support children affected by trauma. For example, state and local child welfare officials in each of the six selected states cited the National Child Traumatic Stress Network (NCTSN) as an important resource for information, training, or technical assistance. State and local officials in four of the selected states told us that they use the NCTSN s Child Welfare Trauma Training Toolkit curriculum to train their staff. The curriculum, designed to be completed in about 13 hours, covers topics such as the essential elements of a trauma-informed child welfare system, the impact of trauma on the brain and body, and the identification of trauma-related needs of children and families. Also, two state child welfare agencies told us that they use the Resource Parent Curriculum to train foster parents and others about trauma, and another used the Think Trauma curriculum to prepare trainers of group home and residential center staff; both curricula are provided through the NCTSN. In addition, the NCTSN makes other resources available to state and local communities on its website. For example, NCTSN offers fact sheets about various assessments and treatments, including those mentioned in table 1, as well as two evidence-based treatments for use in school settings. In addition to information and training provided through the NCTSN, in 2012, HHS s ACF issued guidance to encourage state child welfare directors to focus on improving behavioral and social-emotional outcomes for children who have experienced abuse or neglect. In 2013, SAMHSA, in collaboration with ACF and CMS, issued joint guidance to encourage the integrated use of trauma-focused screening, functional assessments, and evidence-based practices in child-serving settings. Also, in 2014, SAMHSA, in an effort to help service sectors, such as child welfare, education, and juvenile justice, become more trauma-informed, released Concept of Trauma and Guidance for a Trauma-Informed Approach. This document included a framework of key assumptions and principles of a trauma-informed approach. SAMHSA intended that the trauma framework be relevant to its federal partners and their state and local system counterparts and to practitioners, researchers, and trauma survivors, families, and communities. (See table 3.) In addition to the information and training and technical assistance referenced above, HHS and Education fund technical assistance centers and make other resources available to states, including: SAMHSA s National Center for Trauma-Informed Care and Alternatives to Seclusion and Restraint offers technical assistance to various publicly-funded systems and organizations on issues relating to trauma education, among other things. Education s Readiness and Emergency Management for Schools Technical Assistance Center helps local education agencies before, during, and after emergency situations. Among its various activities, this technical assistance center offers information and technical assistance to local education agencies and others on Psychological First Aid for Schools, which is an intervention model to assist students, staff, and families in the immediate aftermath of an emergency. Education s National Center on Safe Supportive Learning Environments as well as its Positive Behavioral Interventions and Supports Technical Assistance Center offer an array of materials about trauma and approaches to supporting children affected by it. ACF, through its Child Welfare Information Gateway website, provides information on building trauma-informed systems, assessing and treating trauma, and addressing secondary trauma in caseworkers. It also offers trauma resources for caseworkers, caregivers, and families, as well as information about trauma training. In some instances, the website directs users to SAMHSA or the NCTSN s website. <3. Selected States Use Various Approaches to Support Children Affected by Trauma> Officials we spoke with in the six selected states told us they used a variety of approaches to help staff understand trauma and its effects on children, identify children affected by trauma, and provide support to them. These approaches range from training child welfare workers, educators, and clinicians to screening children for symptoms caused by traumatic experiences. They also include developing support systems, including providing services, to children and their families who need more help. While we did not evaluate the effectiveness of the selected state and county initiatives, many of them incorporate key trauma principles and activities cited in the SAMHSA framework above. For additional information on examples of approaches taken in each selected state and in selected counties, see appendixes I and II. <3.1. Training> State and local child welfare and education agency officials in the six selected states use various approaches to train staff and birth and foster parents about trauma and its effects on children and families. Child welfare officials in two states, Wisconsin and North Carolina, told us that they use learning communities to train staff, and in some instances, foster parents. For example, North Carolina s child welfare agency used a learning community approach which included face-to-face training, as well as coaching and practice, over an extended period to work with child welfare staff in 32 of the state s 100 counties, according to a state official. In a 2016 agency report, state officials reported that the 9- to 12- month learning community process was designed to allow staff the time required to become steeped in trauma knowledge, to learn how to spread that knowledge into skills and practices, and to develop a sustainable program. Conversely, state and local education and child welfare officials in three states told us that they use online learning or university coursework to train staff. For example, Wisconsin education agency officials told us that they developed a three-tiered training, including online modules for educators and school staff. The modules are designed for self-study and, among other things, include guidance on making policies and procedures more trauma-sensitive, as well as information about the characteristics of safe, supportive learning environments. Also, Massachusetts state child welfare officials told us that they partnered with three universities to provide trauma-focused courses to child welfare workers, and local school officials told us that a university offers a graduate certificate in trauma and learning to area educators. corroborated, when possible, the information we received during our state and county interviews with relevant state documents. We provided officials the opportunity to review the content for accuracy and provide revisions or corrections. a 10-hour, self-paced webinar. According to Wisconsin s child welfare website, clinicians who complete the training are eligible for certification as TF-CBT therapists and can be listed on a national website of certified clinicians. Similarly, North Carolina s state child welfare agency, in partnership with a nonprofit organization, trains clinicians in four trauma- focused, evidence-based therapies, including TF-CBT and Parent-Child Interaction Therapy. Similar to the Wisconsin effort, over the course of a year, clinicians learn about these therapies and practice them with children and families. <3.2. Screening> While training staff and parents is important to broaden understanding of trauma and its impact on affected children, identifying these children is also key to helping them receive needed support, including trauma- focused treatment. State and local child welfare and education officials in five of the six selected states told us that they screen certain children to determine whether they have experienced trauma, are exhibiting symptoms of trauma, or need to be referred for a trauma-informed mental health assessment. For example, North Carolina and Washington child welfare officials told us they screen children for trauma when they enter the child welfare system. North Carolina counties that participated in the state s training efforts, described above, use two screening tools: one for children under age 6 and the other for those ages 6 through 21. The social worker, with input from the caregiver, completes the screening tool for children under age 6. Older children are asked questions about their exposure to trauma, including physical abuse, domestic violence, sexual abuse, and other traumatic events. According to the North Carolina child welfare agency, the trauma screen has a number of benefits for child welfare practice, including informing placement decisions for the youth, prioritizing children who might need to receive treatment quickly, and providing the mental health professional with a better understanding of a child s issues. Child welfare officials in Washington also reported integrating trauma screening into the state s child screening program, using a 2012 ACF trauma grant. Children and youth are screened within 30 days of placement in foster care if officials expect them to remain in care 30 days or more. With these grant funds, officials reported that Washington s child welfare agency added a tool to screen for children s trauma symptoms and developed a protocol that rescreens these children every 6 months. In addition, education agency officials from three states told us that schools have developed processes to identify students who may have experienced trauma. For example, one Wisconsin school district official told us that any staff member, family member, or student can refer a student for screening. This official explained that the school district formed school-based teams to review information, such as data on suspensions and class disruptions, to identify at-risk students. In addition to the screening process, the school district developed school-based and community mental health service partnerships at 23 schools where therapists provide mental health services, according to this official. <3.3. Support Systems> State and local child welfare and education agency officials in five of six selected states told us they have developed support systems, which can include providing services, to try to help children affected by trauma. For example, Colorado and Ohio child welfare agencies have spearheaded efforts to provide services and support to children who may have experienced trauma. The Colorado child welfare agency, as part of its system of care, uses an evidence- and team-based planning model, referred to as high-fidelity wraparound services, to manage care for children with or at risk of serious emotional disturbance and who are involved in multiple systems, such as the child welfare and juvenile justice systems. As part of these wraparound services, county child welfare staff and local service providers and professionals work with the family to create a plan for them and their children. A coordinator sets up meetings, oversees the plan, and makes sure all team members participate in achieving the plan s goals. In addition to the coordinator, a family advocate provides peer support, via weekly visits, to parents and caregivers of youth receiving wraparound services. In addition, depending on the needs of the child, wraparound services may include participating in a support group or meeting with a therapist or grief counselor, among other things. In Ohio, child welfare officials in two counties told us about a partnership that provides services to children and their families who have experienced trauma because of parents substance use disorder. As part of the program, children and parents are screened for trauma and may get referred for treatment and services. Families receive wraparound services that are provided by a caseworker and family peer mentor; the family peer mentor has personal experiences with addiction and is in recovery. In addition, state education agency officials in four selected states told us that they had at least one statewide effort administered by the state education agency to help support all children, including those affected by trauma. Colorado, Washington, and Wisconsin encourage schools to implement tiered systems of behavioral support, according to state officials. Tiered systems of support generally consist of three tiers of support: (1) universal supports that apply to all children; (2) specialized supports for smaller groups of children; and (3) supports for individual children who need intensive interventions. To implement the first tier, school staff support students in various ways, such as interacting with students and setting up a dedicated space in a classroom for students to regulate their behavior. The second tier may include convening small groups to help children with similar behavioral issues learn how to regulate their emotions, and the last tier may include intensive support for students who need more help, such as developing and implementing wraparound services plans. School district officials that we spoke with in Massachusetts told us that although they do not use tiered systems of behavioral support, they help children affected by trauma by employing practices to create safe classroom environments for all students, such as developing and building upon relationships and engaging students in structured conversations. <4. Child Welfare and Education Agencies in Selected States Identified Leadership and Capacity Limitations as Challenges to Supporting Children Affected by Trauma> <4.1. Officials in Selected States Reported That Leadership Is Important for Supporting Children Affected by Trauma> Officials in all six selected states spoke of the importance of having engaged leadership in establishing and sustaining support for children affected by trauma. They cited a wide range of leaders, including state government officials; managers and supervisors; and those in partner agencies, such as schools or nonprofits, who supported these states trauma efforts. In some cases, these leaders helped establish new trauma initiatives. For example, Wisconsin s former First Lady launched the work of a statewide, interagency trauma initiative. Additionally, Ohio county child welfare officials spoke about the value of obtaining management support for their plan to become a trauma-informed organization. In other cases, leaders were seen as important to sustaining trauma initiatives and ensuring their impact. In Massachusetts, university officials said that, to ensure the continued availability of evidence-based therapies, they train not only clinicians, but also the individuals who supervise them. Also, a county public health official in Washington, whose agency is implementing trauma initiatives in schools, told us that their efforts tend to be unsuccessful unless they first engage school leadership and align their health initiatives with the schools existing efforts. Federal officials and reports have also cited leadership as an important factor in the implementation of trauma initiatives, with some maintaining that leadership is necessary to support children affected by trauma because of the need to change an organization s culture. In 2013, NCTSN reported on takeaways from a learning collaborative in which nine teams led by child welfare agencies developed, implemented, and tested trauma-informed child welfare practices. Based on the experiences of the teams, the NCTSN report stated that strong and consistent leadership is necessary to implement trauma-informed practice because it requires a shift in organizational culture. SAMHSA s 2014 guidance for a trauma-informed approach similarly suggests that organizations consider the importance of leadership to initiate a systems- wide change. In addition, HHS officials, who worked with states on a series of trauma-related grants awarded between 2011 and 2013, also told us that leadership commitment was important for their grantees in building organizational and worker resiliency, acting upon data and evaluation, and sustaining initiatives. These documents and statements echo previous GAO work on organizational transformation; for example, in 2003 we reported on key practices found at the center of successful transformation efforts, noting that leadership must set the direction, pace, and tone and provide a clear, consistent rationale that brings everyone together behind a single mission. In addition to discussing the important role that leadership plays in establishing and sustaining support for children affected by trauma, officials in three states highlighted instances in which a lack of leadership hindered their efforts to support these children. The cases they described included delayed, incomplete, or unsuccessful implementation of trauma initiatives. Delayed implementation. Officials in one school district said they had developed policies around multi-tiered system of supports in 2009 but did not receive support from political leaders or funding for the initiative until 2016. They told us that this hindered the initiative s implementation. Incomplete implementation. State education officials in that same state said that a lack of leadership hindered their ability to track school districts implementation of the state s trauma initiatives. These officials said that a lack of requirements for districts to scale up trauma work was a barrier to collecting data on local activities. In another state, there was a county child welfare initiative to implement universal trauma screening which was conducted in partnership with a local university. The university reported that less than half of children with open cases were screened during the project period, which university officials attributed to some supervisors not supporting the screening initiative. Unsuccessful implementation. According to officials in a third state, turnover among high-level leaders contributed to difficulties integrating trauma-informed practices at the state s child welfare agency, and the agency was not successful at implementing a trauma screening process. <4.2. Child Welfare and Education Officials in Selected States Also Reported Capacity Limitations and Other Challenges to Supporting Children Affected by Trauma> <4.2.1. Capacity Limitations> Officials in all six selected states talked about limitations on their agency s or organization s capacity to support children affected by trauma. Limitations included high rates of staff turnover, limited staff time to focus on trauma, insufficient numbers of clinicians trained in trauma-focused, evidence-based therapies, and insufficient funding for trauma initiatives. Some agencies and organizations had taken actions to address these challenges. Secondary Traumatic Stress According to the National Child Traumatic Stress Network (NCTSN), Secondary Traumatic Stress (STS) is the emotional duress experienced when hearing about another person s traumatic experiences. Professionals working with children affected by trauma, such as child welfare workers, are commonly at risk of developing STS. STS can compromise these professionals ability to do their jobs and may drive them to leave their job or their professional field. NCTSN notes that several factors can increase the risk for developing STS, including heavy caseloads of children affected by trauma, social or organizational isolation, and feeling unprepared for the job due to lack of training. NCTSN suggests taking a multi- dimensional approach to STS, which includes both prevention and intervention. This could include strategies such as establishing self- care groups, helping workers maintain work- life balance, and training organizational leaders on STS. education agencies. Child welfare officials in all six states talked about high rates of staff turnover, while education officials did so in two states (Colorado and Wisconsin). Staff turnover resulted in difficulties maintaining staff trained in trauma-informed approaches and sustaining institutional trauma knowledge and trauma-related activities, according to officials. Colorado university officials partnering with a county child welfare agency said that staff turnover forced them to invest additional time in training replacement staff and made it more difficult for child welfare officials to conduct regular follow-ups. Similarly, one education official in another part of Colorado said that high turnover at many agencies, including education and child welfare, hindered the county s efforts to maintain institutional knowledge about trauma-informed practices and sustain the services these agencies were providing to children affected by trauma. Some state and local officials in three states attributed high rates of staff turnover to fatigue and secondary traumatic stress, which is the emotional duress that staff may experience when they hear about children s traumatic experiences (see sidebar). Some agencies said that they sought to address staff turnover by supporting employees through training on secondary traumatic stress; at least one agency in each of the six states offered such training. Officials from Ohio and Wisconsin told us that another way they were addressing the issue was by participating in an HHS-funded project to improve child welfare workforce outcomes. Many agencies also said they faced limitations on the time that staff could dedicate to trauma initiatives. This issue was more commonly raised by education agencies than by child welfare agencies. Education agency officials reported this limitation in three of four states that had education initiatives, whereas child welfare officials reported it in two of the six selected states. Some of these officials explained that lack of staff time to focus on trauma may have limited the implementation of their trauma initiatives. State education officials in Washington and local education officials in Massachusetts told us that they have the expertise to provide trauma training to schools and community groups, but time limitations restrict their ability to do so. A Colorado county child welfare official told us that some caseworkers see trauma screening as an additional burden due to their already large workload, and a child welfare official in another Colorado county told us that many caseworkers forget to do trauma screening because they are busy. At least one agency we interviewed in each of the six states has or had a staff position dedicated to trauma work, which could help address this limitation. Officials in all six selected states said that there were not enough clinicians trained in trauma-focused, evidence-based therapies to serve children affected by trauma. GAO has previously reported on difficulties finding specialty care for children. For example, in 2017 we found that limited access to mental health services was a challenge for several selected states due to a variety of factors, including insufficient numbers of providers in certain specialties, such as child psychiatrists. Some officials indicated that a shortage of clinicians trained in trauma-focused, evidence-based therapies can limit the ability of child welfare agencies to address trauma. For example, state child welfare officials in Massachusetts specifically noted that identifying children affected by trauma is not helpful if there are not enough clinicians trained in these therapies to treat them. County child welfare officials in Massachusetts and local healthcare partners in Ohio said that providers sometimes rely on interns to address the shortage of clinicians, but Massachusetts officials viewed this as problematic because interns have short tenures that prevent them from establishing relationships with the children. Officials in five of the six selected states told us about initiatives to address the shortage by training clinicians in trauma-focused, evidence- based therapies, and university officials in Massachusetts described an initiative to make trained clinicians more accessible. (See text box.) LINK-KID: A centralized trauma treatment referral service The Child Trauma Training Center at the University of Massachusetts Medical School trains clinicians and operates a centralized referral service called LINK-KID. The goal of LINK-KID is to facilitate connections between children in need of trauma-focused, evidence- based therapies and clinicians who have been trained to provide such therapies. LINK-KID maintains an active database of trained clinicians throughout the state of Massachusetts. University officials told us that anyone in Massachusetts with concerns about a child, including family, teachers, clinicians, and child welfare workers, may call the service. LINK-KID collects information about the child and family, works with them to decide which treatment is most appropriate, and ensures the child is referred for that treatment. University officials said that using LINK-KID is easier for families and child welfare workers, who otherwise might have to call multiple service providers to determine who offers the needed treatment and accepts their insurance. These officials also said they have seen a reduction in the time children must wait for treatment when using LINK-KID. They said that prior to LINK-KID, they saw many children waiting 6 months to a year to receive treatment after having been identified as having experienced trauma, whereas wait times are generally between 25 and 40 business days with LINK-KID. Finally, some agencies said they had difficulties getting or maintaining sufficient funding to support trauma initiatives. Officials in Washington, including, among others, state and local education officials and a local public health partner, reported this issue. In addition, local officials in four other states noted limited funding to support trauma initiatives. School district officials in Washington indicated that a lack of funding limited their implementation support for one major trauma initiative to approximately one-quarter of their schools. These schools were chosen based on need, as demonstrated by measures such as discipline and absenteeism rates. County child welfare officials in Ohio said they had to stop one of their trauma initiatives 3 years ago because the state funding supporting the initiative ran out. Those Ohio officials said they have relied on relationships and collaboration to address the issue of scarce funding. For example, they said that county organizations, including local government agencies, private healthcare providers, and nonprofits, share data extensively and pool funding to support various initiatives. One initiative they pointed to is a local interagency council which provides services to children affected by trauma. <4.2.2. Other Challenges> Child welfare and other officials in the six selected states, including officials with nonprofit partners, a state department of health, and a state interagency collaborative, also raised at least one other challenge. Challenges included sharing data while remaining in compliance with state and federal privacy laws; sharing data across incompatible systems; limitations on services billable to Medicaid; and Medicaid reimbursement rates. Some agencies had taken actions to address or avoid data sharing challenges. In the states where child welfare officials identified Medicaid- related challenges, state Medicaid officials offered a different perspective on perceived Medicaid challenges and cited alternative ways to support children affected by trauma. Officials in all six states talked about sharing data with other agencies for various purposes; however, privacy laws and regulations were sometimes cited by these officials as a barrier to sharing data about children affected by trauma. For example, officials in two Massachusetts school districts told us they are notified by police or child welfare workers when a child has been involved in an incident with those agencies. One official described the goal of this effort as making staff aware of incidents and events that may affect children s learning and behavior and ensuring that children feel supported. However, child welfare officials in four of the six selected states and other officials in two states said that it was difficult to share data while remaining in compliance with state and federal privacy and confidentiality laws and regulations, though the reasons they cited for these difficulties varied. State child welfare officials in Massachusetts told us that the state has strict privacy laws in addition to federal laws such as the Health Insurance Portability and Accountability Act of 1996. These officials said that data sharing is possible but generally requires a specific memorandum of understanding because of privacy laws. In contrast, a state child welfare official in North Carolina said they had difficulties with counties not understanding what data they are allowed to share. That official told us that the state tries to mitigate this challenge by helping counties understand what they can share and encouraging them to share screening information with mental health and medical providers. Additionally, a North Carolina university has published state-specific guidance on sharing education, mental health, and other records. Systems incompatibility and technology issues were also sometimes seen as barriers to sharing data about children affected by trauma. Child welfare officials in three of the six selected states, and state health officials in a fourth state, said that incompatibility among various systems made data sharing very difficult or impossible. For example, county officials in Wisconsin said that the state s child welfare and juvenile justice offices use one data reporting system while the state s mental and behavioral health offices use another, and these two statewide data systems are unable to communicate. While state child welfare officials in Colorado also reported systems incompatibility issues, county child welfare officials in that state talked about efforts to make data systems more accessible to relevant partners. Officials in one county said that they have a database which is accessible by all members of the county s multi- agency partnership, including child welfare, school districts, public health, and others. Those officials also said they use a universal release-of- information which includes all partner agencies, enabling them to share data at multi-agency meetings. Additionally, child welfare officials in Colorado, Ohio, and Massachusetts said that certain services for children affected by trauma or certain service providers were not billable to Medicaid, although Medicaid officials in these states offered a different perspective and cited alternative ways to support these children. Depending on the state, child welfare officials said they could not bill wraparound services, trauma assessments, transportation, or non-traditional therapies, such as animal therapy or community and relationship building. County child welfare officials in Ohio also mentioned restrictions on providers; they said that potential peer support specialists with a criminal background and interns could not bill Medicaid. However, Medicaid officials in these states generally said that such services were billable to Medicaid, and Ohio Medicaid officials said that interns and those with a criminal background could bill Medicaid, under certain circumstances. For example, they said that while certain severe criminal offenses, such as homicide, could exclude someone from providing services, those with lesser offenses could become eligible after a waiting period. Colorado and Ohio Medicaid officials we spoke with offered some alternative ways to use Medicaid to support children affected by trauma in cases where services could not be billed to Medicaid. For example, a Colorado Medicaid official and a child welfare official both said that Medicaid does not pay providers for travel time or mileage and that this can be a problem in rural areas; however, the state Medicaid official said that telehealth is available to address this issue and that reimbursement rates for services in rural areas can be higher to reflect the additional cost of travel. Finally, child welfare and Medicaid officials in Colorado and North Carolina also had different perspectives regarding Medicaid reimbursement rates. Child welfare and other officials in these states said that certain services for children affected by trauma, such as trauma assessments and trauma-focused, evidence-based therapies, are expensive, and that Medicaid reimbursement rates are too low to incentivize providers to offer these services. However, Colorado and North Carolina Medicaid officials explained that most children in Medicaid in their states receive mental health care through managed care, where the state pays a set rate per child to managed care organizations (MCOs) to provide or arrange for any mental health services a child may need, including trauma-related care. MCOs, in turn, reimburse providers for the services they deliver, and MCOs set the rates they pay providers for those services rather than the state. Medicaid officials in Colorado and North Carolina noted that MCOs have flexibility to negotiate rates with providers and may choose to reimburse at a higher rate. North Carolina Medicaid officials said that some MCOs in their state were reimbursing providers at a higher rate for comprehensive, trauma-informed mental health assessments, and a Colorado Medicaid official also noted that MCOs in their state may vary reimbursement rates based on provider availability, offering higher rates in areas where there are shortages. <5. Agency Comments> We provided a draft of this report to HHS and Education for review and comment. HHS did not provide written comments. Education provided technical comments, which were incorporated into the report as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretaries of HHS and Education, congressional committees, and other interested parties. In addition, this report will be available at no charge on the GAO website at https://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 IV. Appendix I: Selected State Information Appendix II: Selected County Information Appendix III: GAO Contact and Staff Acknowledgments <6. GAO Contact> <7. Staff Acknowledgments> In addition to the contact named above, Elizabeth Morrison (Assistant Director), Ramona L. Burton (Analyst-In-Charge), Isabella Guyott, and Robin Marion made significant contributions to this report. Also contributing to this report were Luqman Abdullah, Susan Aschoff, Sarah Cornetto, Kelsey Kreider, Hannah S. Locke, Jean McSween, Mimi Nguyen, Stacy Ouellette, Michelle Rosenberg, Almeta Spencer, Daren K. Sweeney, Shelia L. Thorpe, and Carolyn Yocom.

Why GAO Did This Study Trauma is a widespread, harmful, and costly public health problem, and its effects are especially detrimental to children. Any frightening, dangerous, or violent event that threatens a child or their loved ones can potentially be traumatic. While not every child who experiences trauma will suffer lasting effects, trauma significantly increases the risk of mental health problems, difficulties with social relationships and behavior, physical illness, and poor school performance. GAO was asked to review selected states' efforts to support children affected by trauma. This report describes (1) the assistance that HHS and Education provide to help state and local agencies support children affected by trauma; (2) how child welfare and education agencies in selected states support these children; and (3) the challenges these agencies have faced in selected states in supporting these children. GAO interviewed state and local officials in six states that were selected based on recommendations from subject-matter experts and federal officials, among other factors; administered a questionnaire to 16 state agencies in the selected states; interviewed federal officials from HHS and Education; and reviewed relevant federal, state, and local agency documents, such as reports and guidance. Although our findings cannot be generalized to all states, they provide insight into government support for children affected by trauma. GAO is not making recommendations in this report. What GAO Found The Department of Health and Human Services (HHS) and the Department of Education (Education) provide grants, disseminate information, and fund training and technical assistance to help state and local agencies support children affected by trauma. HHS's Administration for Children and Families and Substance Abuse and Mental Health Services Administration (SAMHSA) have awarded discretionary grants specifically to address childhood trauma. In addition, state and local officials reported making use of other discretionary grants from HHS and Education—as well as formula funds meant for broad purposes like mental health, substance abuse, child welfare, and education—to support their work with children affected by trauma. In terms of non-financial support, state and local officials in six selected states all referred to the National Child Traumatic Stress Network, which is funded by SAMHSA, as an important resource for information, training, and technical assistance. Both HHS and Education have also made other guidance and informational resources available to states. Officials in child welfare and education agencies in the six selected states reported using a range of approaches to help children affected by trauma, including training staff, screening children, and providing services and support systems. To train child welfare workers, educators, and birth and foster parents to understand trauma and its effects on children, agencies in the six selected states used various approaches, such as learning communities, which include in-person learning and coaching, and online courses. Several state child welfare agencies also used learning communities to train clinicians in trauma-focused therapies. In addition, child welfare and education agencies in five states used screening tools to identify children exposed to and exhibiting symptoms of trauma. Children identified as experiencing trauma are referred for a trauma-informed mental health assessment. Also, to help children affected by trauma, child welfare and education agencies in five of the six states provide support and services. For example, in one state, caseworkers provide specialized services, including weekly visits, to children and families. Officials in the six selected states reported facing various challenges in their efforts to support children affected by trauma, and they emphasized the importance of engaged leadership in establishing and sustaining support for these children. In three states, officials said that a lack of such leadership hindered their efforts, and they described cases that included delayed, incomplete, or unsuccessful implementation of initiatives. Officials in all six states also talked about limitations on their agency's capacity to support children affected by trauma, including: high rates of staff turnover, especially in child welfare; limited staff time to dedicate to trauma initiatives; lack of clinicians trained in trauma-focused therapies; and insufficient funding to support trauma initiatives. Officials in some states reported strategies they have used to help address these challenges, including providing additional support to employees and coordinating with partner agencies to jointly leverage resources, expertise, and data.