GAO 07 310 High Risk Series: An Update
United States Government Accountability Office
GAO
January 2007
HIGH-RISK SERIES
An Update
GAO-07-310
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights
An Update
Highlights of GAO-07-310, a report to
Congress on GAO’s High-Risk Series
Why GAO Did This Report
What GAO Found
GAO’s audits and evaluations
In its January 2005 update, GAO identified 25 high-risk areas and, in March
identify federal programs and
2006, added a 26th area. Since 2005, progress has been made in all areas,
operations that, in some cases, are
although the extent varies by area. Both the executive branch and Congress
high risk due to their greater
have shown a continuing commitment to addressing high-risk challenges and
vulnerabilities to fraud, waste,
taken steps to help correct several of their root causes. High-risk areas were
abuse, and mismanagement. In
also among the suggested areas for oversight for the 110th Congress that
recent years, GAO also has
identified high-risk areas to focus
GAO recently provided to congressional leadership. Sufficient progress has
on the need for broad-based
been made to remove the high-risk designation from two areas: U.S. Postal
transformations to address major
Service transformation efforts and long-term outlook and HUD single-family
economy, efficiency, or
mortgage insurance and rental housing assistance programs. Other areas
effectiveness challenges. Since
made significant progress, but not enough to be removed from the list this
1990, GAO has periodically
cycle. Continued attention from the executive branch and Congress is
reported on government operations
needed to make additional progress in other high-risk areas.
it has designated as high risk. In
this 2007 update for the 110th
This year, GAO is designating three new high-risk areas. The first new area—
Congress, GAO presents the status
critical to the nation’s economic development—involves transportation
of high-risk areas identified in 2005
financing and capacity. Revenues to support federal transportation trust
and new high-risk areas warranting
funds are eroding at a time when investment is needed to expand capacity to
attention by Congress and the
address congestion caused by increasing passenger and freight travel. Given
executive branch. Lasting solutions
these problems, Congress and, for some issues, the Department of
to high-risk problems offer the
Transportation should reassess the federal role, revenue increase
potential to save billions of dollars,
dramatically improve service to the
mechanisms, and funding allocations to better position the federal
public, strengthen confidence and
government to address financing and capacity challenges.
trust in the performance and
The second area involves effective protection of technologies critical to U.S.
accountability of the U.S.
government, and ensure the ability
national security. Technologies that underpin U.S. economic and military
of government to deliver on its
strength continue to be targets for theft, espionage, reverse engineering, and
promises.
illegal export. Government programs established decades ago to protect
critical technologies are ill-equipped to weigh competing U.S. interests as the
What Remains to Be Done
security environment and technological innovation continue to evolve in the
21st century. Accordingly, we are designating the effective identification and
This report contains GAO’s views
protection of critical technologies as a governmentwide high-risk area that
on what remains to be done to
warrants a strategic re-examination of existing programs to identify needed
bring about lasting solutions for
changes and ensure the advancement of U.S. interests.
each high-risk area. Perseverance
by the executive branch in
The third area being designated as high risk involves federal oversight of
implementing GAO’s recommended
food safety because of risks to the economy and to public health and safety.
solutions and continued oversight
Agriculture, as the largest industry and employer in the United States,
and action by Congress are both
essential to achieving and
generates more than $1 trillion in economic activity annually. Any food
sustaining progress.
contamination could undermine consumer confidence in the government’s
ability to ensure the safety of the U.S. food supply, as well as cause severe
economic consequences. The current fragmented federal system has caused
inconsistent oversight, ineffective coordination, and inefficient use of
www.gao.gov/cgi-bin/getrpt?GAO-07-310.
resources. GAO has recommended that Congress consider a fundamental re-
examination of the system and other improvements to help ensure the rapid
To view the full product, click on the link
above. For more information, contact
detection of and response to any accidental or deliberate contamination of
George H. Stalcup at (202) 512-9490 or
food before public health and safety is compromised.
stalcupg@gao.gov.
United States Government Accountability Office
GAO’s 2007 High-Risk
List
2007 High-Risk Areas
Addressing Challenges In Broad-Based Transformations
• Strategic Human Capital Managementa
• Managing Federal Real Propertya
• Protecting the Federal Government’s Information Systems and the Nation’s Critical
Infrastructures
• Implementing and Transforming the Department of Homeland Security
• Establishing Appropriate And Effective Information-Sharing Mechanisms to Improve
Homeland Security
• DOD Approach to Business Transformationa
• DOD Business Systems Modernization
• DOD Personnel Security Clearance Program
• DOD Support Infrastructure Management
• DOD Financial Management
• DOD Supply Chain Management
• DOD Weapon Systems Acquisition
• FAA Air Traffic Control Modernization
• Financing the Nation’s Transportation System a (New)
• Ensuring the Effective Protection of Technologies Critical to U.S. National Security
Interestsa (New)
• Transforming Federal Oversight of Food Safety a (New)
Managing Federal Contracting More Effectively
• DOD Contract Management
• DOE Contract Management
• NASA Contract Management
• Management of Interagency Contracting
Assessing the Efficiency and Effectiveness of Tax Law Administration
• Enforcement of Tax Lawsa
• IRS Business Systems Modernization
Modernizing and Safeguarding Insurance and Benefit Programs
• Modernizing Federal Disability Programsa
• Pension Benefit Guaranty Corporation Single-Employer Pension Insurance Program
• Medicare Programa
• Medicaid Programa
• National Flood Insurance Programa
Source: GAO.
aLegislation is likely to be necessary, as a supplement to actions by the executive branch, in order to
effectively address this high-risk area.
Contents
Letter
1
Historical Perspective
4
High-Risk Designations Removed
9
U.S. Postal Service’s Transformation Efforts and Long-Term
Outlook 9
HUD’s Single-Family Mortgage Insurance and Rental Housing
Assistance Programs
11
New High-Risk Areas
16
Financing the Nation’s Transportation System
16
Ensuring the Effective Protection of Technologies Critical to U.S.
National Security Interests
20
Transforming Federal Oversight of Food Safety
26
Progress Being Made in Other High-Risk Areas
32
Highlights for Each High-Risk Area
38
Tables
Table 1: Changes to GAO’s High-Risk List, 1990 to 2007
4
Table 2: Areas Removed from GAO’s High-Risk List, 1990-2007
5
Table 3: Year That Areas on GAO’s 2007 High-Risk List Were
Designated as High Risk
6
Table 4: U.S. Government Programs for the Identification and
Protection of Critical Technologies
21
Figure
Figure 1: Current Highway Trust Fund Year-End Balance Forecasts
17
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GAO-07-310 High-Risk Update
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GAO-07-310 High-Risk Update
Comptroller General
of the United States
United States Government Accountability Office
Washington, DC 20548
January 2007
The President of the Senate
The Speaker of the House of Representatives
Since 1990, GAO has periodically reported on government programs and
operations that it identifies as “high risk.” This effort, which is supported
by the Senate Committee on Homeland Security and Governmental Affairs
and the House Committee on Oversight and Government Reform, has
brought a much needed focus to a targeted list of major challenges that are
impeding effective government and costing the government billions of
dollars each year. To help improve these high-risk operations, GAO has
made hundreds of recommendations. Moreover, GAO’s focus on high-risk
problems contributed to Congress enacting a series of governmentwide
reforms to address critical human capital challenges, strengthen financial
management, improve information technology practices, and instill a more
effective, credible, and results-oriented government.
GAO’s high-risk status reports are provided at the start of each new
Congress to help in setting congressional oversight agendas. These reports
also help Congress and the executive branch carry out their
responsibilities while improving the government’s performance and
enhancing its accountability for the benefit of the American people. In this
regard, I recently provided congressional leadership with a set of
recommendations based on GAO’s work, including work on areas we have
designated as high risk, for its consideration in developing the oversight
agenda of the 110th Congress. Together, the high-risk update and the
recommendations for oversight can help congressional decision makers
focus on the key management challenges facing the nation.
The nation also continues to face broader policy challenges associated
with the current long-term fiscal imbalance and other key sustainability
challenges, as well as the need to ensure the federal government is
transparent, economical, efficient, effective, ethical, and equitable.
Addressing these challenges will require Congress to make tough choices
that fundamentally re-examine and transform the government to be more
effective in the 21st century. The infrastructure to support these decisions
is not fully in place, and focused attention by the legislative and executive
branches is needed to make progress. In this regard, in the coming
months, I plan to highlight the set of tools needed to support more
strategic decision making related to these broader challenges facing our
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GAO-07-310 High-Risk Update
nation. These tools will center on expanding the governmentwide focus
on results; improving transparency through better financial and
performance management reporting; building structures and processes
that facilitate more strategic, systemic, and integrated solutions; and
transforming federal organizations, functions, and operations.
This report summarizes progress made in correcting high-risk problems,
actions under way, and further actions that GAO believes are needed. In
addition, GAO has determined that sufficient progress has been made to
remove the high-risk designation from two areas: the U.S. Postal Service’s
transformation efforts and long-term outlook, and the Department of
Housing and Urban Development’s single-family mortgage insurance and
rental housing assistance programs. GAO has also designated three new
areas as high risk: financing the nation’s transportation system, ensuring
the effective protection of technologies critical to U.S. national security
interests, and transforming federal oversight of food safety. Furthermore,
the Department of Defense (DOD) continues to dominate the high-risk list.
Specifically, DOD has eight of its own high-risk areas and shares
responsibility for seven governmentwide high-risk areas.
In recent years, GAO’s high-risk program has increasingly focused on
those major programs and operations that need urgent attention and
transformation in order to ensure that our national government functions
in the most economical, efficient, and effective manner possible. Further,
the administration has looked to GAO’s program in shaping
governmentwide initiatives such as the President’s Management Agenda;
and more recently, the administration undertook an effort to encourage
agencies to develop corrective action plans for high-risk areas. As in prior
GAO high-risk update reports, federal programs and operations are also
emphasized when they are at high risk because of their greater
vulnerabilities to fraud, waste, abuse, and mismanagement. In addition,
some of these high-risk agencies, programs, or policies are in need of
transformation, and several items will require action by both the executive
branch and Congress. Our objective for the high-risk list is to bring
visibility and urgency to these areas in order to prompt needed actions
sooner rather than later.
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GAO-07-310 High-Risk Update
Copies of this update are being sent to the President, the congressional
leadership, other Members of Congress, the Director of the Office of
Management and Budget, and the heads of major departments and
agencies.
David M. Walker
Comptroller General
of the United States
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GAO-07-310 High-Risk Update
Historical Perspective
Historical Perspective
In 1990, GAO began a program to report on government operations that we
identified as “high risk.” Since then, generally coinciding with the start of
each new Congress, we have periodically reported on the status of
progress to address high-risk areas and updated our high-risk list. Our
most recent high-risk update was in January 2005.1
Overall, our high-risk program has served to identify and help resolve
serious weaknesses in areas that involve substantial resources and provide
critical services to the public. Since our program began, the government
has taken high-risk problems seriously and has made long-needed progress
toward correcting them. In some cases, progress has been sufficient for us
to remove the high-risk designation. A summary of changes to our high-
risk list over the past 17 years are shown in table 1. Areas removed from
the high-risk list over that same period are shown in table 2. The areas on
GAO’s 2007 high-risk list, and the year each was designated as high risk,
are shown in table 3.
Table 1: Changes to GAO’s High-Risk List, 1990 to 2007
Number of areas
Original high-risk list in 1990
14
High-risk areas added since 1990
33
High-risk areas removed since 1990
18
High-risk areas consolidated since 1990
2
High-risk list in 2007
27
Source: GAO.
1GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).
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GAO-07-310 High-Risk Update
Historical Perspective
Table 2: Areas Removed from GAO’s High-Risk List, 1990-2007
Year
Year
designated
Area
removed high risk
Federal Transit Administration Grant Management
1995
1990
Pension Benefit Guaranty Corporation
1995
1990
Resolution Trust Corporation
1995
1990
State Department Management of Overseas Real Property
1995
1990
Bank Insurance Fund
1995
1991
Customs Service Financial Management
1999
1991
Farm Loan Programs
2001
1990
Superfund Program
2001
1990
National Weather Service Modernization
2001
1995
The 2000 Census
2001
1997
The Year 2000 Computing Challenge
2001
1997
Asset Forfeiture Programs
2003
1990
Supplemental Security Income
2003
1997
Student Financial Aid Programs
2005
1990
Federal Aviation Administration Financial Management
2005
1999
Forest Service Financial Management
2005
1999
HUD Single-Family Mortgage Insurance and Rental Housing
2007 1994
Assistance Programs
U.S. Postal Service Transformation Efforts and Long-Term
2007 2001
Outlook
Source: GAO.
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GAO-07-310 High-Risk Update
Historical Perspective
Table 3: Year That Areas on GAO’s 2007 High-Risk List Were Designated as High
Risk
Year
designated
Area
high risk
Medicare Program
1990
DOD Supply Chain Management
1990
DOD Weapon Systems Acquisition
1990
DOE Contract Management
1990
NASA Contract Management
1990
Enforcement of Tax Laws
1990
DOD Contract Management
1992
DOD Financial Management
1995
DOD Business Systems Modernization
1995
IRS Business Systems Modernization
1995
FAA Air Traffic Control Modernization
1995
Protecting the Federal Government’s Information Systems and the
1997
Nation’s Critical Infrastructures
DOD Support Infrastructure Management
1997
Strategic Human Capital Management
2001
Medicaid Program
2003
Managing Federal Real Property
2003
Modernizing Federal Disability Programs
2003
Implementing and Transforming the Department of Homeland Security
2003
Pension Benefit Guaranty Corporation Single-Employer Pension
2003
Insurance Program
Establishing Appropriate and Effective Information-Sharing Mechanisms
2005
to Improve Homeland Security
DOD Approach to Business Transformation
2005
DOD Personnel Security Clearance Program
2005
Management of Interagency Contracting
2005
National Flood Insurance Program
2006
Financing the Nation’s Transportation System
2007
Ensuring the Effective Protection of Technologies Critical to U.S. National 2007
Security Interests
Transforming Federal Oversight of Food Safety
2007
Source: GAO.
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GAO-07-310 High-Risk Update
Historical Perspective
Over the years, 18 areas have been removed from the high-risk list. Eight
of these were among the 14 programs and operations we determined to be
high risk at the outset of our efforts to monitor such programs. These
results demonstrate that the sustained attention and commitment by
Congress and agencies to resolve serious, long-standing high-risk
problems have paid off, as root causes of the government’s exposure for
more than half of our original high-risk list have been successfully
addressed.
Historically, high-risk areas have been so designated because of traditional
vulnerabilities related to their greater susceptibility to fraud, waste, abuse,
and mismanagement. As our high-risk program has evolved, we have
increasingly used the high-risk designation to draw attention to areas
associated with broad-based transformations needed to achieve greater
economy, efficiency, effectiveness, accountability, and sustainability of
selected key government programs and operations. Perseverance by the
executive branch is needed in implementing our recommended solutions
for addressing these high-risk areas. Continued congressional oversight
and, in some cases, additional legislative action will also be key to
achieving progress, particularly in addressing challenges in broad-based
transformations.
To determine which federal government programs and functions should be
designated high risk, we use our guidance document, Determining
Performance and Accountability Challenges and High Risks.2 In
determining whether a government program or operation is high risk, we
consider whether it involves national significance or a management
function that is key to performance and accountability. We also consider
whether the risk is:
•
an inherent problem, such as may arise when the nature of a program
creates susceptibility to fraud, waste, and abuse, or
•
a systemic problem, such as may arise when the programmatic;
management support; or financial systems, policies, and procedures
established by an agency to carry out a program are ineffective, creating a
material weakness.
2GAO, Determining Performance and Accountability Challenges and High Risks,
GAO-01-159SP (Washington, D.C.: November 2000).
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GAO-07-310 High-Risk Update
Historical Perspective
Further, we consider qualitative factors, such as whether the risk
•
involves public health or safety, service delivery, national security,
national defense, economic growth, or privacy or citizens’ rights, or
•
could result in significantly impaired service; program failure; injury or
loss of life; or significantly reduced economy, efficiency, or effectiveness.
In addition, we also consider the exposure to loss in monetary or other
quantitative terms. At a minimum, $1 billion must be at risk in areas such
as the value of major assets being impaired; revenue sources not being
realized; major agency assets being lost, stolen, damaged, wasted, or
underutilized; improper payments; and contingencies or potential
liabilities.
Before making a high-risk designation, we also consider corrective
measures planned or under way to resolve a material control weakness
and the status and effectiveness of these actions.
When legislative and agency actions, including those in response to our
recommendations, result in significant and sustainable progress toward
resolving a high-risk problem, we remove the high-risk designation. Key
determinants here include a demonstrated strong commitment to and top
leadership support for addressing problems, the capacity to do so, a
corrective action plan, and demonstrated progress in implementing
corrective measures.
The next section discusses how we applied our criteria in determining
what high-risk designations to remove and what to add for our 2007
update.
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GAO-07-310 High-Risk Update
High-Risk Designations Removed
High-Risk Designations Removed
For our 2007 high-risk update, we determined that sufficient progress has
been made to warrant removing two areas from the high-risk list: the U.S.
Postal Service’s transformation efforts and long-term outlook and the
Department of Housing and Urban Development’s (HUD) single-family
mortgage insurance and rental housing assistance programs. As we have
with areas previously removed from the high-risk list, we will continue to
monitor these programs, as appropriate, to ensure that the improvements
we have noted are sustained.
In 2001, we designated the Postal Service’s (Service) transformation
U.S. Postal Service
efforts and long-term outlook as high risk because the Service’s financial
Transformation
outlook had deteriorated significantly. The Service had a projected deficit
of $2 billion to $3 billion, severe cash flow pressures, its debt was
Efforts and Long-
approaching the statutory borrowing limit; cost growth was outpacing
Term Outlook
revenue increases; and productivity gains were limited. Other challenges
the Service faced included liabilities that exceeded assets by $3 billion at
the end of fiscal year 2002; major liabilities and obligations estimated at
close to $100 billion; a restructuring of the workforce due to impending
retirements and operational changes; and long-standing labor-management
relations problems. We were also concerned that the Service had no
comprehensive plan to address its financial, operational, or human capital
challenges, including how it planned to reduce its debt, and it did not have
adequate financial reporting and transparency that would allow the public
to understand changes in its financial situation. Thus, we recommended
that the Service develop a comprehensive plan, in conjunction with other
stakeholders, that would identify the actions needed to address its
challenges and provide publicly available quarterly financial reports with
sufficient information to understand the Service’s current and projected
financial condition. As the Service’s financial difficulties continued in
2002, we concluded that the need for a comprehensive transformation of
the Service was more urgent than ever. The Service’s basic business
model, which assumed that rising mail volume would cover rising costs
and mitigate rate increases, was outmoded as mail volumes stagnated or
deteriorated in an increasingly competitive environment. We called for
Congress to act on comprehensive postal reform legislation.
In our January 2003 high-risk report, we noted that the Service had made
progress by issuing a Transformation Plan in April 2002 and was beginning
to implement the plan. However, no consensus had been reached on the
Service’s future, and we continued to have concerns about its financial
outlook. Subsequently, the Service gained some financial breathing room
primarily because legislation enacted in April 2003 reduced the Service’s
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High-Risk Designations Removed
payments for its pension obligations, which allowed the Service to achieve
record net income, repay debt, and delay rate increases until January 2006.
In addition, a presidential commission issued a report in July 2003 with a
proposed future vision for the Service and recommendations to ensure the
viability of postal services, and Congress considered proposed postal
reform legislation.
Since 2003, the Service has continued to make progress in addressing its
financial and human capital challenges, it improved its financial reporting
by instituting quarterly financial reports, and it updated its Transformation
Plan in September 2005. At the end of fiscal year 2005, the Service had
paid off its debt. In addition, as of the end of fiscal year 2006, it had
achieved 7 consecutive years of productivity gains, positive net income for
fiscal years 2003 through 2006, more than $5 billion in cost savings since
2001, and it reduced its complement by 95,000 since 2001. Also, in
December 2006, the Service reached tentative compensation contract
agreements, subject to ratification by union members, with three of its
four major unions. Very importantly, significant progress was also made
when Congress enacted comprehensive postal reform legislation in
December 2006, which provides a framework for modernizing the
Service’s rate-setting processes and addresses the Service’s long-term
financial obligations by returning responsibility for employees’ military
pension benefits to the U.S. Treasury and establishing a mechanism for
prefunding retiree health benefits.
The Postal Service’s management has demonstrated a commitment to
implementing the Transformation Plan and addressing many of the
financial and human capital challenges it faces. Also, the new postal
reform legislation gives the Service additional pricing flexibility and allows
it to retain earnings, which provide additional mechanisms to address
continuing challenges related to the Service’s increasingly competitive
environment, given new and emerging technologies. These continuing
challenges include (1) generating sufficient revenues as First-Class Mail
volume declines and the changing mail mix provides less revenue
contribution than First-Class Mail, (2) controlling costs as compensation
and benefit costs rise, (3) continuing work-hour reductions while
maintaining service, (4) optimizing its infrastructure and workforce to
reduce costs and improve operational efficiency, and (5) providing reliable
data to assess performance.
Some of the Service’s challenges relate to governmentwide challenges that
remain on our high-risk list, such as strategic human capital management
and managing federal real property. In the human capital area, the Service
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High-Risk Designations Removed
continues to faces challenges related to managing workforce changes due
to retirements and network consolidations and implementing
performance-based compensation systems. In the real property area,
significant challenges remain related to how the Service is planning and
implementing infrastructure realignment to reduce excess capacity as well
as reflect changes in operations. Further challenges persist related to the
Service’s identification and disposal of excess property. We plan to closely
monitor these challenges to ensure that they are addressed. We will also
monitor the implementation of the postal reform legislation to determine
how the results and impacts compare with legislative intentions.
In 1994, we designated the U.S. Department of Housing and Urban
HUD Single-Family
Development (HUD) as high risk because of fundamental management and
Mortgage Insurance
organizational problems that put billions of dollars in insured mortgages
and housing and community development assistance at risk. In 2001, we
and Rental Housing
narrowed the high-risk designation to HUD’s single-family mortgage
Assistance Programs
insurance and rental housing assistance programs because progress was
made overall, but significant and persistent problems in these two
program areas remained. Consistent with this designation, four of the five
material weaknesses cited in the audit report on HUD’s fiscal year 2001
financial statements related to these programs. Under these programs,
HUD manages more than $400 billion in insured mortgages and annually
spends about $30 billion to subsidize rents for lower-income households.
To accomplish this, HUD relies on thousands of intermediaries, including
lenders, appraisers, property management contractors, public housing
agencies, and multifamily property owners. Historically, weaknesses in
HUD’s oversight of these entities have made the programs vulnerable to
fraud, waste, and abuse. For example, in prior high-risk updates we noted
that deficiencies in HUD’s approval, monitoring, and enforcement efforts
for lenders and appraisers increased the risk of insurance losses. In the
rental assistance program area, we reported that problems with HUD’s
monitoring of public housing agencies and multifamily property owners
contributed to billions of dollars in improper rent subsidy payments (i.e.,
payments that were too high or too low).
In our January 2005 high-risk update, we reported that HUD had
demonstrated commitment to and progress in addressing weaknesses in
the two high-risk program areas but that some of HUD’s corrective actions
were in the early stages of implementation and additional steps were
needed to resolve ongoing problems. For example, in the single-family
mortgage insurance area, we reported that HUD had improved its
oversight of lenders and appraisers and issued or proposed regulations to
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High-Risk Designations Removed
strengthen lender accountability and combat predatory lending practices.
However, we also noted that HUD continued to grant loan underwriting
authority to lenders that had not met the agency’s performance standards,
and that weaknesses in HUD’s process for paying single-family property
management contractors made the agency vulnerable to questionable and
potentially fraudulent payments. In the rental housing assistance program
area, we reported that HUD made progress in reducing improper rental
assistance payments. However, we also noted that HUD had not fully
implemented a critical part of its efforts to reduce improper rental
assistance payments—the verification of tenant incomes using a Web-
based data system—and it was uncertain whether the agency would be
able to sustain the reductions it had already achieved. HUD had also made
progress in ensuring that HUD-assisted housing met the agency’s physical
condition standards.
Since 2005, HUD has continued to demonstrate a commitment to and
capacity for resolving risks, develop corrective action plans, institute
programs to monitor and evaluate the effectiveness of corrective
measures, and demonstrate progress in implementing corrective
measures. For example, HUD has continued to take actions to address
long-standing problems in its single-family mortgage insurance programs,
and has addressed more recently identified problems. More specifically:
•
In accordance with our recommendations, HUD has made progress in
implementing its corrective action plan for improving oversight of lenders.
Specifically, HUD has developed and implemented new and clearer
guidance for granting lenders underwriting authority. HUD has hired a
contractor to review the implementation of the new guidance and plans to
conduct additional monitoring through periodic internal reviews.
Additionally, in 2005, HUD modified its system for rating the underwriting
quality of loans in a way intended to focus more on underwriting errors
that are likely to affect HUD’s insurance risk.3
•
HUD made substantial progress in implementing its corrective action plan
to address weaknesses we identified in its process for paying single-family
property management contractors.4 For example, in response to our
3GAO, Single-Family Housing: Progress Made, but Opportunities Exist to Improve
HUD’s Oversight of FHA Lenders, GAO-05-13 (Washington, D.C.: Nov. 12, 2004).
4GAO, HUD Single-Family and Multifamily Property Programs: Inadequate Controls
Resulted in Questionable Payments and Potential Fraud, GAO-04-390 (Washington, D.C.:
Mar. 3, 2004).
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High-Risk Designations Removed
recommendations, HUD has developed a financial control manual that
contains internal control procedures and policies, including strict
documentation requirements, for HUD field staff to use in reviewing and
approving payments. To ensure the effectiveness of these corrective
measures, HUD retained an independent public accountant to periodically
review the performance of the property managers and test HUD field
offices for compliance with the internal control policies and procedures.
•
In September 2005, we reported that HUD consistently underestimated the
subsidy costs for its single-family mortgage insurance program.5 To more
reliably estimate program costs, we recommended that HUD study and
report in the annual actuarial review of its insurance fund the impact of
variables not in the agency’s loan performance models that have been
found in other studies to influence credit risk. Consistent with our
recommendation, a HUD contractor incorporated variables for down-
payment assistance and borrower credit history into the actuarial review.
According to HUD, the contractor will continue to improve the forecasting
ability of the models as necessary using research and development funds
provided for in the contract. The audit report on HUD’s fiscal year 2006
financial statements eliminated the agency’s only two outstanding material
weaknesses because of the improvements HUD made to its process for
estimating subsidy costs.
•
In an April 2006 report, we cited factors limiting the effectiveness of
HUD’s mortgage scorecard (an automated tool that evaluates the default
risk of borrowers).6 In response to our recommendations, HUD developed
a policy and procedures manual that calls for annual (1) monitoring of the
scorecard’s ability to predict loan default, (2) testing of additional
predictive variables to include in the scorecard, and (3) updating the
scorecard with recent loan performance data.
HUD has also taken actions to address the remaining problems in its rental
housing assistance programs. For example:
•
HUD continued to reduce the amount of improper rent subsidies and
exceeded goals set in The President’s Management Agenda, Fiscal Year
2002. HUD’s goal for fiscal year 2005 was to reduce improper rent
5GAO, Mortgage Financing: FHA’s $7 Billion Reestimate Reflects Higher Claims and
Changing Loan Performance Estimates, GAO-05-875 (Washington, D.C.: Sept. 2, 2005).
6GAO, Mortgage Financing: HUD Could Realize Additional Benefits from Its Mortgage
Scorecard, GAO-06-435 (Washington, D.C.: Apr. 13, 2006).
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subsidies by 50 percent, compared with fiscal year 2000, when HUD paid
an estimated $2.2 billion in improper subsidies. HUD exceeded this goal by
reducing estimated improper subsidies to $925 million in fiscal year 2005, a
decline of 58 percent. Although the amount of improper subsidies is still
sizable, because of this progress the audit report on HUD’s fiscal year 2005
financial statements eliminated a long-standing material weakness related
to oversight and monitoring of subsidy calculations. In accordance with
the Improper Payments Information Act of 2002, HUD plans to continue
monitoring the effectiveness of its corrective actions by making annual
estimates of improper payments.
•
In 2006, HUD executed an important part of its plan for reducing improper
rental assistance payments by implementing a Web-based system that
provides public housing agencies with an efficient method for validating
the incomes of families receiving assistance. This system, which HUD also
plans to implement for multifamily property owners, utilizes a database
containing wage, unemployment, and new hire information compiled by
the Department of Health and Human Services. HUD expects that the
system will avoid an estimated $6 billion in improper rent subsidies over
10 years.
•
In response to our recommendations, HUD made on-site reviews of public
housing agencies’ compliance with policies for determining rent subsidies
a permanent part of its oversight activities.7 Beginning in fiscal year 2006,
HUD committed resources to review 275 public housing agencies annually.
HUD also developed and implemented a system designed to collect
complete and consistent information from these reviews to help focus
corrective actions where needed.
•
HUD has continued to monitor the physical condition of HUD-assisted
housing, and its assessments indicate a substantial level of compliance
with the agency’s physical standards. HUD physical inspections showed
that in fiscal years 2005 and 2006, about 94 percent of HUD-assisted
properties had satisfactory inspection scores.
In addition, HUD has made progress on human capital, acquisition
management, and information technology issues that in previous years we
cited as major management challenges contributing to HUD’s high-risk
designation. For example, consistent with our recommendations, in 2005
7GAO, HUD Rental Assistance: Progress and Challenges in Measuring and Reducing
Improper Rent Subsidies, GAO-05-224 (Washington, D.C.: Feb. 18, 2005).
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HUD finalized guidance for implementing a comprehensive strategic
workforce plan that identifies the knowledge, skills, and abilities HUD
needs and the actions that it plans to take to build its workforce for the
future.8 HUD also developed a new succession management plan to help
ensure that the large number of staff expected to retire over the next
several years are replaced with qualified employees. In the acquisition
management area, HUD responded to our recommendations by developing
guidance emphasizing the use of contract administration plans and a risk-
based approach for overseeing the work of contractors.9 Finally, HUD has
made progress in its information technology by reducing the number of
noncompliant financial management systems from 17 in 2003 to 2 in 2006.
We are removing the high-risk designation from HUD’s single-family
mortgage insurance and rental housing assistance programs because of
the agency’s progress in addressing problems in these areas. However, it
will be important for HUD to continue to place a high priority on efficient
and effective management of these programs. Proposed program changes
could introduce new risks and oversight challenges. More specifically,
HUD has proposed changes to its single-family mortgage insurance
program that would increase the size of the mortgages the agency could
insure, give the agency flexibility to set insurance premiums based on the
credit risk of borrowers, and reduce down-payment requirements from the
current 3 percent to potentially zero. However, to implement this
legislative proposal, HUD would have to manage new risks and accurately
estimate the costs of program changes. The administration has also made
legislative proposals to replace HUD’s largest rental housing assistance
program (the Housing Choice Voucher program) with a broader-purpose
grant program. While such proposals could help control rental subsidy
costs and increase administrative flexibility for public housing agencies,
they also could complicate HUD’s oversight efforts by eliminating the
uniformity of the current program.
8GAO, HUD Human Capital Management: Comprehensive Strategic Workforce Planning
Needed, GAO-02-839 (Washington, D.C.: July 24, 2002).
9GAO, HUD Management: Actions Needed to Improve Acquisition Management,
GAO-03-157 (Washington, D.C.: Nov. 15, 2002).
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New High-Risk Areas
GAO’s use of the high-risk designation to draw attention to the challenges
associated with the economy, efficiency, and effectiveness of government
programs and operations in need of broad-based transformation has led to
important progress. We will also continue to identify high-risk areas based
on the more traditional focus on fraud, waste, abuse, and mismanagement.
Our focus will continue to be on identifying the root causes behind
vulnerabilities, as well as actions needed on the part of the agencies
involved and, if appropriate, Congress.
For 2007, we have designated the following three new areas as high risk:
financing the nation’s transportation system, ensuring the effective
protection of technologies critical to U.S. national security interests, and
transforming federal oversight of food safety.
The nation’s economic vitality and its citizens’ quality of life depend
Financing the Nation’s significantly on the efficiency of its transportation infrastructure. This
Transportation
efficiency is threatened by increasing congestion. For example, travel on
roads is expected to increase by about 25 percent from 2000 to 2010,
System
freight traffic is expected to increase by 43 percent from 1998 to 2010, and
air traffic is expected to triple by 2025. As congestion increases, the
federal government faces the challenge of providing funds to help
maintain and expand the nation’s transportation system and ensuring that
these funds are used efficiently. However, revenues from traditional
funding mechanisms may not keep pace with demand. Furthermore, the
nation’s long-term fiscal challenges limit the ability of decision makers to
look to other revenue sources that are currently funding security and other
vital needs, raising questions about the ability of federal programs to
provide the robust growth that many transportation advocates believe is
required to meet the nation’s mobility needs. Compounding these funding
constraints is the absence of a link between federal grant funding levels
and specific performance-related goals and outcomes, resulting in little
assurance that federal funding is being channeled to the nation’s most
critical mobility needs. In addition, federal funding is often tied to a single
transportation mode, which may limit the use of federal funds to finance
the greatest improvements in mobility.
Revenues to support the Highway Trust Fund—the major source of federal
highway and transit funding—are eroding. Receipts for the Highway Trust
Fund, which are derived from motor fuel and truck-related taxes (on truck
and trailer sales, truck tires, and heavy-vehicle use) are continuing to
grow. However, the federal motor fuel tax rate of 18.4 cents per gallon has
not been increased since 1993, and thus the purchasing power of fuel tax
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revenues has eroded with inflation. Furthermore, that erosion will
continue with the introduction of more fuel-efficient vehicles and
alternative-fueled vehicles in the coming years, raising the question of
whether fuel taxes are a sustainable source for financing transportation. In
addition, funding authorized in the recently enacted highway and transit
program legislation is expected to outstrip the growth in trust fund
receipts. As a result, the Department of the Treasury and the
Congressional Budget Office are forecasting that the trust fund balance
will steadily decline and reach a negative balance by the end of fiscal year
2011. (See fig. 1.) On a positive note, the 2005 reauthorization of the trust
fund and its related programs established a commission—chaired by the
Secretary of Transportation and which will report later this year—to
recommend approaches for placing the trust fund on a sustainable path.
Figure 1: Current Highway Trust Fund Year-End Balance Forecasts
Dollars in billions
20
15
10
5
0
-5
-10
2006
2007
2008
2009
2010
2011
Fiscal year
Congressional Budget Office
President’s budget
Source: GAO analysis of data provided in the President’s budget and by CBO.
In the face of these constraints, state and local governments are pursuing
alternative mechanisms that have the potential to meet mobility and
financing needs and help decision makers carry out and grow their surface
transportation programs. For example, many states are pursuing tolling
projects that have the promise to raise revenues, improve capital
investment decisions by better targeting spending for new capacity, and
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enhance private-sector investment in public infrastructure. Tolls that vary
according to the level of congestion (called congestion or value pricing)
can maintain a predetermined level of service, create incentives for drivers
to avoid driving alone in congested conditions, and encourage drivers to
use public transportation or travel at less congested times. One state,
Oregon, is studying the technical feasibility of replacing its motor fuel tax
with a per-mile user fee.
Intercity passenger rail service is also at a critical juncture. The existing
intercity passenger rail system is in poor financial condition, and the
federal funds provided for it are not targeted to the greatest public
benefits, such as transportation congestion relief. The current service
provider (Amtrak) continues to rely heavily on federal subsidies—over $1
billion annually in recent years—and will require billions more to address
deferred maintenance and achieve a “state of good repair.”10 This current
crisis is not unusual; Amtrak has struggled to become financially solvent
since its inception. We have recommended that Congress consider
restructuring the nation’s intercity passenger rail system, which would
entail establishing clear goals for the system, defining the roles of key
stakeholders (including the federal government), and developing funding
mechanisms that include cost sharing between the federal government and
other beneficiaries.
The freight railroad industry is projected to grow substantially with
expected increases in freight traffic, but the industry’s ability to fund this
projected growth is largely uncertain. For private companies seeking to
maximize returns for shareholders, railroad investment poses a substantial
risk. But railroad investment is critical to freight mobility and economic
growth, and investments in rail projects can produce public benefits, such
as reducing highway congestion, strengthening intermodal connections
and the efficiency of the publicly owned transportation system, and
enhancing public safety and the environment. As a result, the federal and
state governments have increasingly invested public funds in freight rail
projects, such as the $100 million that Congress provided in 2005 for rail
infrastructure improvements in the Chicago area. In the years ahead,
Congress is likely to receive further requests for funding and face
additional decisions about potential federal policy responses and the
10“State of good repair” is the outcome expected from the capital investment needed to
restore Amtrak’s right-of-way (track, signals, and auxiliary structures), other infrastructure
(e.g., stations), and equipment to a condition that requires only routine maintenance.
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federal role in the nation’s freight railroad infrastructure. In the highly
constrained federal funding environment, such policy responses need to
recognize that the freight transportation system functions in a competitive
marketplace, calling for a mode-neutral approach. Currently, as we have
reported, the trucking and barge industries have a competitive price
advantage over railroads because trucks and barges use infrastructure that
is owned and maintained by the government, whereas rail companies use
infrastructure that they pay to own and maintain.11 In addition, decision
makers will be challenged to make investment decisions that reflect public
priorities and are designed to achieve demonstrable, wide-ranging public
benefits that warrant the commitment of scarce federal funds.
Federal aviation programs are also facing growing infrastructure demands
and constrained resources. To meet the anticipated increases in
commercial aviation travel, the Federal Aviation Administration (FAA) and
aviation stakeholders are developing the “next-generation air
transportation system” (NGATS) to modernize the nation’s air traffic
control (ATC) infrastructure and increase capacity. This effort is complex
and costly: Under one scenario that includes a limited, preliminary cost
estimate for NGATS, FAA’s budget would, on average, exceed FAA’s fiscal
year 2006 appropriation level by about $1 billion a year (in today’s dollars)
through 2025. FAA and some stakeholders have raised doubts about the
ability of the current funding system—the Aviation Trust Fund—to
generate revenues to meet these budgetary needs equitably and efficiently
over time. Specifically, FAA and some stakeholders are concerned that as
FAA’s workload (and, therefore, costs) rises, there will be no
corresponding increase in its revenues because of the greater use of
smaller aircraft and a decline in inflation-adjusted airfares. Trends in these
data provide support for these concerns. While FAA has a history of cost
control problems associated with ATC modernization, it has made a
number of important management improvements. However, questions
remain about FAA’s ability to manage the transition to NGATS cost-
effectively. However, failing to meet these infrastructure challenges in
aviation may have significant consequences, since aviation is an integral
part of the economy. FAA is expected to release its proposal to reform the
current funding system within the next few months.
11As we have reported, the trucking and barge industries pay fees and taxes to use this
government-funded infrastructure, but their payments generally do not cover the costs they
impose on highways and waterways.
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Given the common challenges spanning the nation’s transportation
infrastructure, Congress and, for some issues, the Department of
Transportation should reassess the following issues for all transportation
modes to better position the federal government to address these
challenges:
1. the appropriate federal role and strategy in funding, selecting, and
evaluating transportation investments;
2. mechanisms to seek alternative sources of revenues and, where
appropriate, to increase revenues for infrastructure improvements,
including user fees and alternatives to stimulate private investment,
while considering their impact on the federal budget; and
3. funding allocation and monitoring methods to ensure the equity,
efficiency, accountability, and performance of transportation
investments.
U.S. military strategy is premised on technological superiority on the
Ensuring the Effective battlefield. The Department of Defense spends billions of dollars each year
Protection of
for the development and production of high technology weaponry to
maintain superiority. These weapons and militarily useful technologies are
Technologies Critical
sold overseas by U.S. companies for economic reasons and by the U.S.
to U.S. National
government for foreign policy, security, and economic reasons. Yet, the
technologies that underpin U.S. military and economic strength continue
Security Interests
to be targets for theft, espionage, reverse engineering, and illegal export.
At the same time, the programs the U.S. government has in place to
protect critical technologies by weighing competing and sometimes
conflicting national security, foreign policy, and economic interests have
long been criticized by industry and allies for their inability to adapt to a
changing world environment and their lack of efficiency.
The U.S. government has a myriad of laws, regulations, policies, and
processes intended to identify and protect critical technologies so they
can be transferred to foreign parties in a manner consistent with U.S.
interests. The government’s technology protection programs include those
that regulate U.S. defense-related exports and investigate proposed foreign
acquisitions of U.S. national security-related companies. (See table 4.)
Responsibility for administering or overseeing the different programs is
divided among multiple federal agencies and several congressional
committees. However, in the decades since these programs were put in
place, significant forces have heightened the U.S. government’s challenge
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of weighing security concerns with the desire to reap economic benefits.
Most notably, in the aftermath of the September 2001 terrorist attacks, the
threats facing the nation have been redefined. In addition, the economy
has become increasingly globalized as countries open their markets and
the pace of technological innovation has quickened worldwide.
Government programs established decades ago to protect critical
technologies are ill-equipped to weigh competing U.S. interests as these
forces continue to evolve in the 21st century. Accordingly, we are
designating the effective identification and protection of critical
technologies as a governmentwide high-risk area, which warrants a
strategic re-examination of existing programs to identify needed changes
and ensure the advancement of U.S. interests.
Table 4: U.S. Government Programs for the Identification and Protection of Critical Technologies
Program
Agencies
Program’s purpose
Legal authority
Militarily Critical
Defense
Identify and assess technologies that are
Export Administration
Technologies Program
critical for retaining U.S. military dominance
Act of 1979
Dual-Use Export Control
Commerce (lead), State, Central Regulate export of dual-use items by U.S.
Export Administration
System
Intelligence Agency, Defense,
companies after weighing economic, national Act of 1979
Energy, Homeland Security, and security, and foreign policy interests
Justice
Arms Export Control
State (lead), Defense, Homeland Regulate export of arms by U.S. companies, Arms Export Control Act
System
Security, and Justice
giving primacy to national security and
of 1976
foreign policy concerns
Foreign Military Sales
State and Defense (leads),
Provide foreign governments with U.S.
Arms Export Control Act
Program
Homeland Security
defense articles and services to help promote of 1976
interoperability while lowering the unit costs
of weapon systems
National Disclosure Policy State, Defense, and intelligence
Determine the releasibility of classified
National Security
Process
community
military information, including classified
Decision Memorandum
weapons and military technologies, to foreign 119 of 1971
governments
Committee on Foreign
Treasury (lead), Commerce,
Investigate the impact of foreign acquisitions Exon-Florio Amendment
Investment in the United
Defense, Homeland Security,
on national security and to suspend or
of 1988 to the Defense
States (CFIUS)
Justice, State, and six offices
prohibit acquisitions that might threaten
Production Act of 1950
from the Executive Office of the
national security
President
National Industrial
Defense (lead), applicable to
Ensure that contractors (including those
Executive Order No.
Security Program
other departments and agencies under foreign influence, control, or
12829 of 1993
ownership) appropriately safeguard classified
information in their possession
Anti-Tamper Policy
Defense
Establish anti-tamper techniques on
Defense Policy
weapons systems when warranted as a
Memorandum, 1999
method to protect critical technologies on
these systems
Sources: GAO (analysis); cited legal authorities (data).
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Over the years, we have identified weaknesses in the effectiveness and
efficiency of government programs designed to protect critical
technologies while advancing U.S. interests. While each program has its
own set of challenges, we found that these weaknesses are largely
attributable to poor coordination within complex interagency processes,
inefficiencies in program operations, and a lack of systematic evaluations
for assessing program effectiveness and identifying corrective actions. The
impacts of these weaknesses are not always visible or immediate but, as
we have reported, increase the risk of military gains by entities with
interests contrary to those of the United States and of financial harm to
U.S. companies. Others, including the Office of the National
Counterintelligence Executive, congressional committees, and inspectors
general, have also reported on vulnerabilities in these programs and the
resulting harm—both actual and potential—to U.S. security and economic
interests.
Several of the programs designed to protect critical technologies are
inherently complex. Multiple departments and agencies representing
various interests, which at times can be competing and even divergent,
participate in decisions about the control and protection of critical U.S.
technologies. However, as exemplified below, poor coordination and
fundamental disagreements among the departments have had unintended
consequences for both national security and economic interests.
•
Commerce and State have yet to clearly determine which department
controls the export of certain missile technology items, which increases
the risk that these items will fall into the wrong hands or creates an
unlevel playing field for U.S. companies.12 Since Commerce and State have
different restrictions on these items, it is important that they define who
controls the items. Otherwise, the exporter—not the government—is left
to determine which restrictions apply and the type of governmental
review.
•
The departments participating in the Committee on Foreign Investment in
the United States (CFIUS) lack a coordinated approach for defining what
constitutes a threat to national security and what warrants an investigation
12GAO, Export Controls: Clarification of Jurisdiction for Missile Technology Items
Needed, GAO-02-120 (Washington, D.C.: Oct. 9, 2001); and Export Controls: Improvements
to Commerce’s Dual-Use System Needed to Ensure Protection of U.S. Interests in the
Post-9/11 Environment, GAO-06-638 (Washington, D.C.: June 26, 2006).
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to ensure that the risk of foreign ownership is mitigated.13 This lack of
agreement among the members, which limits CFIUS’s analyses of
proposed and completed foreign acquisitions, has been intensified by
continued economic globalization and by increasingly diffuse threats.
Some CFIUS members have argued that taking a more traditional and
narrow view of what constitutes a national security threat can limit the
protection of critical infrastructure or the preservation of technological
superiority in the defense arena. Recently, member agencies indicated a
need for changes to the process and some are currently under way.
•
Within Defense, the military services and programs have different
interpretations of what constitutes military critical technologies, which
can result in different conclusions about what technologies need
protection through the application of anti-tamper techniques.14 Defense
does not coordinate or oversee how the services and programs identify
critical technologies needing anti-tamper protection. This creates the
vulnerability of having the same technology protected on one weapon
system but not on another, thereby exposing both systems to exploitation
and compromise.
While government officials responsible for administering the programs
designed to protect critical technologies may appropriately take time to
make decisions as they consider the multiple interests involved,
inefficiencies in the various programs have created unnecessary delays in
sharing critical technologies with allies.
•
Although State has implemented a series of initiatives primarily designed
to expedite the processing of arms export licenses, we found that these
initiatives have generally not been successful.15 Most notably, the
department designated the processing of license applications in support of
Operations Iraqi Freedom and Enduring Freedom its top priority and
established an expedited process for reviewing those applications.
13GAO, Defense Trade: Enhancements to the Implementation of Exon-Florio Could
Strengthen the Law’s Effectiveness, GAO-05-686 (Washington, D.C.: Sept. 28, 2005).
14GAO, Defense Acquisitions: DOD Needs to Better Support Program Managers’
Implementation of Anti-Tamper Protection, GAO-04-302 (Washington, D.C.: Mar. 31,
2004).
15GAO, Defense Trade: Arms Export Control System in the Post-9/11 Environment,
GAO-05-234 (Washington, D.C.: Feb. 16, 2005); and Defense Trade: Arms Export Control
Vulnerabilities and Inefficiencies in the Post-9/11 Security Environment, GAO-05-468R
(Washington, D.C.: Apr. 7, 2005).
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However, only 19 percent of the applications submitted through the
expedited process for these operations were processed within the goals
set by the department.16 These included applications for protective body
armor for U.S. and coalition forces and aircraft defensive systems.
The departments charged with protecting critical technologies have not
systematically evaluated their respective programs to determine whether
they are fulfilling their missions in a changing environment and whether
corrective actions are needed.
•
Given its lack of systematic evaluations, Commerce cannot readily identify
weaknesses in the dual-use export control system or implement needed
corrective measures that allow U.S. companies to compete in the global
marketplace while minimizing the risk to other U.S. interests.17 As we and
the Office of Management and Budget have reported, Commerce has not
established performance measures that provide a basis for assessing the
effectiveness of the dual-use export control system. Instead, Commerce
relies on narrow measures related to the efficiencies of its processes and
anecdotal indications to gauge how well the system is functioning.
•
After the September 2001 terrorist attacks, State did not make
fundamental or significant changes to the arms export control system, its
objectives, or implementing regulations.18 State officials maintained that
such changes are not needed because they regard the system as effective
in keeping U.S. defense items out of enemy hands while ensuring that
allies can obtain needed arms. However, State’s conclusions regarding the
system appear without basis because State has not provided evidence that
it systematically assessed the effectiveness of its controls or major
initiatives that were intended to facilitate sales to allies. Further, our
reports have documented weaknesses and challenges over the years that
point to vulnerabilities in the arms export control system and its ability to
protect U.S. interests.
•
Defense cannot provide assurances that its oversight of foreign owned or
influenced contractors is sufficient to reduce the risk of foreign interests
16This covers license applications processed between October 1, 2001, and April 30, 2004.
17GAO, Export Controls: Improvements to Commerce’s Dual-Use System Needed to
Ensure Protection of U.S. Interests in the Post-9/11 Environment, GAO-06-638
(Washington, D.C.: June 26, 2006).
18GAO, Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in the
Post-9/11 Security Environment, GAO-05-468R (Washington, D.C.: Apr. 7, 2005).
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gaining unauthorized access to U.S. classified information.19 Specifically,
Defense does not systematically collect information to know if contractors
are reporting certain business transactions, which would enable Defense
to know when a contractor has come under foreign influence and
determine what protective measures may be needed to reduce the risk of
information compromise. For example, one foreign-owned contractor
appeared to have had access to U.S. classified information for at least 6
months before a protective measure was implemented. Moreover, Defense
neither centrally collects information to determine the magnitude of
contractors under foreign influence nor assesses the effectiveness of its
oversight so it can identify weaknesses in its protective measures and
make necessary adjustments.
We have recommended numerous corrective actions to address these
weaknesses and inefficiencies, but the departments involved have not
implemented many of the recommendations that address the most
fundamental problems affecting the protection of critical technologies and
the advancement of U.S. interests. Legislation has been introduced to
modify or reform aspects of the programs for protecting critical
technologies. For example, legislation was introduced in the 109th
Congress to reauthorize the Export Administration Act.20 Also, the House
of Representatives passed legislation in 2005 to create an interagency
strategic export control board charged with conducting a comprehensive
evaluation of U.S. export controls and developing recommendations for
consolidating export control functions. In addition, the House and Senate
passed two different bills in the last Congress, and new legislation has
recently been introduced in the House to reform CFIUS and its approach
to evaluating proposed foreign acquisitions. However, to date, legislation
has not been enacted to overhaul these programs and executive action has
not resulted in fundamental changes to these programs.
Implementation of our outstanding recommendations should be an interim
step in improving the effectiveness and efficiency of existing government
programs intended to identify and protect critical technologies. However,
further actions are needed. The executive and legislative branches need to
19GAO, Industrial Security: DOD Cannot Ensure Its Oversight of Contractors under
Foreign Influence Is Sufficient, GAO-05-681 (Washington, D.C.: July 15, 2005).
20The Export Administration Act is not permanent legislation. When the authority granted
under the act lapsed in 2001, the controls established under the act and the implementing
regulations were continued under Executive Order 13222, which was issued under the
authority provided by the International Emergency Economic Powers Act.
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re-examine the current government programs to determine whether and
how they can collectively achieve their mission and evaluate alternative
approaches. The results of these efforts should provide the basis for
establishing a comprehensive framework with clear responsibilities and
accountability for identifying and protecting critical technologies as global
forces continue to reshape U.S. national security and economic interests.
This nation enjoys a plentiful and varied food supply that is generally
Transforming Federal considered to be safe. However, the patchwork nature of the federal
Oversight of Food
oversight of food safety calls into question whether the government can
plan more strategically to inspect food production processes, identify and
Safety
react more quickly to any outbreaks of contaminated food, and focus on
achieving results to promote the safety and integrity of the nation’s food
supply. This challenge is even more urgent since the terrorist attacks of
September 11, 2001, heightened awareness of agriculture’s vulnerabilities
to terrorism, such as the deliberate contamination of food or the
introduction of disease to livestock, poultry, and crops. Over several years,
we have reported on issues that suggest that food safety could be
designated as a high-risk area because of the need for transforming the
federal oversight framework to reduce risks to public health as well as the
economy.
Either an accidental or deliberate contamination of food or the
introduction of disease to livestock, poultry, and crops could undermine
consumer confidence in the government’s ability to ensure the safety of
the U.S. food supply, as well as cause severe economic consequences.
Each year, about 76 million people contract a food-borne illness in the
United States; about 325,000 require hospitalization; and about 5,000 die,
according to the Centers for Disease Control and Prevention. In addition,
agriculture, as the largest industry and employer in the United States,
generates more than $1 trillion in economic activity annually, or about 13
percent of the gross domestic product. The value of U.S. agricultural
exports exceeded $68 billion in fiscal year 2006. An introduction of a
highly infectious foreign animal disease, such as avian influenza or foot-
and-mouth disease, would cause severe economic disruption, including
substantial losses from halted exports. Similarly, food contamination, such
as the recent E. coli outbreaks, can have a detrimental impact on local
economies. For example, industry representatives estimate losses from the
recent California spinach E. coli outbreak to range from $37 million to $74
million.
A challenge for the 21st century is how several federal agencies can
integrate the myriad food safety programs and strategically manage their
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portfolios to promote the safety and integrity of the nation’s food supply.21
In numerous previous reports, we have described the fragmented federal
food safety system in which 15 agencies collectively administer at least 30
laws related to food safety. The two primary agencies are the U.S.
Department of Agriculture (USDA), which is responsible for the safety of
meat, poultry, and processed egg products and the Food and Drug
Administration (FDA), which is responsible for virtually all other foods.
Among other agencies with responsibilities related to food safety, the
National Marine Fisheries Service in the Department of Commerce
conducts voluntary, fee-for-service inspections of seafood safety and
quality; the Environmental Protection Agency (EPA) regulates the use of
pesticides and maximum allowable residue levels on food commodities
and animal feed; and the Department of Homeland Security (DHS) is
responsible for coordinating agencies’ food security activities.
The food safety system is further complicated by the subtle differences in
food products that dictate which agency regulates a product as well as the
frequency with which inspections occur. For example, how a packaged
ham-and-cheese sandwich is regulated depends on how the sandwich is
presented. USDA inspects manufacturers of packaged open-face meat or
poultry sandwiches (e.g., those with one slice of bread), but FDA inspects
manufacturers of packaged closed-face meat or poultry sandwiches (e.g.,
those with two slices of bread). Although there are no differences in the
risks posed by these products, USDA inspects wholesale manufacturers of
open-face sandwiches sold in interstate commerce daily, while FDA
inspects closed-face sandwiches an average of once every 5 years.
This federal regulatory system for food safety evolved piecemeal, typically
in response to particular health threats or economic crises. During the past
30 years, we have detailed problems with the fragmented federal food
safety system and reported that the system has caused inconsistent
oversight, ineffective coordination, and inefficient use of resources. Our
most recent work demonstrates that these challenges persist. Specifically:
•
Existing statutes give agencies different regulatory and enforcement
authorities. For example, food products under FDA’s jurisdiction may be
marketed without the agency’s prior approval. On the other hand, food
products under USDA’s jurisdiction must generally be inspected and
21GAO, 21st Century Challenges: Reexamining the Base of the Federal Government,
GAO-05-325SP (Washington, D.C.: February 2005).
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New High-Risk Areas
approved as meeting federal standards before being sold to the public.
Under current law, USDA inspectors maintain continuous inspection at
slaughter facilities and examine each slaughtered meat and poultry
carcass. They also visit each processing facility at least once during each
operating day. For foods under FDA’s jurisdiction, however, federal law
does not mandate the frequency of inspections.22
•
We reported that federal agencies are spending resources on overlapping
food safety activities.23 USDA and FDA both inspect shipments of imported
food at 18 U.S. ports-of-entry. However, these two agencies do not share
inspection resources at these ports. For example, USDA officials told us
that all USDA-import inspectors are assigned to and located at USDA-
approved import inspection facilities and some of these facilities handle
and store FDA-regulated products. USDA has no jurisdiction over these
FDA-regulated products. Although USDA maintains a daily presence at
these facilities, the FDA-regulated products may remain at the facilities for
some time awaiting FDA inspection. In fiscal year 2003, USDA spent
almost $16 million on imported food inspections, and FDA spent more
than $115 million.
•
Food recalls are voluntary and federal agencies responsible for food safety
have no authority to compel companies to carry out recalls—with the
exception of FDA’s authority to require a recall for infant formula. USDA
and FDA provide guidance to companies for carrying out voluntary recalls.
We reported that USDA and FDA can do a better job in carrying out their
food recall programs so they can quickly remove potentially unsafe food
from the marketplace.24 These agencies do not know how promptly and
completely companies are carrying out recalls, do not promptly verify that
recalls have reached all segments of the distribution chain, and use
procedures to alert consumers to a recall that may not be effective.
•
The terrorist attacks of September 11, 2001, have heightened concerns
about agriculture’s vulnerability to terrorism. The Homeland Security Act
of 2002 assigned DHS the lead coordination responsibility for protecting
22GAO, Overseeing the U.S. Food Supply: Steps Should Be Taken to Reduce Overlapping
Inspections and Related Activities, GAO-05-549T (Washington, D.C.: May 17, 2004).
23GAO, Oversight of Food Safety Activities: Federal Agencies Should Pursue
Opportunities to Reduce Overlap and Better Leverage Resources, GAO-05-213
(Washington, D.C.: Mar. 30, 2005).
24GAO, Food Safety: USDA and FDA Need to Better Ensure Prompt and Complete Recalls
of Potentially Unsafe Food, GAO-05-51 (Washington, D.C.: Oct. 6, 2004).
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New High-Risk Areas
the nation against terrorist attacks, including agroterrorism. Subsequent
presidential directives further define agencies’ specific roles in protecting
agriculture and the food system against terrorist attacks. We reported that
in carrying out these new responsibilities, agencies have taken steps to
better manage the risks of agroterrorism, including developing national
plans and adopting standard protocols.25 However, we also found several
management problems that can reduce the effectiveness of the agencies’
routine efforts to protect against agroterrorism. For example, there are
weaknesses in the flow of critical information among key stakeholders
and shortcomings in DHS’s coordination of federal working groups and
research efforts.
•
In response to the nation’s pressing fiscal challenges, agencies may have to
explore new approaches to achieve their missions. FDA is responsible for
ensuring the safety of seafood. More than 80 percent of the seafood that
Americans consume is imported. We reported in 2001 that FDA’s seafood
inspection program did not sufficiently protect consumers.26 For example,
FDA tested about 1 percent of imported seafood products. We
subsequently found that FDA’s program has shown some improvement.
More foreign firms are inspected, and inspections show that more U.S.
seafood importers are complying with its requirements.27 Given FDA
officials’ concerns about limited inspection resources, we also identified
options, such as using personnel in the National Oceanic and Atmospheric
Administration’s Seafood Inspection Program to augment FDA’s
inspection capacity or state regulatory laboratories for analyzing imported
seafood. FDA agreed with these options.
•
We reported that in fiscal year 2003, four agencies—USDA, FDA, EPA, and
the National Marine Fisheries Service—spent $1.7 billion on food safety-
related activities.28 USDA and FDA together were responsible for nearly 90
percent of federal expenditures for food safety. However, these
expenditures were not based on the volume of foods regulated by the
agencies or consumed by the public. The majority of federal expenditures
25GAO, Homeland Security: Much Is Being Done to Protect Agriculture from a Terrorist
Attack, but Important Challenges Remain, GAO-05-214 (Washington, D.C.: Mar. 8, 2005).
26GAO, Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect
Consumers, GAO-01-204 (Washington, D.C.: Jan. 31, 2001).
27GAO, Food Safety: FDA’s Imported Seafood Safety Program Shows Some Progress, but
Further Improvements Are Needed, GAO-04-246 (Washington, D.C.: Jan. 30, 2004).
28GAO, Overseeing the U.S. Food Supply: Steps Should Be Taken to Reduce Overlapping
Inspections and Related Activities, GAO-05-549T (Washington, D.C.: May 17, 2005).
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New High-Risk Areas
for food safety inspection were directed toward USDA’s programs for
ensuring the safety of meat, poultry, and egg products; however, USDA is
responsible for regulating about 20 percent of the food supply. In contrast,
FDA, which is responsible for regulating about 80 percent of the food
supply, accounted for only about 24 percent of expenditures.
Others have called for fundamental changes to the federal food safety
system overall. In 1998, the National Academy of Sciences concluded that
the system is not well equipped to meet emerging challenges.29 In response
to the academy’s report, the President established a Council on Food
Safety which released a Food Safety Strategic Plan in January 2001. The
plan recognized the need for a comprehensive food safety statute and
concluded “the current organizational structure makes it more difficult to
achieve future improvements in efficiency, efficacy, and allocation of
resources based on risk.”
While many of the recommendations we made have been acted upon, a
fundamental re-examination of the federal food safety system is
warranted. Taken as a whole, our work indicates that Congress and the
executive branch can and should create the environment needed to look
across the activities of individual programs within specific agencies and
toward the goals that the federal government is trying to achieve. To that
end, we have recommended, among other things, that Congress enact
comprehensive, uniform, and risk-based food safety legislation and
commission the National Academy of Sciences or a blue ribbon panel to
conduct a detailed analysis of alternative organizational food safety
structures.30 We have also recommended that the executive branch
reconvene the President’s Council on Food Safety to facilitate interagency
coordination on food safety regulation and programs.
These actions can begin to address the fragmentation in the federal
oversight of food safety. Going forward, to build a sustained focus on the
safety and the integrity of the nation’s food supply, Congress and the
executive branch can integrate various expectations for food safety with
congressional oversight and through agencies’ strategic planning
processes. The development of a governmentwide performance plan that
29Institute of Medicine, Ensuring Safe Food from Production to Consumption,
Washington, D.C.: National Academy Press, 1998.
30GAO, Food Safety and Security: Fundamental Changes Needed to Ensure Safe Food,
GAO-02-47T (Washington, D.C.: Oct. 10, 2001).
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New High-Risk Areas
is mission-based, has a results-orientation, and provides a cross-agency
perspective offers a framework to help ensure agencies’ goals are
complementary and mutually reinforcing. Further, with pressing fiscal
challenges, this plan can assist decision makers in balancing trade-offs and
comparing performance when resource allocation and restructuring
decisions are made.
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Progress Being Made in Other High-Risk
Areas
Progress Being Made in Other High-Risk
Areas
For other areas that remain on our 2007 high-risk list, there has been
important but varying levels of progress, although not yet enough progress
to remove these areas from the list. Top administration officials have
expressed their commitment to ensuring that high-risk areas receive
adequate attention and oversight. The Office of Management and Budget
(OMB) has led an initiative to prompt agencies to develop detailed action
plans for each area on our high-risk list. These plans are to identify
specific goals and milestones that address and reduce the risks identified
by us within each high-risk area. Further, OMB has encouraged agencies to
consult with us regarding the problems our past work has identified, and
the many recommendations for corrective actions we have made. While
progress on developing and implementing plans has been mixed, such a
concerted effort by agencies and ongoing attention by OMB are critical;
our experience over the past 17 years has shown that perseverance is
required to fully resolve high-risk areas. Congress, too, will continue to
play an important role through its oversight and, where appropriate,
through legislative action targeting both specific problems and the high-
risk areas overall.
Examples of progress in other programs or operations that were
previously designated as high risk are discussed below and in the
highlights pages that follow this section.
•
The Department of Health and Human Services and its Centers for
Medicare & Medicaid Services (CMS) have made some progress to
improve the fiscal integrity and oversight of the Medicaid program, which
was designated high risk in 2003. For example, CMS has taken steps to
improve its oversight of certain Medicaid financial management activities,
including efforts to oversee states’ financing methods. It also issued a
comprehensive 5-year plan in July 2006 that outlined initial activities
planned for implementing the Medicaid Integrity Program required by the
Deficit Reduction Act of 2005. However, several oversight weaknesses
previously identified by us have not yet been addressed. For example,
CMS has not incorporated the use of key Medicaid data systems into its
oversight of states’ Medicaid claims, or clarified and communicated its
policies in several high-risk areas, such as supplemental payment
arrangements and administrative costs. The results of CMS’s actions will
need to be assessed to determine their effectiveness in improving the
program’s fiscal integrity, and more action is needed before the program’s
high-risk designation can be removed.
•
Regarding the Medicare program, the Centers for Medicare & Medicaid
Services (CMS) has made some progress in the last 2 years in reforming
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Progress Being Made in Other High-Risk
Areas
and refining payment methods, enhancing program integrity, improving
program management, and overseeing patient safety and care. For
example, CMS is improving how it sets or updates rates for hospital
services, durable medical equipment, and certain drugs and devices
supplied in medical facilities. Medicare’s most recent estimate of its
national rate of improper payments was 4.4 percent—the lowest since
measurement began in 1996. Nevertheless, Medicare’s size, complexity,
and vulnerability to mismanagement and improper payments suggest that
its high-risk designation cannot be removed. For example, GAO found
weaknesses in CMS’s information security controls that could make
sensitive, personally identifiable medical information vulnerable to
unauthorized access. Similarly, call centers sponsored by the agency or
private drug plans fell short in providing accurate and complete
information to callers inquiring about the new prescription drug benefit.
•
The administration and real property-holding agencies have made progress
toward strategically managing federal real property. In response to both an
executive order aimed at improving real property management and the
President’s Management Agenda initiative on real property, agencies have,
among other things, established asset management plans, standardized
data reporting, and adopted performance measures. Also, the
administration has created a Federal Real Property Council and plans to
work with Congress to provide agencies with tools to better manage real
property. These actions have addressed our prior concern that a strategic
governmentwide focus on solving the problems was lacking, but the
underlying conditions that led to the high-risk designation continue to
exist.
•
Since the 2005 high-risk update, the Department of Homeland Security
(DHS) has made progress in addressing major transformation,
management, and program challenges, which prior GAO work has
identified as key to successfully transforming 22 agencies into one
department and effectively carrying out its homeland security and other
missions. DHS has produced a strategic plan that contains most elements
required by the Government Performance and Results Act and the under
secretary of management is working to integrate some management
functions. However, DHS has not linked its goals to resource requirements
in its strategic plan and has not involved all stakeholders in its strategic
planning process. Moreover, DHS lacks not only a comprehensive strategy
with overall goals and a timeline but also a dedicated management
integration team to support its management integration efforts. DHS and
its components are developing corrective action plans to address material
weaknesses identified by the financial statement auditor, but recent audits
found its financial systems do not conform to federal requirements, and
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Progress Being Made in Other High-Risk
Areas
financial statements contain numerous material weaknesses. DHS is
working to develop a departmentwide framework for managing
information but has not implemented an effective process for informed
decision making by senior leadership about competing technology
investment options or a comprehensive information security program to
protect its information and systems. DHS has taken some actions to
integrate the legacy agency workforces that make up its components and
has made progress in establishing human capital capabilities for the US-
VISIT program, but DHS has not linked its new human capital system to its
strategic plan. DHS has made progress in enhancing communication
among its acquisition organizations through its strategic sourcing and
small business programs, but some components remain exempted from
the unified acquisition organization, and the chief procurement officer has
insufficient staff for departmentwide oversight. In addition, DHS has
continued to form necessary partnerships and has undertaken a number of
efforts with private entities, but key partnering challenges continue as
DHS seeks to leverage resources and more effectively carry out its
homeland security responsibilities. In their program activities, DHS and
the Transportation Security Administration (TSA) have taken numerous
actions to strengthen commercial aviation security, and the Coast Guard
has moved to control costs by offering incentives to contractors that
attempt to foster competition for subcontracts. However, TSA faces the
difficult task of assessing and allocating resources across all
transportation modes based on risk, while adapting to changing threats
within the commercial aviation industry. DHS agencies have made
progress in activities to refine the screening of foreign visitors to the
United States, target potentially dangerous cargo, and provide the
personnel necessary to effectively fulfill border security and trade agency
missions. However, trade and visitor screening systems have weaknesses
that must be overcome to better ensure border and trade security. DHS
has also enhanced the efficiency of certain immigration services, reducing
the size of the backlog of immigration-benefit applications. However, DHS
has not adopted a comprehensive risk management approach when it
comes to the detection and investigation of immigration fraud. Finally,
DHS has made revisions to the National Response Plan to clarify federal
roles and responsibilities. In response to concerns raised by us and others,
Congress clarified the roles and responsibilities of the Federal Emergency
Management Agency (FEMA) in the DHS fiscal year 2007 appropriations
act and designated the FEMA Administrator as the “Principal Advisor” to
the President on emergency management. However, DHS has yet to
develop necessary disaster capabilities and to create accountability
systems that effectively balance the need for fast and flexible response
against the need to prevent waste, fraud, and abuse.
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Progress Being Made in Other High-Risk
Areas
•
During the past 2 years, the Internal Revenue Service (IRS) has made
progress in its enforcement efforts. Notably, enforcement revenue rose
from $43.1 billion in fiscal year 2004 to $48.7 billion in fiscal year 2006.
Based on preliminary data, IRS increased the overall percentage of tax
returns examined between fiscal year 2004 and fiscal year 2006 by about
30 percent. IRS completed research in 2005 on individual taxpayers’
compliance and is currently using the results to better target operational
audits. IRS also set a long-term goal to increase the compliance rate.
Despite these promising developments, challenges remain. IRS’s most
recent estimate of the gross tax gap (the difference between the taxes that
should have been paid voluntarily and on time and what was actually paid)
was $345 billion for tax year 2001. Although IRS estimates that it would
eventually collect $55 billion of this amount, a net tax gap of $290 billion
would remain. Given the magnitude of the tax gap, even a relatively small
percentage reduction in the gap would yield billions of dollars in
additional revenue for the government. IRS needs periodic, if not annual,
measurements of compliance to gauge the extent to which compliance is
changing and to effectively target its service and enforcement efforts.
Further, IRS lacks a data-based plan to improve compliance and reach its
long-term goal. Real progress in reducing the tax gap will require efforts
beyond enforcement. IRS will need to develop and execute multiple
strategies over a sustained period including working with Treasury to
develop new and innovative solutions to improve compliance. Statutory
changes will be needed as well to meaningfully reduce the gap and we
have presented options, such as additional withholding for selected parties
and additional information reporting on the cost basis for securities sales,
for Congress to consider.
•
We first added the Pension Benefit Guaranty Corporation’s (PBGC) single-
employer pension insurance program as a high-risk area in July 2003
because the program’s financial health was threatened by structural
weaknesses in pension funding rules, the program’s premium structure,
and the potential for large bankruptcies among sponsors with
underfunded plans in weak industries. Since then, Congress passed major
pension reform legislation that was signed into law. The reforms include
revisions to the defined benefit pension funding rules, changes to the
PBGC program’s insurance premium structure, and other changes aimed
at limiting the risk that underfunded plans might pose to PBGC. While
some of these reforms represent progress, their ultimate impact on the
single-employer program’s deficit is unclear. Many of these reforms will be
phased in gradually, postponing their potentially positive effect on plan
funding, while other changes could have the effect of increasing PBGC’s
financial exposure.
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Progress Being Made in Other High-Risk
Areas
•
The Federal Aviation Administration (FAA) has made significant progress
in addressing air traffic control modernization program weaknesses since
it was designated as high risk in 1995. For example, FAA has established a
framework for improving its system management capabilities and
addressed weakness on selected air traffic control systems; implemented
key components of a cost accounting system and established a cost
estimating methodology; and made progress in establishing an
organizational culture that supports sound acquisitions. FAA has also
developed an action plan with the Office of Management and Budget to
continue to address these issues. Additionally, FAA has reported that it
has exceeded its targets for delivering selected system acquisitions on cost
and schedule for the past 3 years. However, FAA-improved system
management capabilities have yet to be institutionalized, the cost
estimating methodology has not yet been fully implemented, and major
systems will be coming on line in the next few years. Moreover, FAA still
faces many human capital challenges, including obtaining the technical
and contract management expertise needed to define, implement, and
integrate numerous complex programs and systems. With FAA expecting
to spend about $9.4 billion between now and the end of fiscal year 2011 to
upgrade and replace air traffic control systems, these actions are as
critical as ever.
•
Since 2005, DOD has taken some positive steps toward addressing
challenges related to the supply chain management high-risk area. For
example, in collaboration with OMB, DOD developed a plan to address
some of the systemic weaknesses in supply chain management. The plan
encompasses 10 initiatives, such as war reserve materiel improvements
and the expanded use of radio frequency identification, aimed at the three
focus areas we have identified from our prior work: requirements
forecasting, asset visibility, and materiel distribution. This plan provides a
framework for addressing systemic weaknesses and focusing long-term
efforts to improve supply support to the warfighter. DOD has made some
progress implementing these initiatives, and DOD leadership has
demonstrated a commitment to resolving supply chain management
problems. However, successful resolution of these long-standing problems
will take several years of continued efforts, and the department faces
challenges and risks in successful implementation of proposed changes.
For example, DOD’s plan generally lacks outcome-focused performance
metrics for many of its initiatives, making it difficult to track and
demonstrate progress in improving the three focus areas. Further, DOD’s
ability to make coordinated, systemic improvements that cut across the
multiple organizations involved in the materiel distribution system has
been hindered by problems defining who has accountability and authority
for making such improvements.
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Areas
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GAO-07-310 High-Risk Update
Highlights for Each High-Risk Area
Highlights for Each High-Risk Area
Overall, the government continues to take high-risk problems seriously
and is making long-needed progress toward correcting them. Congress has
also acted to address several individual high-risk areas through hearings
and legislation. Continued perseverance in addressing high-risk areas will
ultimately yield significant benefits. Lasting solutions to high-risk
problems offer the potential to save billions of dollars, dramatically
improve service to the American public, strengthen public confidence and
trust in the performance and accountability of our national government,
and ensure the ability of government to deliver on its promises.
We have prepared highlights of each of the 27 high-risk areas on our
updated list, showing (1) why the area is high risk, (2) the actions that
have been taken and that are under way to address the problem since our
last update report as well as the issues that are yet to be resolved, and
(3) what remains to be done to address the risk. These highlights are
presented on the following pages.
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GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Strategic Human Capital Management
For additional information about this high-
risk area, contact J. Christopher Mihm at
(202) 512-6806 or mihmj@gao.gov.
Why Area Is High Risk
What GAO Found
GAO first added strategic human
Progress in addressing federal human capital challenges has been made since
capital management as a
2001, but significant opportunities remain to improve strategic human capital
governmentwide high-risk area in
management to respond to current and emerging 21st century challenges. For
2001 because federal agencies
example, the federal government has not transformed, in many cases, how it
lacked a strategic approach to
classifies, compensates, develops, and motivates its employees to achieve
human capital management that
maximum results within available resources and existing authorities. A key
integrates human capital efforts
challenge is determining how to update the government’s classification and
with agency mission and program
compensation systems to be more market based and performance oriented.
goals. The area remains high risk
Although this shift must be part of a broader strategy of change management
because the federal government
now faces one of the most
and performance improvement initiatives, progress was made when Congress
significant transformations to the
and the administration modernized the senior executive performance-based
civil service in half a century, as
pay system by requiring a clearer link between individual and organizational
momentum grows toward making
performance and pay. This shift to a performance-based pay system can help
governmentwide changes to agency
transform the culture of federal agencies, and the lessons learned from
pay, classification, and
implementing this reform effort will be critical to modernizing the
performance management systems.
performance management and pay systems under which other federal
employees will be compensated. Progress was also made when Congress
What Remains to Be Done
recognized that agencies needed more effective human capital systems to
Moving forward, there is still a
succeed in their transformations. Congress gave the Departments of
need for a governmentwide
Homeland Security and Defense statutory authorities intended to help them
framework to advance human
manage their people more strategically. In this environment, however, where
capital reform in order to avoid
nearly 900,000 employees will work under systems now exempt from the rules
further fragmentation within the
of Title 5, the federal government is rapidly approaching the point where
civil service, ensure management
“standard governmentwide” human capital policies and process are neither
flexibility as appropriate, allow a
standard nor governmentwide.
reasonable degree of consistency,
provide adequate safeguards, and
Before implementing any future human capital reforms, agencies should
maintain a level playing field
demonstrate they have met certain conditions, including that they have
among federal agencies competing
developed an institutional infrastructure that can support reform. This
for talent. Agencies must continue
to assess their workforce needs
infrastructure should include, among other things, (1) a modern, credible
and make use of available
performance management system that provides clear linkage between
authorities. Congress should make
institutional, unit, and individual performance-oriented outcomes; and (2)
pay and performance management
adequate safeguards to ensure the fair, effective, credible, and
reform the first step in any
nondiscriminatory implementation of the system. As the government’s human
governmentwide reform effort, and
capital leader, OPM has a key role in helping agencies build the needed
the Office of Personnel
infrastructure and is likely to certify agency readiness to implement reforms.
Management (OPM) should
OPM is taking steps to help agencies prepare for reform. For example, OPM’s
evaluate and learn from its
Human Capital Assessment and Accountability Framework is designed to help
approach to implementing the
agencies implement effective human capital management systems and
performance-based pay system for
improve their human capital management practices.
senior executives and apply these
lessons to future human capital
reforms.
Given OPM’s responsibility, it must ensure it has the capacity to assist
agencies and to lead these important human capital transformations. This
includes developing an internal workforce capacity with adequate skills and
competencies, effective partnerships with the Chief Human Capital Officers
Council, and an evaluation strategy to monitor progress.
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GAO-07-310 High-Risk Update
Related Products
Strategic Human Capital Management
Office of Personnel Management: Key Lessons Learned to Date for
Strengthening Capacity to Lead and Implement Human Capital Reforms.
GAO-07-90. Washington, D.C.: January 19, 2007.
Human Capital: Aligning Senior Executives’ Performance with
Organizational Results Is an Important Step Toward Governmentwide
Transformation. GAO-06-1125T. Washington, D.C.: September 26, 2006.
Office of Personnel Management: OPM Is Taking Steps to Strengthen Its
Internal Capacity for Leading Human Capital Reform. GAO-06-861T.
Washington, D.C.: June 27, 2006.
Human Capital: Trends in Executive and Judicial Pay. GAO-06-708.
Washington, D.C.: June 21, 2006.
Human Capital: Agencies Are Using Buyouts and Early Outs with
Increasing Frequency to Help Reshape Their Workforces. GAO-06-324.
Washington, D.C.: March 31, 2006.
Human Capital: Observations on Final Regulations for DOD’s National
Security Personnel System. GAO-06-227T. Washington, D.C.: November 17,
2005.
Human Capital: Designing and Managing Market-Based and More
Performance-Oriented Pay Systems. GAO-05-1048T. Washington, D.C.:
September 27, 2005.
Human Capital: DOD’s National Security Personnel System Faces
Implementation Challenges. GAO-05-730. Washington, D.C.: July 14, 2005.
Human Capital: Agencies Need Leadership and the Supporting
Infrastructure to Take Advantage of New Flexibilities. GAO-05-616T.
Washington, D.C.: April 21, 2005.
Human Capital: Observations on Final DHS Human Capital Regulations.
GAO-05-391T. Washington, D.C.: March 2, 2005.
Also see http://www.gao.gov for numerous speeches and presentations from
the Comptroller General on human capital challenges in general and as they
apply to specific agencies.
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GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Managing Federal Real Property
For additional information about this high-
risk area, contact Mark Goldstein at (202)
512-2834 or goldsteinm@gao.gov.
Why Area Is High Risk
What GAO Found
In January 2003, GAO designated
The administration and real property-holding agencies have made progress
federal real property as a high-risk
toward strategically managing federal real property. In response to the
area because of long-standing
President’s Management Agenda initiative and Executive Order 13327, issued
problems with excess and
in February 2004, agencies have, among other things, established asset
underutilized property,
management plans, standardized data reporting, and adopted performance
deteriorating facilities, unreliable
measures. Also, the administration has created a Federal Real Property
real property data, and reliance on
Council and plans to work with Congress to provide agencies with tools to
costly leasing. Federal agencies
were also facing many challenges
better manage real property.
in protecting their facilities against
These are positive steps, but the underlying conditions still exist. For
the threat of terrorism.
example, the Departments of Energy (Energy) and Homeland Security (DHS)
and the National Aeronautics and Space Administration (NASA) reported that
Progress has been made, but the
over 10 percent of their facilities are excess or underutilized. In addition,
problems that led to the
designation of federal real property
Energy, NASA, the General Services Administration (GSA), and the
as a high-risk area still exist. In
Departments of the Interior (Interior), State (State), and Veterans Affairs (VA)
addition, deep-rooted obstacles,
reported repair and maintenance backlogs for buildings and structures that
including competing stakeholder
total over $16 billion. Also, Energy, Interior, GSA, State, and VA reported an
interests and legal and budgetary
increased reliance on leasing to meet space needs. While agencies have made
limitations, could significantly
progress in collecting real property data, data reliability is still a challenge at
hamper a governmentwide
DOD and other agencies. Finally, agencies reported using risk-based
transformation. As a result, this
approaches to prioritize security needs, which GAO has recommended, but
area remains high risk.
cited obstacles such as a lack of resources for security enhancements.
What Remains to Be Done
In past high-risk updates, GAO called for a transformation strategy to address
the long-standing problems in this area. While the administration’s approach is
After fully implementing the
generally consistent with what GAO envisioned, certain areas warrant further
executive order on real property
attention. Specifically, problems are exacerbated by deep-rooted obstacles
reform and related President’s
that include competing stakeholder interests, legal and budgetary limitations,
Management Agenda initiatives,
agencies will need to show
and the need for improved capital planning. For example, agencies cite local
significant progress toward
interests as barriers to disposing of excess property and agencies’ limited
eliminating the problems that led to
ability to pursue ownership leads them to lease property that would be more
this area’s designation as high risk,
cost-effective to own over time.
such as reducing inventories of
facilities to a minimum and making
headway in addressing the repair
Examples of Excess Federal Facilities
backlog. In addition, the Office of
Management and Budget (OMB)
and agencies, through the Federal
Real Property Council, will need to
focus on developing strategies to
address deep-rooted obstacles to a
successful transformation, such as
competing stakeholder interests.
Sources: VA and USPS.
From left to right: former Main VA Hospital Building, Milwaukee; former Main Post Office, Chicago.
Page 41
GAO-07-310 High-Risk Update
Related Products
Managing Federal Real Property
DOD’s Overseas Infrastructure Master Plans Continue to Evolve. GAO-06-
913R. Washington, D.C.: August 22, 2006.
Embassy Construction: State Has Made Progress Constructing New
Embassies, but Better Planning Is Needed for Operations and Maintenance
Requirements. GAO-06-641. Washington, D.C.: June 30, 2006.
Federal Real Property: Most Public Benefit Conveyances Used as Intended,
but Opportunities Exist to Enhance Federal Oversight. GAO-06-511.
Washington, D.C.: June 21, 2006.
Federal Courthouses: Rent Increases Due to New Space and Growing Energy
and Security Costs Require Better Tracking and Management. GAO-06-613.
Washington, D.C.: June 20, 2006.
Homeland Security: Guidance and Standards Are Needed for Measuring the
Effectiveness of Agencies’ Facility Protection Efforts. GAO-06-612.
Washington, D.C.: May 31, 2006.
Federal Real Property: Excess and Underutilized Property Is an Ongoing
Problem. GAO-06-248T. Washington, D.C.: February 6, 2006.
Federal Real Property: Reliance on Costly Leasing to Meet New Space Needs
Is an Ongoing Problem. GAO-06-136T. Washington, D.C.: October 6, 2005.
VA Health Care: Key Challenges to Aligning Capital Assets and Enhancing
Veterans’ Care. GAO-05-429. Washington, D.C.: August 5, 2005.
Military Bases: Analysis of DOD’s 2005 Selection Process and
Recommendations for Base Closures and Realignments. GAO-05-785.
Washington, D.C.: July 1, 2005.
Federal Real Property: Further Actions Needed to Address Long-standing
and Complex Problems. GAO-05-848T. Washington, D.C.: June 22, 2005.
Smithsonian Institution: Facilities Management Reorganization Is
Progressing, but Funding Remains a Challenge. GAO-05-369. Washington,
D.C.: April 25, 2005.
U.S. Postal Service: The Service’s Strategy for Realigning Its Mail
Processing Infrastructure Lacks Clarity, Criteria, and Accountability.
GAO-05-261. Washington, D.C.: April 8, 2005.
Page 42
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Protecting the Federal Government’s
Information Systems and the Nation’s
For additional information about this high-
risk area, contact David Powner at (202)
Critical Infrastructures
512-9286 or pownerd@gao.gov, or
Gregory C. Wilshusen at (202) 512-6244
or wilshuseng@gao.gov.
Why Area Is High Risk
What GAO Found
Federal agencies and our nation’s
With the enactment of the Federal Information Security Management Act of
critical infrastructures—such as
2002 (FISMA), Congress continued its work to improve federal information
power distribution, water supply,
security by permanently authorizing and strengthening key information
telecommunications, national
security requirements. The administration has also made progress in a number
defense, and emergency services—
of efforts, including issuing guidance to federal agencies on appropriate
rely extensively on computerized
measures to protect sensitive information. In addition, the governmentwide
information systems and electronic
percentage of information systems reported as completing formal technical
data to carry out their missions.
evaluation and receiving management authorization to operate increased from
The security of these systems and
62 percent to 85 percent between 2003 and 2005. However, significant
data is essential to preventing
disruptions in critical operations,
information security weaknesses at federal agencies continue to place a broad
fraud, and inappropriate disclosure
array of federal operations and assets at risk of fraud, misuse, and disruption.
of sensitive information. Protecting
Although recent reporting by these agencies showed some improvements,
federal computer systems and the
GAO found that many still have not complied consistently with FISMA’s
systems that support critical
overall requirement to develop, document, and implement agencywide
infrastructures—referred to as
information security programs. For example, agencies are not consistently
cyber critical infrastructure
protection, or cyber CIP—is a
•
developing and maintaining current security plans,
continuing concern. Federal
•
creating and testing contingency plans, and
information security has been on
•
evaluating and monitoring the effectiveness of security controls managed
GAO’s list of high-risk areas since
by contractors.
1997; in 2003, GAO expanded this
high-risk area to include cyber CIP.
Without consistent implementation of information security management
The continued risks to information
programs, weaknesses in information security controls will persist.
systems include escalating and
As the focal point for federal efforts to protect the nation’s critical
emerging threats such as phishing,
infrastructures, the Department of Homeland Security (DHS) and its National
spyware, and spam; the ease of
Cyber Security Division have key cybersecurity responsibilities. These include
obtaining and using hacking tools;
the steady advance in the
developing a national plan for critical infrastructure protection, including
sophistication of attack technology;
cybersecurity; planning for and coordinating cyber incident response and
and the emergence of new and
recovery; and identifying and assessing cyber threats and vulnerabilities. DHS
more destructive attacks.
has taken steps to fulfill its responsibilities, including establishing the U.S.
Computer Emergency Readiness Team, developing high-level plans for
What Remains to Be Done
infrastructure protection and incident response, establishing public/private
working groups to facilitate coordination among government and industry,
Additional federal efforts are
and organizing exercises in which government and private industry can
needed to establish effective
practice responding to cyber events. However, DHS has not yet completely
information security programs that
are consistent with FISMA,
fulfilled any of its key responsibilities. For example, DHS has not yet
including testing and evaluating the
developed national cyber threat and vulnerability assessments or
effectiveness of controls and
public/private recovery plans for cybersecurity. Progress has been impeded by
resolving known weaknesses.
several challenges, including the reluctance of many in the private sector to
Federal cyber CIP actions should
share information with DHS, and a lack of departmental organizational
include implementing plans to
stability and leadership needed to gain the trust of other stakeholders in the
fulfill key cybersecurity
cybersecurity world. Until DHS fulfills its cybersecurity responsibilities, our
responsibilities, such as improving
nation’s critical infrastructures will remain at risk.
analysis and warning capabilities
and developing a public/private
Internet recovery plan.
Page 43
GAO-07-310 High-Risk Update
Related Products
Protecting the Federal Government’s Information Systems
and the Nation’s Critical Infrastructures
Information Security: Federal Reserve Needs to Address Treasury Auction
Systems. GAO-06-659. Washington, D.C.: August 30, 2006.
Information Security: Leadership Needed to Address Weaknesses and
Privacy Issues at Veterans Affairs. GAO-06-897T. Washington, D.C.: June 20,
2006.
DHS Faces Challenges in Developing a Joint Public/Private Recovery Plan,
GAO-06-672. Washington, D.C.: June 16, 2006.
Information Security: Continued Progress Needed to Strengthen Controls at
the Internal Revenue Service. GAO-06-328. Washington, D.C.: March 23, 2006.
Information Sharing: The Federal Government Needs to Establish Policies
and Processes for Sharing Terrorism-Related and Sensitive but Unclassified
Information. GAO-06-385. Washington, D.C.: March 17, 2006.
Information Security: Federal Agencies Show Mixed Progress in
Implementing Statutory Requirements. GAO-06-527T. Washington, D.C.:
March 16, 2006.
Information Security: Department of Health and Human Services Needs to
Fully Implement Its Program. GAO-06-267. Washington, D.C.: February 24,
2006.
Information Security: Progress Made, but Federal Aviation Administration
Needs to Improve Controls over Air Traffic Control Systems. GAO-05-712.
Washington, D.C.: August 26, 2005.
Critical Infrastructure Protection: Department of Homeland Security Faces
Challenges in Fulfilling Cybersecurity Responsibilities, GAO-05-434.
Washington, D.C.: May 26, 2005.
Information Security: Federal Agencies Need to Improve Controls over
Wireless Networks. GAO-05-383. Washington, D.C.: May 17, 2005.
Information Security: Emerging Cybersecurity Issues Threaten Federal
Information Systems. GAO-05-231. Washington, D.C.: May 13, 2005.
Information Security: Improving Oversight of Access to Federal Systems
and Data by Contractors Can Reduce Risk. GAO-05-362. Washington, D.C.:
April 22, 2005.
Page 44
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Implementing and Transforming the
Department of Homeland Security
For additional information about this high-
risk area, contact Norm Rabkin at (202)
512-8777 or rabkinn@gao.gov.
Why Area Is High Risk
What GAO Found
GAO designated implementing and
Although DHS has made progress transforming its 22 agencies into a fully
transforming the Department of
functioning department, this transformation remains high risk. DHS has yet to
Homeland Security (DHS) as high
implement a corrective action plan that includes a comprehensive
risk in 2003 because DHS had to
transformation strategy and its management systems—especially related to
transform 22 agencies—several
financial, information, acquisition, and human capital management—are not
with major management
yet integrated and wholly operational. DHS also faces challenges to effectively
challenges—into one department,
carry out its program activities and enhance partnerships with private and
and failure to effectively address its
public sector entities to leverage resources. The array of management and
management challenges and
programmatic challenges continues to limit DHS’s ability to carry out its roles
program risks could have serious
consequences for our national
under the National Homeland Security Strategy in an effective risk-based way.
security. The areas GAO identified
as at risk include planning and
A DHS-wide transformation strategy should include a strategic plan that
priority setting; accountability and
identifies specific budgetary, human capital, and other resources needed to
oversight; and a broad array of
achieve stated goals. The strategy also should involve key stakeholders to
management, programmatic, and
ensure resource investments target the highest priorities. GAO’s work has
partnering challenges.
shown that several DHS programs have not developed outcome-based
measures to assess performance. Further, DHS is limited in its ability to use
What Remains to Be Done
risk management to guide resource use, as DHS has not performed
comprehensive risk assessments in transportation, trade, critical
GAO’s prior work on mergers and
acquisitions, undertaken before the
infrastructure, or immigration and customs systems.
creation of DHS, concluded that
successful transformations of large
Serious transformation challenges remain in DHS management systems. For
organizations, even those faced
example, DHS lacks a comprehensive management strategy with overall goals,
with less strenuous reorganizations
timelines, and a team dedicated to support its integration efforts. Also, the
than DHS, can take years to
latest independent audit of DHS’s financial statements revealed 10 material
achieve. For DHS to successfully
weaknesses and confirmed that DHS’s financial management systems still do
transform into a more effective
not conform to federal requirements. Further, DHS has not institutionalized a
organization, it needs to (1)
strategic framework for information management to, among other things,
develop a departmentwide
guide technology investments; and DHS human capital and acquisition
transformation strategy that adopts
systems will require continued attention to help prevent waste and ensure that
risk management and strategic
management principles and
DHS can allocate its resources efficiently and effectively.
establishes key milestones and
performance measures to focus its
Since GAO’s January 2005 high-risk update, DHS has taken actions to improve
limited resources; (2) improve
program activities in areas such as cargo, transportation, and border security;
management systems, including
Coast Guard management; disaster preparedness; and immigration services.
financial systems, information
However, DHS continues to face programmatic and partnering challenges. To
management, human capital, and
help ensure its missions are achieved, DHS must overcome continued
acquisitions; and (3) continue to
challenges related to cargo, transportation, and border security; systematic
identify and implement corrective
visitor tracking; outdated Coast Guard asset capabilities; and balancing
actions to address programmatic
homeland security with other missions, such as disaster preparedness. DHS
and partnering challenges.
and the Federal Emergency Management Agency have made progress in
forming partnerships to better prepare for and execute disaster response, but
they need to continue to develop (1) clearly defined leadership roles and
responsibilities, (2) necessary disaster response capabilities, and (3)
accountability systems to provide effective services while protecting against
waste, fraud, and abuse.
Page 45
GAO-07-310 High-Risk Update
Related Products
Implementing and Transforming the Department of Homeland
Security
GAO Products
Aviation Security: TSA Oversight of Checked Baggage Screening Procedures
Could Be Strengthened. GAO-06-869. Washington, D.C.: July 28, 2006.
Homeland Security: Challenges in Creating an Effective Acquisition
Organization. GAO-06-1012T. Washington, D.C.: July 27, 2006.
Homeland Security: Progress Continues, but Challenges Remain on
Department’s Management of Information Technology. GAO-06-598T.
Washington, D.C.: March 29, 2006.
Financial Management Systems: DHS Has an Opportunity to Incorporate
Best Practices in Modernization Efforts. GAO-06-553T. Washington,
D.C.: March 29, 2006.
Emergency Preparedness and Response: Some Issues and Challenges
Associated with Major Emergency Incidents. GAO-06-467T. Washington,
D.C.: February 23, 2006.
Risk Management: Further Refinements Needed to Assess Risks and
Prioritize Protective Measures at Ports and Other Critical Infrastructure.
GAO-06-91. Washington, D.C.: December 15, 2005.
Department of Homeland Security: Strategic Management of Training
Important for Successful Transformation. GAO-05-888. Washington, D.C.:
September 23, 2005.
Results-Oriented Government: Improvements to DHS’s Planning Process
Would Enhance Usefulness and Accountability. GAO-05-300. Washington,
D.C.: March 31, 2005.
Department of Homeland Security: A Comprehensive and Sustained
Approach Needed to Achieve Management Integration. GAO-05-139.
Washington, D.C.: March 16, 2005.
DHS Products
Major Management Challenges Facing the Department of Homeland
Security. DHS Office of the Inspector General. OIG-07-12. Washington, D.C.:
December 2006.
Page 46
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Establishing Appropriate and Effective
Information-Sharing Mechanisms to
For additional information about this high-
risk area, contact Eileen Larence, at (202)
Improve Homeland Security
512-6510, larencee@gao.gov, or Dave
Powner, (202) 512-9286 or
pownerd@gao.gov.
Why Area Is High Risk
What GAO Found
In January 2005, we designated
More than 5 years after 9/11, the federal government still lacks an
information sharing for homeland
implemented set of policies and processes for sharing terrorism information,
security a high-risk area because
but has issued a government-wide strategy on how it will put in place the
the federal government still faces
overall framework, policies, and architecture for sharing with critical
formidable challenges in analyzing
partners—actions that we and others have recommended. Agencies also have
and disseminating key information
taken a number of independent steps to better share information, but they
among federal, state, local, and
must be successfully integrated into this framework.
private partners in a timely,
accurate, and useful manner. Since
9/11, multiple federal agencies have
Progress at the federal level to improve sharing includes creation of the
been assigned key roles for
National Counterterrorism Center to operate as a partnership of intelligence
improving the sharing of
agencies so they can analyze and disseminate national intelligence data;
information critical to homeland
creation of a national database of known and suspected terrorists for
protection to address a major
screening persons coming into and exiting the country; and formation of a
vulnerability exposed by the
working group to resolve agencies’ myriad requirements for restricting access
attacks, and this important
to sensitive information. However, as we reported in March 2006, the federal
function has received increasing
government still has not implemented the governmentwide policies and
attention. However, the underlying
processes that the 9/11 Commission recommended and that Congress
conditions that led to the
mandated. For example, the Intelligence Reform and Terrorism Prevention
designation continue and more
Act of 2004 required that action be taken to facilitate the sharing of terrorism
needs to be done to address these
information by establishing an “information sharing environment (ISE),” yet
problems and the obstacles that
hinder information sharing. As a
this environment remains in the planning stage. A final plan for the
result, this area remains high risk.
environment, which was released on November 16, 2006, defines key tasks
and milestones for developing the information sharing environment, including
What Remains to Be Done
identifying barriers and ways to resolve them, as GAO recommended.
Completing the information sharing environment is a complex task that will
GAO has made several
take multiple years and long-term administration and congressional support
recommendations agencies are
and oversight, and will pose cultural, operational, and technical challenges
beginning to address, including
that will require a collaborated response.
•
assessing progress made on
the key steps and milestones
implementing the ISE and
Federal agencies are also focusing on better sharing with states, localities, and
removing barriers to
the private sector—a critical step since they are our first line of defense
implementation;
against terrorists—but these efforts are not without challenges. The Federal
•
consolidating and consistently
Bureau of Investigation (FBI) has expanded its Joint Terrorism Task Forces
applying restrictions on
that bring together personnel from all levels of government. The Department
sensitive information so they
of Homeland Security (DHS) implemented an information network to share
do not hinder sharing; and
homeland security information. States and localities are creating their own
•
defining what information
information “fusion” centers, some with FBI and DHS support. And DHS has
agencies need from the private
implemented a program to protect sensitive information the private sector
sector for homeland security,
provides on security at critical infrastructure assets, such as nuclear and
how they will use it, and how
chemical facilities. But, the DHS Inspector General found that users of the
they will protect it, as well as
information network were confused and frustrated with the system and as a
providing incentives and
building trusted relationships
result do not regularly use it; and DHS has still not won all of the private
to promote sharing with these
sector’s trust that the agency can adequately protect and effectively use the
critical security partners.
information that sector provides. These challenges will require longer-term
actions to resolve.
Page 47
GAO-07-310 High-Risk Update
Related Products
Establishing Appropriate and Effective Information-Sharing
Mechanisms to Improve Homeland Security
Managing Sensitive Information: DOJ Needs a More Complete Staffing
Strategy for Managing Classified Information and a Set of Internal Controls
for Other Sensitive Information. GAO-07-83. Washington, D.C.: October 20,
2006.
Critical Infrastructure Protection: Progress Coordinating Government and
Private Sector Efforts Varies by Sectors’ Characteristics. GAO-07-39.
Washington, D.C.: October 16, 2006.
Terrorist Watch List Screening: Efforts to Help Reduce Adverse Effects on
the Public. GAO-06-1031. Washington, D.C.: September 29, 2006.
Critical Infrastructure Protection: DHS Leadership Needed to Enhance
Cybersecurity. GAO-06-1087T. Washington, D.C.: September 13, 2006.
Maritime Security: Information-Sharing Efforts Are Improving. GAO-06-
933T. Washington, D.C.: July 10, 2006.
Managing Sensitive Information: Actions Needed to Ensure Recent Changes
in DOE Oversight Do Not Weaken an Effective Classification System.
GAO-06-785. Washington, D.C.: June 30, 2006.
Managing Sensitive Information: DOD Can More Effectively Reduce the
Risk of Classification Errors. GAO-06-706. Washington, D.C.: June 30, 2006.
Information Sharing: DHS Should Take Steps to Encourage More
Widespread Use of Its Program to Protect and Share Critical Infrastructure
Information. GAO-06-383. Washington, D.C.: April 17, 2006.
Information Sharing: The Federal Government Needs to Establish Policies
and Processes for Sharing Terrorism-Related and Sensitive but Unclassified
Information. GAO-06-385. Washington, D.C.: March 17, 2006.
Page 48
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Approach to
Business Transformation
For additional information about this high-
risk area, contact Sharon Pickup at (202)
512-9619 or pickups@gao.gov.
Why Area Is High Risk
What GAO Found
In 2005, GAO added the
DOD spends billions of dollars to sustain key business operations intended to
Department of Defense’s (DOD)
support the warfighter, including systems and processes related to the
approach to business
management of contracts, finances, the supply chain, support infrastructure,
transformation as a high-risk area
and weapons systems acquisition. GAO has reported on inefficiencies in
because (1) DOD’s business
DOD’s business operations, such as the lack of sustained leadership and a
improvement efforts and control
comprehensive, integrated, and enterprisewide business plan. Moreover, at a
over resources were fragmented,
time of increasing military operations and growing fiscal constraints, billions
(2) DOD lacked an integrated and
of dollars have been wasted annually because of the lack of adequate
enterprisewide business
transparency and appropriate accountability across DOD’s business areas.
transformation plan and
investment strategy, and (3) DOD
had not designated a senior
DOD’s top management has demonstrated a commitment to transforming the
management official at an
department’s business operations and has established a governance structure
appropriate level with the authority
that consists of several elements. For example, in September 2006, DOD
to be responsible and accountable
released an enterprise transition plan that is intended to be both a roadmap
for enterprisewide business
and management tool for modernizing its business processes and information
transformation. To illustrate the
technology assets. DOD also established the Defense Business Systems
magnitude of the risk DOD faces
Management Committee (DBSMC), which is composed of senior-level DOD
with its business transformation
officials and is intended to serve as the primary transformation leadership and
efforts, the department bears sole
oversight mechanism, and the Business Transformation Agency (BTA) to
responsibility for eight defense-
support the DBSMC. BTA is to execute enterprise-level business
specific high-risk areas and shares
responsibility for six other high-
transformation by, among other things, integrating departmental lines of
risk areas—all of which are related
business, following a corporate model. Finally, as required by Congress, DOD
to business operations.
is studying the feasibility and advisability of establishing a Chief Management
Officer (CMO) to oversee the department’s business transformation process.
What Remains to Be Done
As part of this effort, the Defense Business Board, an advisory panel,
examined various options and endorsed the CMO concept in May 2006.
DOD still needs to develop a clear,
comprehensive, integrated, and
These steps are positive, but DOD still lacks some critical elements that are
enterprisewide business
needed to ensure a successful and sustainable business transformation effort.
transformation plan that addresses
all of DOD’s major business areas
While the enterprise transition plan and supporting governance structure are
and includes specific goals,
important steps toward developing a strategic plan and DOD-wide oversight,
measures, and accountability
the primary focus has been on business systems modernization. Enterprise-
mechanisms to measure progress.
level business transformation is much broader—encompassing planning,
DOD also needs to establish
management, structure, and processes. DOD’s lack of a comprehensive,
sustained leadership that is
integrated, enterprisewide business transformation plan linked with
responsible and accountable for
performance goals, objectives, and rewards for all key business areas has
overall business transformation
been a continuing weakness. Such an integrated transformation plan would be
efforts. One option to achieve this
instrumental in setting investment priorities and guiding key resource
goal is to legislatively create a chief
decisions. DOD also continues to lack the sustained leadership at the right
management officer to provide
level to achieve successful and lasting transformation. The DBSMC is led by
sustained leadership and have
overall responsibility and
political appointees whose terms expire when administrations change and
accountability for business
does not provide long-term sustained leadership needed to successfully
transformation.
achieve business transformation. Because of the complexity and long-term
nature of DOD’s business transformation efforts, a CMO with significant
authority, experience, and tenure is needed to provide sustained leadership
and momentum.
Page 49
GAO-07-310 High-Risk Update
Related Products
Department of Defense Approach to Business Transformation
Defense Business Transformation: A Comprehensive Plan, Integrated
Efforts, and Sustained Leadership Are Needed to Ensure Success. GAO-07-
229T. Washington, D.C.: November 16, 2006.
Defense Transformation: Accountability Challenges. GAO-06-1083CG.
Washington, D.C.: August 22, 2006.
Department of Defense: Sustained Leadership Is Critical to Effective
Financial and Business Management Transformation. GAO-06-1006T.
Washington, D.C.: August 3, 2006.
Business Systems Modernization: DOD Continues to Improve Institutional
Approach, but Further Steps Needed. GAO-06-658. Washington, D.C.: May 15,
2006.
GAO High-Risk Program. GAO-06-497T. Washington, D.C.: March 15, 2006.
Defense Management: Additional Actions Needed to Enhance DOD’s Risk-
Based Approach for Making Resource Decisions. GAO-06-13. Washington,
D.C.: November 15, 2005.
Defense Management: Foundational Steps Being Taken to Manage DOD
Business Systems Modernization, but Much Remains to Be Accomplished to
Effect True Business Transformation. GAO-06-234T. Washington, D.C.:
November 9, 2005.
21st Century Challenges: Transforming Government to Meet Current and
Emerging Challenges. GAO-05-830T. Washington, D.C.: July 13, 2005.
DOD Business Transformation: Sustained Leadership Needed to Address
Long-standing Financial and Business Management Problems. GAO-05-
723T. Washington, D.C.: June 8, 2005.
Defense Management: Key Elements Needed to Successfully Transform DOD
Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005.
Transformation Challenges. presentation to the Defense Business
Transformation Forum. Queenstown, MD: April 17, 2005.
Defense Management: Successful Business Transformation Requires Sound
Strategic Planning and Sustained Leadership. GAO-05-520T. Washington,
D.C.: April 13, 2005.
Page 50
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Business
Systems Modernization
For additional information about this high-
risk area, contact Randolph C. Hite at
(202) 512-3439 or hiter@gao.gov.
Why Area Is High Risk
What GAO Found
The Department of Defense (DOD)
DOD, one of the largest and most complex organizations in the world,
is spending billions of dollars to
reportedly relies on over 3,100 business systems to support its business
modernize its business systems as
functions. For years, DOD has attempted to modernize these systems, and
part of its overall business
GAO has provided numerous recommendations to help it do so. For example,
transformation efforts. While DOD
in 2001, GAO provided the department with a set of recommendations to help
has made important progress on
in developing and using an enterprise architecture (modernization blueprint)
key aspects of its business systems
and establishing effective investment management controls to guide and
modernization efforts, challenges
constrain how the billions of dollars each year are spent on business systems.
remain. As a result, DOD as a
GAO also made numerous project-specific and DOD-wide recommendations
whole is not yet where it needs to
be to effectively and efficiently
aimed at ensuring that the department follows proven best practices when it
manage an undertaking with the
acquires information technology (IT) systems and services.
size, complexity, and significance
of its departmentwide business
To its credit, DOD has made important progress in defining and beginning to
systems modernization. GAO first
implement institutional management controls. For example, the department
designated this program as high
has developed a revision of its business enterprise architecture that addresses
risk in 1995; it remains so today.
important elements related to legislative provisions and best practices that we
previously identified as missing. In addition, it has defined and begun
What Remains to Be Done
implementing investment controls to guide and constrain its departmentwide
Key aspects of the business
systems modernization. However, the business enterprise architecture (and its
systems modernization efforts still
supporting component architectures) does not yet include all of the elements
need to be fully addressed. At the
needed to provide a sufficient frame of reference to optimally guide and
institutional level, the supporting
constrain DOD-wide system investment decision making. In addition, the
component architectures need to
scope and intent of the department’s business systems transition plan do not
be developed and aligned with the
address DOD’s complete portfolio of IT investments. Further, the business
corporate architecture to complete
system investment process is not fully evolved and institutionalized at all
the federated business enterprise
levels of the organization.
architecture, the enterprise
transition plan needs to be
Beyond this, the more formidable challenge to addressing this high-risk area is
expanded to include the
ensuring that the thousands of DOD business system programs and projects
department’s complete investment
portfolios, and the investment
and IT services employ acquisition management rigor and discipline.
process needs to evolve and be
Specifically, our work has continued to show program-specific management
institutionalized at all levels of the
weaknesses, including not economically justifying investments on the basis of
organization. Furthermore, DOD
reliable estimates of future costs and benefits; not pursuing investments
needs to ensure that its business
within the context of an enterprise architecture; and not adequately
system programs and projects are
conducting key acquisition functions, such as requirements management, risk
managed with integrated
management, test management, performance management, and contract
institutional controls and that they
management.
consistently deliver promised
benefits and capabilities on time
Until DOD fully defines and consistently implements the full range of business
and within budget.
systems modernization management controls (institutional and program
specific), it will be not be able to adequately ensure that its IT system and
service investments are the right solutions for addressing its business needs,
that they are being managed to produce expected capabilities efficiently and
cost effectively, and that business stakeholders are satisfied.
Page 51
GAO-07-310 High-Risk Update
Related Products
Department of Defense Business Systems Modernization
Department of Defense: Sustained Leadership Is Critical to Effective
Financial and Business Management Transformation. GAO-06-1006T.
Washington, D.C.: August 3, 2006.
Business Systems Modernization: DOD Continues to Improve Institutional
Approach, but Further Steps Needed. GAO-06-658. Washington, D.C.: May 15,
2006.
DOD Business Transformation: Defense Travel System Continues to Face
Implementation Challenges. GAO-06-18. Washington, D.C.: January 18, 2006.
DOD Systems Modernization: Uncertain Joint Use and Marginal Expected
Value of Military Asset Deployment System Warrant Reassessment of
Planned Investment. GAO-06-171. Washington, D.C.: December 15, 2005.
DOD Systems Modernization: Planned Investment in the Naval Tactical
Command Support System Needs to Be Reassessed. GAO-06-215. Washington,
D.C.: December 5, 2005.
DOD Business Systems Modernization: Important Progress Made in
Establishing Foundational Architecture Products and Investment
Management Practices, but Much Work Remains. GAO-06-219. Washington,
D.C.: November 23, 2005.
Defense Management: Foundational Steps Being Taken to Manage DOD
Business Systems Modernization, but Much Remains to Be Accomplished to
Effect True Business Transformation. GAO-06-234T. Washington, D.C.:
November 9, 2005.
DOD Business Systems Modernization: Long-standing Weaknesses in
Enterprise Architecture Development Need to Be Addressed. GAO-05-702.
Washington, D.C.: July 22, 2005.
Army Depot Maintenance: Ineffective Oversight of Depot Maintenance
Operations and System Implementation Efforts. GAO-05-441. Washington,
D.C.: June 30, 2005.
DOD Business Transformation: Sustained Leadership Needed to Address
Long-standing Financial and Business Management Problems. GAO-05-
723T. Washington, D.C.: June 8, 2005.
DOD Systems Modernization: Management of Integrated Military Human
Capital Program Needs Additional Improvements. GAO-05-189. Washington,
D.C.: February 11, 2005.
Page 52
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Personnel
Security Clearance Program
For additional information about this high-
risk area, contact Derek B. Stewart at
(202) 512-5559 or stewartd@gao.gov.
Why Area Is High Risk
What GAO Found
The Department of Defense (DOD)
Problems continue with DOD’s clearance program even though OMB, OPM,
is responsible for about 2.5 million
and DOD took positive steps to monitor some GAO-identified concerns. For
security clearances issued to
example, their November 2005 plan outlined many timeliness measures, but
servicemembers, DOD civilians,
included only two measures of quality, both of which were deficient. DOD’s
and industry personnel who work
consistently inaccurate projections of clearance requests have impeded
on contracts for DOD and 23 other
workload planning and funding. Although OMB set a government goal of
federal agencies. The clearances
projected cases and actual requests being within 5 percent of one another,
give workers access to information,
OPM reported that DOD exceeded its projected number by 59 percent for the
the unauthorized disclosure of
first half of fiscal year 2006. In addition, GAO reviewed 50 OPM-produced
which could, in some cases, cause
exceptionally grave damage.
investigative reports and found documentation missing from 47. Despite the
missing information, which in most cases pertained to residences,
Long-standing delays in
employment, and education, DOD adjudicators granted clearance eligibility
determining clearance eligibility
but did not request missing investigative information or fully document
and other challenges led GAO to
unresolved issues in 27 of the 50 reviewed reports. Incomplete investigative or
designate DOD’s personnel security
adjudicative reports could undermine OMB’s efforts to achieve clearance
clearance program as a high-risk
reciprocity (an agency accepting a clearance awarded by another agency).
area in January 2005. DOD
OPM has reported that it is using new personnel and procedures to improve
transferred its security clearance
the quality of its investigative reports.
investigations functions to the
Office of Personnel Management
Furthermore, clearances continue to take longer than the time prescribed in
(OPM) in February 2005 and now
obtains almost all of its clearance
government goals. This occurred in the application-submission, investigation,
investigations from OPM, which
and adjudication (determining clearance eligibility) phases of the clearance
conducts about 90 percent of all
process, despite positive steps that include additional congressional and OMB
federal clearance investigations.
oversight, DOD’s growing use of OPM’s electronic application-submission
Executive Order 13381 assigned the
system, and OPM obtaining more investigators. For example, GAO found that
Office of Management and Budget
the application-submission phase averaged 111 days for industry personnel
(OMB) responsibility for effective
seeking initial top secret clearances, but the government goal is 14 days.
implementation of policy relating
Multiple reviews of applications and manually entering data from paper forms
to determinations of eligibility for
are two reasons for the delays. OPM stated that paper submissions take on
access to classified information.
average 14 days longer than electronic submissions. For August 2006, OPM
What Remains to Be Done
reported that 54 percent of DOD applications were submitted using OPM’s
electronic submission system. In the investigation phase, GAO found that it
To improve its security clearance
took an average of 286 days for initial clearances—compared with the goal of
program, DOD needs to take
180 days—and 419 days for clearance updates for the 2,259 industry personnel
actions that include (1) improving
who were granted clearance eligibility in January and February 2006.
the accuracy of its projected need
Although OPM increased its workforce, it faces many impediments to
for clearances, (2) working with
improving investigation timeliness, including the backlog of requests for
OMB and OPM to fully measure
investigations and difficulty obtaining national, state, and local records. The
and report all of the time required
average time for adjudication was 39 days for industry personnel, compared
to determine clearance eligibility,
with a mandate that starts in December 2006 requiring that 80 percent of
(3) partnering with OPM to
improve the timeliness and
adjudications be completed in 30 days. DOD adjudicators have, however,
completeness of clearance-
noted that current procedures to measure adjudication timeliness include 2-3
application submissions and
weeks for OPM to print and ship its investigative reports, rather than
investigative reports, and (4)
delivering them electronically. Delays in determining initial clearance
implementing procedures to
eligibility can increase the cost of performing classified work, and delays in
eliminate documentation problems.
updating clearances may increase the risk of national security breaches.
Page 53
GAO-07-310 High-Risk Update
Related Products
Department of Defense Personnel Security Clearance
Program
DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve
the Security Clearance Process. GAO-06-1070. Washington, D.C.: September
28, 2006.
DOD Personnel Clearances: Questions and Answers for the Record
Following the Second in a Series of Hearings on Fixing the Security
Clearance Process. GAO-06-693R. Washington, D.C.: June 14, 2006.
DOD Personnel Clearances: New Concerns Slow Processing of Clearances for
Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006.
DOD Personnel Clearances: Funding Challenges and Other Impediments
Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.:
May 17, 2006.
Questions for the Record Related to DOD’s Personnel Security Clearance
Program and the Government Plan for Improving the Clearance Process.
GAO-06-323R. Washington, D.C.: January 17, 2006.
DOD Personnel Clearances: Government Plan Addresses Some Long-
standing Problems with DOD’s Program, But Concerns Remain. GAO-06-
233T. Washington, D.C.: November 9, 2005.
Questions for the Record Related to DOD’s Personnel Security Clearance
Program. GAO-05-988R. Washington, D.C.: August 19, 2005.
DOD Personnel Clearances: Some Progress Has Been Made but Hurdles
Remain to Overcome the Challenges That Led to GAO's High-Risk
Designation. GAO-05-842T. Washington, D.C.: June 28, 2005.
Page 54
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Support
Infrastructure Management
For additional information about this high-
risk area, contact Henry L. Hinton at (202)
512-4300 or hintonh@gao.gov.
Why Area Is High Risk
What GAO Found
In 1997, GAO identified the
While DOD has made progress and expects to continue to improve its support
Department of Defense’s (DOD)
infrastructure, it faces long-term challenges. Following the end of the Cold
management of its support
War, DOD reduced the size of its military force, and efforts have been made to
infrastructure as a high-risk area
reduce its infrastructure through five domestic base realignment and closure
because infrastructure costs
rounds, consolidation of overseas bases, and demolition of excess facilities.
impacted the department’s ability
DOD is also updating its installations strategic plan to better address
to devote funds to other more
infrastructure issues, revising its readiness reporting to better gauge facility
critical programs and needs. GAO
conditions, establishing real property inventory data requirements to better
has frequently reported in recent
support the needs of asset management, and continuing to modify its suite of
years on the long-term challenges
DOD faces in managing its
analytical tools to better forecast funding requirements. DOD has also
portfolio of facilities, halting the
achieved efficiencies and quality-of-life improvements through the
degradation of facilities, and
privatization of military family housing and through the renovation and new
reducing unneeded infrastructure
construction of barracks for single service members.
to free up funds to better maintain
enduring facilities and meet other
Opportunities remain to further reduce DOD’s infrastructure; additionally, the
needs. Because of these long-
department continues to face significant challenges in funding its base
standing issues, DOD’s
operations and the sustainment, restoration, and modernization of its facilities
management of support
as well as addressing lingering management issues. Although DOD has
infrastructure remains a high-risk
reported that it has reduced its domestic infrastructure by about 20 percent in
area.
the first four base closure rounds, questions exist regarding the actual amount
What Remains to Be Done
of facilities to be reduced in the latest base closure round. At the same time,
DOD officials recognize that the department will continue to have excess
DOD needs a comprehensive,
facilities and a long-term need for its facilities disposal program. Also,
integrated, long-range plan to
questions continue to be raised over the adequacy of funds provided to base
better guide, justify funding
operations support services and to the sustainment, restoration, and
requirements, and sustain the
modernization of facilities. In a 2005 report, GAO noted that DOD did not have
implementation of its
a common framework for identifying base-operating support functions and
infrastructure initiatives. The plan
funding requirements to ensure adequate delivery of services, particularly in a
should clearly establish goals and
joint environment. GAO reported that hundreds of millions of operation and
milestones, identify specific tasks
in improving quality of life and
maintenance dollars designated for facilities sustainment and other purposes
readiness, capture shortfalls,
were moved by the services to pay for base operations support due in part to
include metrics to measure
(1) funding shortfalls, (2) a lack of a common terminology across the services
progress, assign responsibilities for
in defining base support functions, and (3) the lack of a mature analytic
managing and coordinating the
process for developing credible and consistent requirements. While such
various efforts, and identify the
funding movements are permissible, GAO found that they were disruptive to
resources needed to meet DOD’s
the orderly provision of services and contributed to the overall degradation of
vision for its infrastructure. A key
facilities. In another report, GAO found that many of DOD’s training ranges
to making this approach successful
were in deteriorated condition and lacked modernization which adversely
is management commitment to
affected training activities and jeopardized the safety of military personnel.
obtain adequate resources for the
GAO also reported that there were opportunities for DOD to strengthen the
diverse initiatives that will resolve
DOD’s infrastructure issues when
management and implementation of its global basing strategy, improve the
other important priorities, such as
management of its utilities privatization program, and enhance the oversight
the global war on terrorism and
of its privatized housing projects. Concerns continued to be raised by various
modernization, compete for
installation officials in fiscal year 2006 over shortfalls in funding for base
funding.
operations and facilities.
Page 55
GAO-07-310 High-Risk Update
Related Products
Department of Defense Support Infrastructure Management
Defense Management: Comprehensive Strategy and Annual Reporting Are
Needed to Measure Progress and Costs of DOD’s Global Posture
Restructuring. GAO-06-852. Washington, D.C.: September 13, 2006.
Defense Infrastructure: Actions Taken to Improve the Management of Utility
Privatization, but Some Concerns Remain. GAO-06-914. Washington, D.C.:
September 5, 2006.
DOD’s Overseas Infrastructure Master Plans Continue to Evolve. GAO-06-
913R. Washington, D.C.: August 22, 2006.
Limitations in the Air Force’s Proposed Housing Plan for Spangdahlem Air
Base, Germany. GAO-06-736R. Washington, D.C.: May 19, 2006.
Military Housing: Management Issues Require Attention as the
Privatization Program Matures. GAO-06-438. Washington, D.C.: April 28,
2006.
Military Training: Funding Requests for Joint Urban Operations Training
and Facilities Should Be Based on Sound Strategy and Requirements.
GAO-06-193. Washington, D.C.: December 8, 2005.
Military Bases: Observations on DOD’s 2005 Base Realignment and Closure
Selection Process and Recommendations. GAO-05-905. Washington, D.C.: July
18, 2005.
Military Bases: Analysis of DOD’s 2005 Selection Process and
Recommendations for Base Closures and Realignments. GAO-05-785.
Washington, D.C.: July 1, 2005.
Defense Infrastructure: Issues Need to Be Addressed in Managing and
Funding Base Operations and Facilities Support. GAO-05-556. Washington,
D.C.: June 15, 2005.
Military Training: Better Planning and Funding Priority Needed to
Improve Conditions of Military Training Ranges. GAO-05-534. Washington,
D.C.: June 10, 2005.
Defense Infrastructure: Management Issue Requiring Attention in Utility
Privatization. GAO-05-433. Washington, D.C.: May 12, 2005.
Page 56
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Financial
Management
For additional information about this high-
risk area, contact McCoy Williams at (202)
512-9095 or williamsm1@gao.gov.
Why Area Is High Risk
What GAO Found
The Department of Defense (DOD)
DOD’s senior civilian and military leaders, committed to the department’s
is a massive and complex
business transformation effort, continue to take positive steps towards
organization. Efficient and effective
improving DOD’s financial and related-business operations. However, to date,
management and accountability of
tangible evidence of improvement remains limited. DOD’s continuing,
DOD’s hundreds of billions of
substantial financial management weaknesses adversely affect its ability to
dollars of resources require timely,
produce auditable financial information, and more importantly, to provide
reliable, and useful information.
timely and reliable information for use in making informed decisions.
However, DOD’s pervasive
financial and related business
management and system
Examples of the Impact of Financial Management Problems at DOD
deficiencies adversely affect its
Business area affected Problem identified and its impact
ability to control costs; ensure
Cost accounting
DOD’s inadequate systems and processes for recording and reporting
costs of the global war on terrorism contributed to uncertainty
basic accountability; anticipate
regarding costs and proper use of funds.
future costs and claims on the
Military pay Pay problems rooted in the complex, cumbersome processes used to
budget; measure performance;
pay Army soldiers have generated overpayments. As a result,
maintain funds control; prevent
hundreds of separated battle-injured soldiers experienced collection
and detect fraud, waste, and abuse;
action on military debts incurred through no fault of their own. Due to
and address pressing management
their lack of income, 16 of 19 case study soldiers reported that they
had difficulty paying for basic household expenses.
issues. GAO first designated DOD
Accounting
DOD had to write off tens of billions of dollars in disbursement and
financial management as high risk
collection transactions resulting from decades of financial management
in 1995.
and system weaknesses. Until DOD can resolve these weaknesses
and identify and charge transactions to the proper appropriation
What Remains to Be Done
accounts, its appropriation accounts will remain unreliable and another
costly write-off process may be required.
GAO has made numerous
Environmental liabilities None of the military services had adequate controls in place to help
ensure that all identified contaminated sites were included in their
recommendations intended to
environmental liability cost estimates. These weaknesses affect the
improve DOD’s financial
reliability of DOD and governmentwide estimates, as well as ultimately
management. DOD’s financial
the cost and timing of cleanup activities.
management reform effort should
Systems DOD
still has not addressed the underlying problems associated with
include the following key elements:
weak systems requirements management and testing in the Defense
Travel System (DTS). Until DTS’s requirements management
(1) a reform plan implemented as
practices are improved, DOD will not have reasonable assurance that
part of a comprehensive, integrated
DTS can provide the intended functionality.
business transformation plan; (2)
Source: GAO.
sustained leadership and resource
control; (3) clear lines of authority;
Overhauling DOD’s business operations represents a daunting challenge. In
(4) results-oriented performance
December 2005, DOD issued its Financial Improvement and Audit Readiness
measures; (5) appropriate
(FIAR) Plan to provide DOD components with a road map for achieving the
individual and organizational
following objectives: (1) resolving problems affecting the accuracy, reliability,
incentives and consequences; and
and timeliness of financial information; and (2) obtaining clean financial
(6) a consistent and sustained
emphasis on improving the
statement audit opinions. The FIAR Plan, which does not establish specific
department’s ability to provide
target dates for achieving clean financial statement audit opinions within
timely, reliable, and useful
DOD, recognizes that it will take several years before DOD is able to
information for decision making,
implement the systems, processes, and other improvements needed to
oversight, and reporting.
address its financial management challenges. Ultimately, the FIAR Plan’s
success will be measured by its capability to achieve sustained improvements
in DOD’s ability to support decision making, analysis, oversight, and reporting.
Page 57
GAO-07-310 High-Risk Update
Related Products
Department of Defense Financial Management
Defense Travel System: Reported Savings Questionable and Implementation
Challenges Remain. GAO-06-980. Washington, D.C.: September 26, 2006.
Financial Management: Improvements Under Way but Serious Financial
Systems Problems Persist. GAO-06-970. Washington, D.C.: September 26,
2006.
Department of Defense: Sustained Leadership Is Critical to Effective
Financial and Business Management Transformation. GAO-06-1006T.
Washington, D.C.: August 3, 2006.
Defense Working Capital Fund: Military Services Did Not Calculate and
Report Carryover Amounts Correctly. GAO-06-530. Washington, D.C.: June 27,
2006.
Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have Struggled to
Resolve Military Debts. GAO-06-494. Washington, D.C.: April 27, 2006.
Environmental Liabilities: Long-Term Fiscal Planning Hampered by
Control Weaknesses and Uncertainties in the Federal Government’s
Estimates. GAO-06-427. Washington, D.C.: March 31, 2006.
Fiscal Year 2005 U.S. Government Financial Statements: Sustained
Improvement in Federal Financial Management Is Crucial to Addressing
Our Nation’s Financial Condition and Long-Term Fiscal Imbalance.
GAO-06-406T. Washington, D.C.: March 1, 2006.
DOD Business Transformation: Defense Travel System Continues to Face
Implementation Challenges. GAO-06-18. Washington, D.C.: January 18, 2006.
Global War on Terrorism: DOD Needs to Improve the Reliability of Cost
Data and Provide Additional Guidance to Control Costs. GAO-05-882.
Washington, D.C.: September 21, 2005.
Army Corps of Engineers: Improved Planning and Financial Management
Should Replace Reliance on Reprogramming Actions to Manage Project
Funds. GAO-05-946. Washington, D.C.: September 16, 2005.
DOD Problem Disbursements: Long-standing Accounting Weaknesses Result
in Inaccurate Records and Substantial Write-offs. GAO-05-521. Washington,
D.C.: June 2, 2005.
Page 58
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Supply Chain
Management
For additional information about this high-
risk area, contact William M. Solis at (202)
512-8365 or solisw@gao.gov.
Why Area Is High Risk
What GAO Found
As a result of weaknesses in the
While DOD has taken a number of positive steps toward improving its supply
Department of Defense’s (DOD)
chain management, it has continued to experience weaknesses in its ability to
management of supply inventories
provide efficient and effective supply support. Consequently, the department
and responsiveness to warfighter
has been unable to consistently meet its goal of delivering the “right items to
requirements, supply chain
the right place at the right time” to support the deployment and sustainment
management has been on GAO’s
of military forces. For example, DOD experienced substantial delays in
high-risk list since 1990. The
meeting warfighter requirements for truck armor kits during Operation Iraqi
availability of spare parts and other
Freedom (OIF), placing troops at greater risk as they conducted wartime
critical supply items affects the
operations in vehicles not equipped with the preferred level of protection.
readiness and operational
capabilities of U.S. military forces,
Since the onset of OIF, systemic deficiencies contributing to supply shortages
and the supply chain can determine
have included inaccurate Army war reserve requirements, inaccurate supply
whether U.S. military forces win or
forecasts, insufficient and delayed funding, delayed acquisition, and
lose on the battlefield. The
ineffective distribution. Although DOD has taken actions to improve and
investment of resources in the
streamline aspects of its supply chain, barriers remain. For example, DOD’s
supply chain is substantial,
ability to make coordinated, systemic improvements that cut across the
amounting to more than $150
multiple organizations involved in the materiel distribution system has been
billion in fiscal year 2005,
hindered by problems defining who has accountability and authority for
according to DOD. GAO’s prior
making such improvements.
work over the last several years has
identified three focus areas that are
Beginning in 2005, DOD developed a plan to address long-term systemic
critical to resolving supply chain
management problems:
weaknesses in supply chain management. The plan encompasses 10
requirements forecasting, asset
initiatives, such as war reserve materiel improvements and the expanded use
visibility, and materiel distribution.
of radio frequency identification, that address the three focus areas GAO has
identified. DOD leadership has demonstrated a commitment to resolving
What Remains to Be Done
supply chain management problems, and DOD is making progress
implementing initiatives in the plan. However, it will take several years to
To successfully resolve supply
fully implement these initiatives. Further, the department faces challenges
chain management problems, DOD
and risks in successfully implementing its proposed changes across the
needs to sustain top leadership
department and measuring progress. For example, DOD lacks outcome-
commitment and long-term
institutional support for the supply
focused performance measures for many of its initiatives, making it difficult to
chain management improvement
track and demonstrate progress in improving the three focus areas.
plan; obtain necessary resource
commitments from the military
In a separate effort, DOD has been developing a “road map” for its future
services, the Defense Logistics
logistics programs and initiatives. The road map is intended to portray where
Agency, and other organizations;
the department is headed in the logistics area, how it will get there, and what
make substantial progress in
progress is being made toward achieving its objectives. The road map also is
implementing improvement
intended to link ongoing capability development, program reviews, and
initiatives across the department;
budgeting. Once completed, the road map could potentially fill a long-term
and establish a program to
need for a comprehensive, departmentwide logistics re-engineering strategy to
demonstrate progress and validate
guide implementation of DOD, service, and defense agency supply chain
the effectiveness of the initiatives.
DOD also should ensure that its
initiatives.
logistics road map provides a
comprehensive, integrated strategy
for guiding supply chain
management improvement efforts.
Page 59
GAO-07-310 High-Risk Update
Related Products
Department of Defense Supply Chain Management
DOD’s High-Risk Areas: Progress Made Implementing Supply Chain
Management Recommendations, but Full Extent of Improvement Unknown.
GAO-07-234. Washington, D.C.: January 17, 2007.
DOD’s High-Risk Areas: Challenges Remain to Achieving and
Demonstrating Progress in Supply Chain Management. GAO-06-983T.
Washington, D.C.: July 25, 2006.
Defense Logistics: Lack of a Synchronized Approach between the Marine
Corps and Army Affected the Timely Production and Installation of Marine
Corps Truck Armor. GAO-06-274. Washington, D.C.: June 22, 2006.
Defense Management: Attention Is Needed to Improve Oversight of DLA
Prime Vendor Program. GAO-06-739R. Washington, D.C.: June 19, 2006.
Defense Inventory: Actions Needed to Improve Inventory Retention
Management. GAO-06-512. Washington, D.C.: May 25, 2006.
Defense Logistics: Several Factors Limited the Production and Installation
of Army Truck Armor during Current Wartime Operations. GAO-06-160.
Washington, D.C.: March 22, 2006.
DOD’s High-Risk Areas: High-Level Commitment and Oversight Needed for
DOD Supply Chain Plan to Succeed. GAO-06-113T. Washington, D.C.:
October 6, 2005.
Defense Logistics: Better Strategic Planning Can Help Ensure DOD’s
Successful Implementation of Passive Radio Frequency Identification.
GAO-05-345. Washington, D.C.: September 12, 2005.
Defense Logistics: DOD Has Begun to Improve Supply Distribution
Operations, but Further Actions Are Needed to Sustain These Efforts.
GAO-05-775. Washington, D.C.: August 11, 2005.
Defense Logistics: Actions Needed to Improve the Availability of Critical
Items during Current and Future Operations. GAO-05-275. Washington,
D.C.: April 8, 2005.
Page 60
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Weapon Systems
Acquisition
For additional information about this high-
risk area, contact Katherine V. Schinasi
(202) 512-4841 or schinasik@gao.gov.
Why Area Is High Risk
What GAO Found
Developing and acquiring high
DOD is facing a cascading number of problems in managing its acquisitions.
performance weapons is central to
Significant cost increases mean DOD can neither produce as many weapons
the Department of Defense’s (DOD)
as intended nor be relied on to deliver weapons to the warfighter when
ability to fight and win wars. DOD’s
promised. DOD knows what to do to achieve more successful outcomes but
investment in weapons is growing—
finds it difficult to apply the necessary discipline and controls or assign much-
from about $157 billion in fiscal year
needed accountability. DOD has written into policy an approach that
2006 to an estimated $188 billion by
emphasizes attaining a certain level of knowledge at critical junctures before
fiscal year 2011—as it pushes to
managers agree to invest more money in the next phase of weapon system
transform itself to meet a broad
development. This knowledge-based approach results in evolutionary----- that is
range of complex threats. Weapon
systems routinely take much longer
incremental, manageable, predictable----- development and inserts several
to field, cost more to buy, and
controls to help managers gauge progress in meeting cost, schedule, and
require more support than provided
performance goals.
for in investment plans. When
acquisition programs require more
But DOD has not been employing the knowledge-based approach, discipline
resources than planned, the buying
has been lacking, and business cases have not measured up. In particular, the
power of the defense dollar is
department accepts high levels of technology risk at the start of major
reduced because trade-offs among
acquisition programs. Mature technologies are pivotal to developing new
other weapon programs or defense
products. Without mature technologies at the outset, a program will almost
needs must be made. Consequently,
certainly incur cost and schedule problems. However, DOD’s acquisition
GAO has designated this as a high-
community works with technologies before they are ready and takes on
risk area since 1990.
responsibility for technology development and product development
What Remains to Be Done
concurrently. Our work has also shown that DOD allows programs to begin
without establishing a sound business case in terms of requirements,
DOD needs to take additional steps
technology, knowledge-based acquisition strategy, time, cost and funding.
to achieve outcomes that justify its
And once programs begin, requirements and funding change over time. In
investments. These steps include
fact, program managers consider requirements and funding instability----- which
•
developing and implementing
occur throughout the program----- to be their biggest obstacles to success.
an acquisition investment
strategy,
Program approvals in DOD have shown a decided lack of restraint. DOD’s
•
ensuring that individual
programs are executable, and
requirements process generates more demand for new programs than fiscal
•
clearly delineating
resources can support. DOD compounds the problem by approving so many
responsibilities and holding
highly complex and interdependent programs. Once too many programs are
people accountable.
approved, the budgeting process must broker trades to stay within realistic
funding levels. Because programs are funded annually and departmentwide
While DOD has incorporated into
cross-portfolio priorities have not been established, competition for funding
policy a framework that supports a
continues over time, forcing programs to view success as the ability to secure
knowledge-based acquisition process
the next funding increment rather than delivering capabilities when and as
similar to that used by leading
promised.
organizations, it must establish
stronger controls to ensure that
DOD has recognized these problems and plans to take a series of corrective
decisions on individual programs are
informed by demonstrated
actions, some of which are mandated by law. It is focusing on laying a better
knowledge.
foundation for programs before they begin product development. DOD has
just begun piloting some of these actions, so the proof of actual
implementation may be years away. These initiatives also may not necessarily
be applied to programs already under way.
Page 61
GAO-07-310 High-Risk Update
Related Products
Department of Defense Weapon Systems Acquisition
Defense Acquisitions: Actions Needed to Get Better Results on Weapon
Systems Investments. GAO-06-585T. Washington, D.C.: April 5, 2006.
Best Practices
Best Practices: Stronger Practices Needed to Improve DOD Technology
Transition Processes. GAO-06-883. Washington, D.C.: September 14, 2006.
Defense Acquisitions: Major Weapon Systems Continue to Experience Cost
and Schedule Problems under DOD’s Revised Policy. GAO-06-368.
Washington, D.C.: April 13, 2006.
Space Acquisitions: Improvements Needed in Space Systems Acquisitions
and Keys to Achieving Them. GAO-06-626T. Washington, D.C.: April 6, 2006.
Defense Acquisitions: Assessments of Selected Major Weapon Programs.
GAO-06-391. Washington, D.C.: March 31, 2006.
Best Practices: Better Support of Weapon System Program Managers Needed
to Improve Outcomes. GAO-06-110. Washington, D.C.: November 30, 2005.
Weapon System Reviews
Defense Acquisitions: Restructured JTRS Program Reduces Risk, but
Significant Challenges Remain. GAO-06-955. Washington, D.C.: September
11, 2006.
Tactical Aircraft: Questions Concerning the F-22A’s Business Case. GAO-06-
991T. Washington, D.C.: July 25, 2006.
Space Acquisitions: DOD Needs Additional Knowledge as It Embarks on a
New Approach for Transformational Satellite Communications System.
GAO-06-537. Washington, D.C.: May 24, 2006.
Electronic Warfare: Option of Upgrading Additional EA-6Bs Could Reduce
Risk in Development of EA-18G. GAO-06-446. Washington, D.C.: April 26,
2006.
Joint Strike Fighter: DOD Plans to Enter Production before Testing
Demonstrates Acceptable Performance. GAO-06-356. Washington, D.C.: March
15, 2006.
Defense Acquisitions: Missile Defense Agency Fields Initial Capability but
Falls Short of Original Goals. GAO-06-327. Washington, D.C.: March 15, 2006.
Defense Acquisitions: Improved Business Case Is Needed for Future Combat
System’s Successful Outcome. GAO-06-367. Washington, D.C.: March 14, 2006.
Page 62
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Federal Aviation Administration
Air Traffic Control Modernization
For additional information about this high-
risk area, contact David A. Powner at
(202) 512-9286 or pownerd@gao.gov, or
Gerald L. Dillingham, Ph.D., at (202) 512-
2834 or dillinghamg@gao.gov.
Why Area Is High Risk
What GAO Found
Over the last two decades, the
Faced with growing air traffic and aging equipment, in 1981 FAA initiated an
Federal Aviation Administration
ambitious effort to modernize its air traffic control system. This
(FAA) has been conducting a major
modernization includes the acquisition of new systems and facilities and has
modernization of its air traffic
now been extended to plan for a next-generation air transportation system.
control systems and facilities. FAA
Over the years, projects within this modernization program have experienced
has implemented many systems
cost overruns, schedule delays, and performance shortfalls. GAO has reported
and improvements to date, and it is
on the root causes of these problems, including (1) immature capabilities for
currently pursuing efforts on 45
acquiring systems, (2) lack of an institutionalized architecture, (3) inadequate
projects and planning to transition
cost estimating and accounting practices, (4) an incomplete investment
to a next-generation air
transportation system. Key efforts
management process, and (5) an organizational culture that impairs
include projects to augment the
modernization efforts.
Global Positioning System to aid in
FAA has made important progress in addressing these weaknesses, but more
approaches and landings, to
remains to be done in each of these areas. For example, FAA has
improve radar systems for terminal
environments, and to provide new
established a framework for improving system management capabilities
color displays and data processing
and addressed weaknesses GAO identified on four major air traffic control
to air traffic controllers. GAO
systems, but has not yet institutionalized these improved capabilities;
initially designated FAA’s
continued to develop an enterprise architecture—a blueprint of the
modernization program as high risk
agency’s current and target operations and infrastructure—and has
in 1995, and while progress has
included initial requirements for the next-generation air transportation
been made, it remains high risk
system, but further refinements are expected;
today.
implemented key components of a cost accounting system;
What Remains to Be Done
established a cost estimating methodology, but has yet to implement it;
implemented basic investment management capabilities, but has not yet
GAO has made over 45 specific
integrated these practices across the agency;
recommendations to address
sought to establish an organizational culture that supports sound
root causes of FAA’s modernization
acquisitions, but still faces many human capital challenges, including
problems. The agency has made
obtaining the technical and contract management expertise needed to
progress on these
define, implement, and integrate numerous complex programs and
recommendations, but more must
systems.
be done to institutionalize system
management improvements,
develop and enforce an enterprise
Until the agency fully addresses these residual issues, it will continue to risk
architecture, implement effective
the project management problems affecting cost, schedule, and performance
cost estimation practices and
that have plagued its ability to acquire systems for improving air traffic
investment management processes,
control.
and improve human capital
management.
With FAA expecting to spend about
$9.4 billion through fiscal year 2011
to upgrade and replace air traffic
control systems, these actions are
as critical as ever.
Page 63
GAO-07-310 High-Risk Update
Related Products
Federal Aviation Administration Air Traffic Control
Modernization
Next Generation Air Transportation System: Progress and Challenges
Associated with the Transformation of the National Airspace System.
GAO-07-25. Washington, D.C.: November 13, 2006.
National Airspace System Modernization: Observations on Potential
Funding Options for FAA and the Next Generation Airspace System.
GAO-06-1114T. Washington, D.C.: September 27, 2006.
Next Generation Air Transportation System: Preliminary Analysis of
Progress and Challenges Associated with the Transformation of the
National Airspace System. GAO-06-915T. Washington, D.C.: July 25, 2006.
Air Traffic Control Modernization: Status of the Current Program and
Planning for the Next Generation Air Transportation System. GAO-06-653T.
Washington, D.C.: June 21, 2006.
Air Traffic Control: Status of the Current Modernization Program and
Planning for the Next Generation System. GAO-06-738T. Washington, D.C.:
May 4, 2006.
Next Generation Air Transportation System: Preliminary Analysis of the
Joint Planning and Development Office’s Planning, Progress, and
Challenges. GAO-06-574T. Washington, D.C.: March 29, 2006.
National Airspace System: Transformation Will Require Cultural Change,
Balanced Funding Priorities, and Use of All Available Management Tools.
GAO-06-154. Washington, D.C.: October 14, 2005.
Air Traffic Operations: The Federal Aviation Administration Needs to
Address Major Air Traffic Operating Cost Control Changes. GAO-05-724.
Washington, D.C.: June 23, 2005.
National Airspace System: FAA Has Made Progress but Continues to Face
Challenges in Acquiring Major Air Traffic Control Systems. GAO-05-331.
Washington, D.C.: June 10, 2005.
Federal Aviation Administration: Stronger Architecture Program Needed to
Guide Systems Modernization Efforts. GAO-05-266. Washington, D.C.: April
29, 2005.
Page 64
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Financing the Nation’s Transportation
System
For additional information about this high-
risk area, contact Patricia Dalton at (202)
512-2834 or daltonp@gao.gov.
Why Area Is High Risk
What GAO Found
The nation’s economic vitality and
Highway and transit financing. Revenues to support the Highway Trust
its citizens’ quality of life depend
Fund—the major source of federal highway and transit funding—are eroding.
significantly on the efficiency of its
Receipts for the fund, which are derived from motor fuel and truck-related
transportation infrastructure.
taxes, are continuing to grow but are declining in purchasing power because
Increasingly, however, congestion
the federal motor fuel tax rate has not been increased since 1993.
is threatening the efficiency of this
Furthermore, as vehicles become more fuel efficient and increasingly run on
infrastructure, and the federal
alternative fuels, fuel taxes may not be a sustainable source of transportation
government faces the dual
challenge of providing funds to
financing in the future. Funding authorized in the recently enacted highway
help maintain and expand the
and transit program legislation is expected to outstrip the growth in trust fund
nation’s transportation system and
receipts, leading to a forecasted decline in the trust fund balance and a
of ensuring that these funds are
negative balance by the end of fiscal year 2011. In the face of these
used efficiently. Compounding this
constraints, state and local governments are pursuing alternative financing
challenge are increasing costs of
mechanisms, including tolling projects.
security enhancements and
growing federal funding constraints
Intercity passenger and freight rail financing. The intercity passenger
and policies that limit the use of
rail system is in poor financial condition, and the federal subsidies provided
federal funds to finance
for it are not targeted to the greatest public benefits, such as transportation
improvements in mobility.
congestion relief. GAO has recommended funding mechanisms that include
What Remains to Be Done
cost sharing between the federal government and other beneficiaries. The
freight railroad industry is projected to grow substantially, but the industry’s
In light of the growing demand for
ability to finance the capacity needed to meet this projected growth is
funds to maintain and expand the
uncertain. Increasingly, the expected public benefits of rail projects, such as
nation’s transportation system and
reductions in highway congestion and improved intermodal connections, have
the increasing constraints on
led the federal and state governments to invest public funds in freight rail
federal discretionary spending,
projects. Decision makers face additional decisions in the years ahead and
GAO recommends a reassessment,
will be challenged to make investment decisions that reflect public priorities
for all transportation modes, of (1)
and achieve demonstrable, wide-ranging public benefits.
the federal role and strategy in
funding, selecting, and evaluating
transportation investments; (2)
Aviation financing. Federal aviation programs are also facing growing
mechanisms to seek alternative
infrastructure demands and constrained resources. To meet projected
revenue sources and, where
increases in commercial aviation travel, the Federal Aviation Administration
appropriate, to increase revenues
(FAA) and aviation stakeholders are developing a “next generation air
for infrastructure improvements,
transportation system” to modernize the nation’s air traffic control (ATC)
including user fees and alternatives
infrastructure and increase capacity. This effort is complex and costly: Under
to stimulate private investment,
one limited, preliminary estimate, FAA’s budget would, on average, exceed
while considering their impact on
FAA’s fiscal year 2006 appropriation level by about $1 billion a year (in today’s
the federal budget; and (3) methods
dollars) through 2025. FAA and others have questioned whether the current
of allocating funds to ensure the
funding system—the Aviation Trust Fund—can generate revenues to meet
equity, efficiency, accountability,
and performance of transportation
these budgetary needs. While FAA’s workload and costs are expected to rise,
investments.
in part because of increased use of smaller aircraft, FAA’s revenues may not
keep pace because of projected declines in inflation-adjusted airfares. While
FAA has made some important management improvements with cost control
problems associated with ATC modernization, some questions remain about
FAA’s ability to manage the transition to the next generation system cost-
effectively.
Page 65
GAO-07-310 High-Risk Update
Related Products
Financing the Nation’s Transportation System
Intercity Passenger Rail: National Policy and Strategies Needed to
Maximize Public Benefits from Federal Expenditures. GAO-07-15.
Washington, D.C.: November 13, 2006.
Freight Railroads: Industry Health Has Improved, but Concerns about
Competition and Capacity Should be Addressed. GAO-07-94. Washington,
D.C.: October 6, 2006.
Aviation Finance: Observations on Potential FAA Funding Options.
GAO-06-973. Washington, D.C.: September 29, 2006.
National Airspace System Modernization: Observations on Potential
Funding Options for FAA and the Next Generation Airspace System.
GAO-06-1114T. Washington, D.C.: September 27, 2006.
Highway Finance: States’ Expanding Use of Tolling Illustrates Diverse
Challenges and Strategies. GAO-06-554. Washington, D.C.: June 28, 2006.
Highway Trust Fund: Overview of Highway Trust Fund Estimates. GAO-06-
572T. Washington, D.C.: April 4, 2006.
Freight Transportation: Short Sea Shipping Option Shows Importance of
Systematic Approach to Public Investment Decisions. GAO-05-768.
Washington, D.C.: July 29, 2005.
Highlights of an Expert Panel: The Benefits and Costs of Highway and
Transit Investments. GAO-05-423SP. Washington, D.C.: May 6, 2005.
Highway And Transit Investments: Options for Improving Information on
Projects' Benefits and Costs and Increasing Accountability for Results.
GAO-05-172. Washington, D.C.: January 24, 2005.
Federal-Aid Highways: Trends, Effect on State Spending, and Options for
Future Program Design. GAO-04-802. Washington, D.C.: August 31, 2004.
Surface Transportation: Many Factors Affect Investment Decisions. GAO-04-
744. Washington, D.C.: June 30, 2004.
Page 66
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Ensuring the Effective Protection of
Technologies Critical to U.S. National
For additional information about this high-
risk area, contact Ann Calvaresi-Barr at
Security Interests
(202) 512-4841 or
calvaresibarra@gao.gov.
Why Area Is High Risk
What GAO Found
To maintain technological
Over the years, GAO has identified weaknesses in the effectiveness and
superiority on the battlefield, the
efficiency of government programs designed to protect critical technologies
Department of Defense annually
while advancing U.S. interests. These programs include those that regulate
spends billions of dollars to
U.S. defense-related exports, investigate proposed foreign acquisitions of U.S.
develop and produce advanced
national security-related companies, and oversee contractors under foreign
weaponry. At the same time, these
influence that work with classified information. Multiple agencies are
weapons and militarily useful
responsible for administering these programs, including the Departments of
technologies are sold overseas by
Commerce, Defense, State, and Treasury. While each program has its own set
the U.S. government and
of challenges, GAO found that these weaknesses are largely attributable to
companies for foreign policy,
security, and economic reasons.
poor coordination within complex interagency processes, inefficiencies in
However, these technologies are
program operations, and a lack of evaluations for regularly assessing program
targets for theft, espionage, reverse
effectiveness and identifying corrective actions. The impacts of these
engineering, and illegal export.
weaknesses are not always visible or immediate but increase the risk of
military gains by entities with interests contrary to those of the United States
The U.S. government has a myriad
and of financial harm to U.S. companies.
of programs intended to identify
and protect critical technologies so
Several of the programs designed to protect critical technologies are
they can be transferred to foreign
inherently complex. However, poor coordination and fundamental
parties consistent with varying U.S.
disagreements among the departments have had unintended consequences for
interests. Yet these programs—
both national security and economic interests. For instance, the departments
established decades ago—are ill-
equipped to weigh competing U.S.
that investigate proposed foreign acquisitions currently lack a coordinated
interests in the current security
approach for defining what constitutes a threat to national security and what
environment and as technological
warrants an investigation to ensure that the risk of foreign ownership is
innovation evolves in the 21st
mitigated. Also, while the government officials responsible for protecting
century. Accordingly, GAO is
critical technologies may appropriately take time to make decisions as they
designating the effective
consider the multiple interests involved, inefficiencies in the various programs
identification and protection of
have created unnecessary delays in sharing critical technologies with allies. In
critical technologies as a
addition, the departments charged with protecting critical technologies have
governmentwide high-risk area.
not systematically evaluated their respective programs to determine whether
they are fulfilling their missions in a changing environment and whether
What Remains to Be Done
corrective actions are needed. For example, following the 2001 terror attacks,
To improve existing technology
Commerce and State did not systematically assess the effectiveness of their
protection programs, agencies need
respective export control programs and, therefore, were not in a position to
to implement the many GAO
identify and implement corrective measures.
recommendations that remain
unaddressed. In addition, further
While GAO has recommended numerous corrective actions to address these
action is needed. The legislative
weaknesses and inefficiencies, the departments involved have not
and executive branches should
implemented many of the recommendations that address the most
strategically examine existing
fundamental problems affecting the protection of critical technologies, such
programs, evaluate alternative
as clearly determining which department controls the export of certain
approaches, and develop a
comprehensive framework with
defense technologies. Legislation has been introduced to reform aspects of
clear responsibilities and
these programs. However, to date legislation has not been enacted to overhaul
accountability for identifying and
the programs and executive action has not resulted in fundamental changes to
protecting critical technologies.
these programs as global forces continue to reshape U.S. national security and
economic interests.
Page 67
GAO-07-310 High-Risk Update
Related Products
Ensuring the Effective Protection of Technologies Critical to
U.S. National Security Interests
Export Controls: Challenges Exist in Enforcement of an Inherently Complex
System. GAO-07-265. Washington, D.C.: December 20, 2006.
Defense Technologies: DOD’s Critical Technologies Lists Rarely Inform
Export Control and Other Policy Decisions. GAO-06-793. Washington, D.C.:
July 28, 2006.
DOD Excess Property: Control Breakdowns Present Significant Security
Risk and Continuing Waste and Inefficiency. GAO-06-943. Washington, D.C.:
July 25, 2006.
President's Justification of the High Performance Computer Control
Threshold Does Not Fully Address National Defense Authorization Act of
1998 Requirements. GAO-06-754R. Washington, D.C.: June 30, 2006.
Export Controls: Improvements to Commerce’s Dual-Use System Needed to
Ensure Protection of U.S. Interests in the Post-9/11 Environment. GAO-06-
638. Washington, D.C.: June 26, 2006.
Defense Trade: Enhancements to the Implementation of Exon-Florio Could
Strengthen the Law’s Effectiveness. GAO-05-686. Washington, D.C.:
September 28, 2005.
Industrial Security: DOD Cannot Ensure Its Oversight of Contractors under
Foreign Influence Is Sufficient. GAO-05-681. Washington, D.C.: July 15, 2005.
Defense Trade: Arms Export Control Vulnerabilities and Inefficiencies in
the Post-9/11 Security Environment. GAO-05-468R. Washington, D.C.: April 7,
2005.
Defense Trade: Arms Export Control System in the Post-9/11 Environment.
GAO-05-234. Washington, D.C.: February 16, 2005.
Defense Acquisitions: DOD Needs to Better Support Program Managers’
Implementation of Anti-Tamper Protection. GAO-04-302. Washington, D.C.:
March 31, 2004.
Defense Trade: Better Information Needed to Support Decisions Affecting
Proposed Weapons Transfers. GAO-03-694. Washington, D.C.: July 11, 2003.
Export Controls: Clarification of Jurisdiction for Missile Technology Items
Needed. GAO-02-120. Washington, D.C.: October 9, 2001.
Page 68
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Transforming Federal Oversight of Food
Safety
For additional information about this high-
risk area, contact Lisa Shames at (202)
512-3841 or shamesl@gao.gov.
Why Area Is High Risk
What GAO Found
Each year, about 76 million people
This nation enjoys a plentiful and varied food supply that is generally
contract a foodborne illness in the
considered to be safe. However, the patchwork nature of the federal oversight
U.S.; about 325,000 require
of food safety calls into question whether the government can plan more
hospitalization; and about 5,000
strategically to inspect food production processes, identify and react more
die. In addition, agriculture, as the
quickly to any outbreaks of contaminated food, and focus on achieving results
largest industry and employer in
to promote the safety and the integrity of the nation’s food supply. This
the United States, generates more
challenge is even more urgent since the terrorist attacks of September 11,
than $1 trillion in economic activity
2001, heightened awareness of agriculture’s vulnerabilities to terrorism.
annually. The value of U.S.
agricultural exports exceeded $68
billion in fiscal year 2006.
A 21st century challenge is to integrate the fragmented federal food safety
system in which 15 agencies collectively administer at least 30 laws related to
What Remains to Be Done
food safety. The two primary agencies are the U.S. Department of Agriculture
(USDA), which is responsible for the safety of meat, poultry, and processed
While many of the
egg products, and the Food and Drug Administration (FDA), which is
recommendations GAO made have
responsible for virtually all other foods. The Department of Homeland
been acted upon, a fundamental re-
Security (DHS) is responsible for coordinating agencies’ food security
examination of the federal food
activities.
safety system is warranted. GAO
has recommended comprehensive,
uniform, and risk-based food safety
During the past 30 years, GAO has reported that the system has caused
legislation, a detailed analysis of
inconsistent oversight, ineffective coordination, and inefficient use of
alternative organizational food
resources. GAO’s most recent work demonstrates that these challenges
safety structures, and a reconvened
persist. Specifically:
Council on Food Safety to facilitate
interagency coordination on food
•
Existing statutes give agencies different regulatory and enforcement
safety regulation and programs.
authorities. Food products under FDA’s jurisdiction may be marketed
without prior approval while under USDA’s jurisdiction they must
Going forward, to build a sustained
generally be inspected and approved as meeting federal standards before
focus on the safety and integrity of
being sold to the public. USDA inspectors examine each slaughtered
the nation’s food supply,
carcass and visit each facility at least once during each operating day. For
developing a governmentwide
performance plan that is mission
foods under FDA’s jurisdiction, however, federal law does not mandate
based, has a results orientation,
the frequency of inspections.
and provides a cross-agency
•
Food recalls are voluntary. However, USDA and FDA do not know how
perspective offers a framework to
promptly and completely companies are carrying out recalls, do not
help ensure agencies’ goals are
promptly verify that recalls have reached all segments of the distribution
complementary and mutually
chain, and use procedures to alert consumers to a recall that may not be
reinforcing.
effective.
•
Agencies have taken steps to better manage the risks of agroterrorism,
including the development of national plans and the adoption of standard
protocols. However, there are weaknesses regarding the flow of critical
information among key stakeholders and shortcomings in DHS’s
coordination of federal working groups and research efforts.
Transformation of the federal oversight framework for food safety is needed
to reduce the risks to public health and as well as the economy.
Page 69
GAO-07-310 High-Risk Update
Related Products
Transforming Federal Oversight of Food Safety
Homeland Security: Management and Coordination Problems Increase the
Vulnerability of U.S. Agriculture to Foreign Pests and Disease. GAO-06-644.
Washington, D.C.: May 19, 2006.
Oversight of Food Safety Activities: Federal Agencies Should Pursue
Opportunities to Reduce Overlap and Better Leverage Resources. GAO-05-
213. Washington, D.C.: March 30, 2005.
Food Safety: Experiences of Seven Countries in Consolidating Their Food
Safety Systems. GAO-05-212. Washington, D.C.: February 22, 2005.
Food Safety: USDA and FDA Need to Better Ensure Prompt and Complete
Recalls of Potentially Unsafe Food. GAO-05-51. Washington, D.C.: October 6,
2004.
Antibiotic Resistance: Federal Agencies Need to Better Focus Efforts to
Address Risk to Humans from Antibiotic Use in Animals. GAO-04-490.
Washington, D.C.: April 22, 2004.
School Meal Program: Few Instances of Foodborne Outbreaks Reported, but
Opportunities Exist to Enhance Outbreak Data and Food Safety Practices.
GAO-03-530. Washington, D.C.: May 9, 2003.
Food-Processing Security: Voluntary Efforts Are Under Way, but Federal
Agencies Cannot Fully Assess Their Implementation. GAO-03-342.
Washington, D.C.: February 14, 2003.
Meat and Poultry: Better USDA Oversight and Enforcement of Safety Rules
Needed to Reduce Risk of Foodborne Illnesses. GAO-02-902. Washington, D.C.:
August 30, 2002.
Genetically Modified Foods: Experts View Regimen of Safety Tests as
Adequate, but FDA’s Evaluation Process Could Be Enhanced. GAO-02-566.
Washington, D.C.: May 23, 2002.
Food Safety: Improvements Needed in Overseeing the Safety of Dietary
Supplements and “Functional Foods.” GAO/RCED-00-156. Washington, D.C.:
July 11, 2000.
Page 70
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Defense Contract
Management
For additional information about this high-
risk area, contact Katherine V. Schinasi at
(202) 512-4841 or schinasik@gao.gov.
Why Area Is High Risk
What GAO Found
The Department of Defense (DOD)
DOD continues to experience poor acquisition outcomes and missed
obligated nearly $270 billion in
opportunities to improve its approach to buying goods and services. For
fiscal year 2005 to equip and
example, in November 2006, GAO reported that DOD’s management approach
support the military forces, but is
lacked the necessary strategic vision and sustained commitment to address
not able to assure it is using sound
service acquisition risks and foster better outcomes. In this regard, DOD had
business practices to acquire the
not developed a strategy to gauge whether ongoing and planned initiatives
goods and services needed to meet
would achieve intended results. At the transactional level, DOD focused
the warfighter’s needs. For
primarily on awarding contracts, with less attention paid to formulating
example, DOD is increasingly
acquisition requirements or assessing service delivery. Further, the results of
relying on contractor-provided
services but has not fully
individual acquisitions were generally not used to inform strategic decision
implemented a strategic approach
making. Overall, GAO found that DOD was ill-positioned to determine
to buying services. Additionally,
whether investments in services were achieving desired outcomes.
DOD has not always made sound
use of various techniques to
GAO identified weaknesses across a broad spectrum of contractual business
acquire goods and services.
arrangements. For example, GAO found that DOD frequently initiated work on
Further, DOD has not had a
Iraq reconstruction efforts before requirements were defined or understood,
comprehensive plan to ensure its
resulting in increased costs, schedule delays, and reduced scopes of work.
workforce has the right skills and
When requirements were not clear, DOD often entered into arrangements that
capabilities. GAO designated DOD
allowed contractors to begin work, but imposed additional risks on DOD. For
contract management as a high-risk
example, DOD contracting officials were less likely to remove costs
area in 1992.
questioned by auditors from a contractor’s proposal when the contractor had
What Remains to Be Done
already incurred the costs. In five audits that questioned about $600 million in
costs, contracting officials determined that the contractor should be paid for
To improve outcomes, DOD needs
all but $38 million. DOD did not always take advantage of the benefits of
to
competition. For example, DOD awarded contracts for guard services on an
take action at the strategic and
authorized sole-source basis despite recognizing it was paying about 25
transactional level to improve
percent more than it had under previously competed contracts. Another
its acquisition of services;
element of a sound business arrangement is the use of award and incentive
definitize contracts in a timely
fees to encourage improved contractor performance. GAO found that DOD
fashion, reassess its acquisition
strategies to provide for
often used criteria that were not directly related to outcomes, generally paid a
competition, and revise its
significant portion of the available fee regardless of outcomes, and provided
award fee guidance; and
contractors opportunities to earn unearned or deferred fees. GAO estimated
improve its oversight
that DOD paid out an estimated $8 billion in award fees on contracts in the
procedures.
study population, regardless of whether outcomes fell short of DOD’s
expectations, were satisfactory, or exceeded expectations.
DOD generally concurred with
GAO’s recommendations and is
Providing effective oversight is essential to ensure DOD does not pay more
taking action to implement them.
than the value of the goods delivered or services performed. At times, DOD’s
Improving outcomes will require
oversight was wanting, as it did not always task personnel with oversight
DOD leadership to set the
duties or establish clear lines of accountability, especially on interagency
appropriate tone at the top and
ensure its personnel adhere to
contracts. Conducting oversight and meeting other challenges, however,
sound contracting practices.
require a capable workforce. In June 2006, DOD released a strategic plan for
its acquisition workforce that specifies the steps it plans to take over the next
2 years to identify the skills and competencies needed for the future.
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GAO-07-310 High-Risk Update
Related Products
Department of Defense Contract Management
Defense Acquisitions: Tailored Approach Needed to Improve Service
Acquisition Outcomes. GAO-07-20. Washington, D.C.: November 9, 2006.
DOD Contracting: Efforts Needed to Address Commercial Air Force
Acquisition Risk. GAO-06-995. Washington, D.C.: September 29, 2006.
Rebuilding Iraq: Continued Progress Requires Overcoming Contract
Management Challenges. GAO-06-1130T. Washington, D.C.: September 28,
2006.
Iraq Contract Costs: DOD Consideration of Defense Contract Audit Agency’s
Findings. GAO-06-1132. Washington, D.C.: September 25, 2006.
Contract Management: Service Contract Approach to Aircraft Simulator
Training Has Room for Improvement. GAO-06-830. Washington, D.C.:
September 22, 2006.
DOD Acquisitions: Contracting for Better Outcomes. GAO-06-800T.
Washington, D.C.: September 7, 2006.
Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste,
and Abuse. GAO-06-838R. Washington, D.C.: July 7, 2006.
Defense Management: Attention Is Needed to Improve Oversight of DLA
Prime Vendor Program. GAO-06-739R. Washington, D.C.: June 19, 2006.
Hurricane Katrina: Army Corps of Engineers Contract for Mississippi
Classrooms. GAO-06-454. Washington, D.C.: May 1, 2006.
Contract Security Guards: Army’s Guard Program Requires Greater
Oversight and Reassessment of Acquisition Approach. GAO-06-284.
Washington, D.C.: April 3, 2006.
Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees
Regardless of Acquisition Outcomes. GAO-06-66. Washington, D.C.:
December 19, 2005.
Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts. GAO-05-274. Washington, D.C.:
March 17, 2005.
Page 72
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Department of Energy Contract
Management
For additional information about this high-
risk area, contact Robert A. Robinson at
(202) 512-3841 or robinsonr@gao.gov.
Why Area Is High Risk
What GAO Found
The Department of Energy
DOE’s contract management, including both contract administration and
(DOE)—the largest contracting
project management, continues to be at high risk for fraud, waste, abuse, and
agency in the federal government
mismanagement. In January 2005, GAO reported that the department was
after the Department of Defense—
making efforts to strengthen contracting guidance and improve performance
relies primarily on contractors to
accountability for contractors and DOE project managers but that
carry out its diverse missions and
performance problems continued on DOE’s major projects. These conditions
operate its laboratories and other
have not substantially changed.
facilities. About 90 percent of
DOE’s budget, or about $22 billion
Over the last 2 years, however, DOE has continued efforts to address its
annually, is spent on contracts. In
1990, GAO designated DOE
contract and project management problems. For example, the Office of
contract management as a high-risk
Environmental Management, which is responsible for overseeing the
area because of DOE’s record of
department’s annual $7 billion in environmental cleanup work, is in the
both inadequate management and
process of integrating contract and project management under a new deputy
oversight of contractors and failure
assistant secretary for acquisition and project management. The new position
to hold contractors accountable.
is aimed at improving efficiency and oversight of contracting and project
management. Also, in a departmentwide effort to improve project oversight,
What Remains to Be Done
DOE recently announced it had certified all of its federal project directors as
having completed rigorous competency and training requirements. In
To further strengthen DOE’s
contract and project management
addition, DOE began taking steps to assess the accuracy of the cost and
so that it can demonstrate
schedule data used to oversee contractor performance in implementing
improved results from its
projects. Finally, in response to an Office of Management and Budget request
contractors, GAO made a series of
to federal agencies with activities on GAO’s high-risk list, DOE developed an
recommendations that collectively
action plan to strengthen the department’s management of contracts and
call for DOE to improve its
projects. The plan includes an implementation schedule and performance
measures for assessing both
measures for assessing its effectiveness.
contractor performance and the
department’s progress toward
While DOE is continuing its improvement efforts, GAO found that
addressing weaknesses in contract
performance problems still regularly occur on DOE’s major projects. For
and project management, to
example, DOE continued to experience significant cost and schedule growth
improve its oversight of
contractors, and to strengthen
in constructing facilities to stabilize and treat 55 million gallons of radioactive
accountability for performance.
waste in Hanford, Washington. Since the contract was awarded in 2000, the
DOE generally agreed with the
estimated project costs have increased from $4.3 billion to over $12 billion,
recommendations. In some cases,
and the completion date for constructing the facilities has been extended 8
DOE asserted that its ongoing
years to 2019. This resulted, in large part, from DOE’s continued reliance on a
efforts already addressed the
practice of concurrently designing and constructing one-of-a-kind facilities, as
recommendations; however, GAO
well as poor contractor performance and inadequate oversight by the
concluded that further
department. In general, GAO found that DOE did not ensure, prior to
improvements were needed.
awarding its contracts for major projects, that the contracts included effective
performance incentives for contractors to control project costs and schedule.
Additionally, in developing its action plan to strengthen contract and project
management, the department did not conduct a root-cause analysis to fully
understand the causes of its contract and project management problems.
Page 73
GAO-07-310 High-Risk Update
Related Products
Department of Energy Contract Management
Nuclear Cleanup of Rocky Flats: DOE Can Use Lessons Learned to Improve
Oversight of Other Sites’ Cleanup Activities. GAO-06-352. Washington, D.C.:
July 10, 2006.
DOE Contracting: Better Performance Measures and Management Needed to
Address Delays in Awarding Contracts. GAO-06-722. Washington, D.C.:
June 30, 2006.
DOE Contracting: Improved Program Management Could Help Achieve
Small Business Goal. GAO-06-501. Washington, D.C.: April 7, 2006.
Hanford Waste Treatment Plant: Contractor and DOE Management
Problems Have Led to Higher Costs, Construction Delays, and Safety
Concerns. GAO-06-602T. Washington, D.C.: April 6, 2006.
Yucca Mountain: Quality Assurance at DOE’s Planned Nuclear Waste
Repository Needs Increased Management Attention. GAO-06-313.
Washington, D.C.: March 17, 2006.
Stand-Down of Los Alamos National Laboratory: Total Costs Uncertain;
Almost All Mission-Critical Programs Were Affected but Have Recovered.
GAO-06-83. Washington, D.C.: November 18, 2005.
Department of Energy: Improved Guidance, Oversight, and Planning Are
Needed to Better Identify Cost-Saving Alternatives for Managing Low-Level
Radioactive Waste. GAO-06-94. Washington, D.C.: October 31, 2005.
Department of Energy: Additional Opportunities Exist for Reducing
Laboratory Contractors’ Support Costs. GAO-05-897. Washington, D.C.:
September 9, 2005.
Department of Energy: Improved Oversight Could Better Ensure
Opportunities for Small Business Subcontracting. GAO-05-459.
Washington, D.C.: May 13, 2005.
Department of Energy: Further Actions Are Needed to Strengthen Contract
Management for Major Projects. GAO-05-123. Washington, D.C.: March 18,
2005.
Page 74
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights National Aeronautics and Space
Administration Contract Management
For additional information about this high-
risk area, contact Allen Li at (202) 512-
4841or lia@gao.gov.
Why Area Is High Risk
What GAO Found
NASA’s success largely depends on
We reported in 2003 that NASA’s integrated financial management program
the work of its contractors—on
did not address many of its most significant management challenges,
which NASA spends about 85
including producing credible cost estimates and providing the information
percent of its annual budget. In
needed to monitor contractor performance. Since then, NASA has made some
1990, GAO designated NASA’s
progress towards implementing its system. For example, the agency has
contract management as high risk.
instituted a corrective action plan focused on the recommendations we made
This area has been designated as
in conjunction with our 2005 review, to include (1) releasing an updated
high risk principally because NASA
version of its architecture and information technology investment sequencing
has lacked a modern financial
plan; (2) initiating reviews of proposed and existing investments to determine
management system to provide
accurate and reliable information
alignment with the architecture; (3) implementing a requirements
on contract spending and placed
management process that complies with applicable standards and NASA
little emphasis on product
requirements, including validation processes that capture necessary metrics
performance, cost controls, and
that allow officials to evaluate the effectiveness of processes; and (4)
program outcomes. These
implementing life-cycle cost estimates for the program.
weaknesses pose significant
challenges to NASA’s ability to
As we reported in 2006, the key for federal agencies, including NASA, to avoid
implement corrective actions and
the long-standing problems that have plagued financial management system
make informed investment
improvement efforts is to (1) develop a concept of operations; (2) define
decisions. Due to the considerable
standard business processes, which may include reengineering existing
challenges NASA continues to face
processes; and (3) effectively implement the disciplined processes necessary
in implementing effective systems
and processes, contract
to manage the project. Although NASA has made progress toward
management remains high risk.
implementing disciplined project management processes, limited progress has
been made in other areas, including reengineering NASA’s contractor cost
What Remains to Be Done
reporting process. As a result, the system still does not provide cost
information that program managers and cost estimators need to develop
While progress has been made,
credible estimates and compare budgeted and actual cost with the work
NASA needs to take additional
performed on the contract. In addition to establishing an integrated financial
steps in order to improve contract
management system, much work remains to ensure effective program
management and program
management and contractor oversight. As GAO previously reported, NASA
oversight. These include
•
consistently instilling a
often does not obtain from its contractors the financial data and performance
disciplined cost-estimating
information needed to assess progress on its contracts. In addition, NASA
process in project
does not yet have the full complement of analytical tools and staff trained
development efforts,
needed to perform cost analyses, including earned value management. Until
•
reengineering key business
NASA has the data, tools, and analytical skills needed to alert program
processes to include
managers of potential cost overruns and schedule delays and take corrective
contractor cost reporting
action before discrepancies occur, it will continue to face challenges in
processes, and
effectively overseeing its contractors.
•
ensuring that it obtains the
information needed to assess
NASA plans to spend nearly $230 billion alone, over the next two decades, to
progress on its contracts.
implement the President’s 2004 Vision for Space Exploration. Implementing
Strong executive leadership will be
critical for ensuring that its
the Vision, including establishing a permanent lunar outpost, will entail a
financial management organization
multitude of contracts and will require a sustained commitment from multiple
delivers the kind of analysis and
administrations and Congresses over the length of the program. The realistic
forward-looking information
identification of needed resources and accurate accounting of cost and
needed to manage its many
contractor performance would go a long way to provide support for such a
complex programs.
sustained commitment and provide the basis for congressional oversight.
Page 75
GAO-07-310 High-Risk Update
Related Products
National Aeronautics and Space Administration Contract
Management
NASA: Sound Management and Oversight Key to Addressing Crew
Exploration Vehicle Project Risks. GAO-06-1127T. September 28, 2006.
Enterprise Architecture: Leadership Remains Key to Establishing and
Leveraging Architectures for Organizational Transformation. GAO-06-831.
Washington, D.C.: August 14, 2006.
NASA: Long-Term Commitment to and Investment in Space Exploration
Program Requires More Knowledge. GAO-06-817R. Washington, D.C.: July 17,
2006.
NASA’s James Webb Space Telescope: Knowledge-Based Acquisition
Approach Key to Addressing Program Challenges. GAO-06-634. Washington,
D.C.: July 14, 2006.
Financial Management Systems: Additional Efforts Needed to Address Key
Causes of Modernization Failures. GAO-06-184. Washington, D.C.: March 15,
2006.
NASA: Implementing a Knowledge-Based Acquisition Framework Could
Lead to Better Investment Decisions and Project Outcomes. GAO-06-218.
Washington, D.C.: December 21, 2005.
NASA: Long-standing Financial Management Challenges Threaten the
Agency’s Ability to Manage Its Programs. GAO-06-216T. Washington, D.C.:
October 27, 2005.
Business Modernization: Some Progress Made toward Implementing GAO
Recommendations Related to NASA’s Integrated Financial Management
Program. GAO-05-799R. Washington, D.C.: September 9, 2005.
Page 76
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Management of Interagency Contracting
For additional information about this high-
risk area, contact William T. Woods at
(202) 512-8214 or woodsw@gao.gov.
Why Area Is High Risk
What GAO Found
Federal agencies have increasingly
Governmentwide, the use of interagency contracts to procure goods and
turned to interagency
services has continued to increase over the past several years. In particular,
contracting—a process by which
spending through the General Services Administration (GSA) schedule
one agency uses other agencies’
contracts has increased by $4 billion during the last 2 years.
contracts and contracting
services—as a way to streamline
the procurement process. This
contracting method can offer
benefits of improved efficiency and
convenience, but it needs to be
effectively managed. Due to
continued growth in the use of
these contracts, the limited
expertise of some customers and
service providers in using these
contracts, and unclear lines of
responsibility, GAO designated
interagency contracting as a high-
risk area in 2005. Proper use of this
contracting method requires strong
internal controls, clear definition of
roles and responsibilities, and
training for both customers and
Interagency contracts provide agencies with convenient access to commonly
servicing agencies. GAO’s work
and that of agency inspectors
needed goods and services, for which the agencies that establish these
general has continued to find cases
contracts and provide contracting services charge a fee to support their
in which agencies have not
operations. When used correctly, interagency contracts provide opportunities
adequately met these challenges.
to streamline the procurement process and achieve savings through
leveraging the government’s buying power. However, monitoring and
What Remains to Be Done
oversight of these contracts have not kept up with their growth, and there are
no complete and reliable data on how much is spent governmentwide through
While agencies have taken some
interagency contracts or the amount of fees paid by agencies using this
action in response to GAO
contracting method. GAO and agency inspectors general continue to find that
recommendations, specific and
targeted approaches are still
the agencies involved in the interagency contracting process have not always
needed to address interagency
obtained required competition, evaluated contracting alternatives, or
contracting management risks.
conducted adequate oversight. For example, there have been recent cases in
Roles and responsibilities of both
which agencies have issued orders that were beyond the scope of the
customers and servicing agencies
underlying contracts, internal controls for ensuring proper payments were not
need to be clearly defined;
in place, and oversight responsibilities were not clearly defined.
servicing agencies need to continue
to adopt and implement policies
Agencies have begun to address these challenges by issuing new guidance and
and processes that ensure that
adding training requirements to improve the expertise of the acquisition
customer service demands do not
workforce, and the Office of Management and Budget has convened a working
override sound contracting
group to improve the management of interagency contracting. However, work
practices; and agencies need to
track the use of this contracting
remains to ensure these contracts and contracting services are properly
method to assess whether it
managed and that intended efficiencies are achieved.
provides good outcomes.
Page 77
GAO-07-310 High-Risk Update
Related Products
Management of Interagency Contracting
Interagency Contracting: Improved Guidance, Planning, and Oversight
Would Enable the Department of Homeland Security to Address Risks.
GAO-06-996. Washington, D.C.: September 27, 2006.
Homeland Security: Contract Management and Oversight for Visitor and
Immigrant Status Program Need to Be Strengthened. GAO-06-404.
Washington, D.C.: June 9, 2006.
Department of Energy, Office of Worker Advocacy: Deficient Controls Led to
Millions of Dollars in Improper and Questionable Payments to Contractors.
GAO-06-547. Washington, D.C.: May 31, 2006.
Federal Bureau of Investigation: Weak Controls over Trilogy Project Led to
Payment of Questionable Contractor Costs and Missing Assets. GAO-06-306.
Washington, D.C.: February 28, 2006.
U.S. Office of Special Counsel: Selected Contracting and Human Capital
Issues. GAO-06-16. Washington, D.C.: November 17, 2005.
Improvements Needed to the Federal Procurement Data System—Next
Generation. GAO-05-960R. Washington, D.C.: September 27, 2005.
Interagency Contracting: Franchise Funds Provide Convenience, but Value
to DOD Is Not Demonstrated. GAO-05-456. Washington, D.C.: July 29, 2005.
Interagency Contracting: Problems with DOD’s and Interior’s Orders to
Support Military Operations. GAO-05-201. Washington, D.C.: April 29, 2005.
Homeland Security: Successes and Challenges in DHS’s Efforts to Create an
Effective Acquisition Organization. GAO-05-179. Washington, D.C.: March
29, 2005.
Contract Management: Opportunities to Improve Pricing of GSA Multiple
Award Schedules Contracts. GAO-05-229. February 11, 2005.
Page 78
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Enforcement of Tax Laws
For additional information about this high-
risk area, contact Michael Brostek or
James White at (202) 512-9110 or at
brostekm@gao.gov or whitej@gao.gov.
Why Area Is High Risk
What GAO Found
Internal Revenue Service (IRS)
IRS has made noticeable progress in its enforcement efforts. In 2006,
enforcement of the tax laws is vital
enforcement revenue rose about 13 percent compared to 2004 levels. Based
to promote compliance by giving
on preliminary data, IRS increased the overall percentage of tax returns
taxpayers confidence that others
examined between 2004 and 2006 by about 30 percent. IRS completed
are paying their fair share. In 1990,
compliance research on individual taxpayers under its National Research
GAO designated one aspect of
Program (NRP) in 2005 and is using the results to better target operational
enforcement—collection of tax
audits. IRS also set a long-term goal to increase the compliance rate.
debt—as high risk, later
broadening it to include both
Nevertheless, IRS’s most recent estimate is that the gross tax gap (the
unpaid taxes known to IRS and
unpaid taxes IRS has not detected.
difference between the taxes that should have been paid voluntarily and on
In 1995, GAO added a new high-risk
time and what was actually paid) was $345 billion for tax year 2001. IRS
area related to the Earned Income
estimated that it would eventually collect $55 billion of this amount, leaving a
Credit, a refundable tax credit
net tax gap of $290 billion in unpaid taxes.
available to certain low-income,
working taxpayers. In 2005, GAO
IRS lacks a data-based plan to improve compliance. Such a plan would require
combined these two IRS high-risk
quantitative estimates of how changes to its service and enforcement
issues under enforcement of tax
programs affect compliance. Given the considerable challenges to quantifying
laws, in part, to reflect IRS’s
the relationship between IRS’s efforts and changes in compliance levels, a
current appropriations.
long-term research effort will be needed. In the interim, IRS’s plans need to
What Remains to Be Done
clearly describe why the specific service and enforcement strategies it
proposes are likely to improve compliance.
To improve its enforcement of tax
laws, IRS must
Although the NRP does not quantify the effect of IRS’s programs on
develop a data-based plan and
compliance, it provides invaluable information on individual taxpayers’
specific recommendations to
compliance. IRS has begun another study on S-corporations’ compliance.
improve compliance;
However, IRS has no plans to repeat the study on individual taxpayers, which
continue to perform
took years to plan and execute, or conduct similar research on all other
compliance research on a
significant components of the tax gap. To further improve available
regular basis, use the results to
information, IRS needs periodic, if not annual, measurements of compliance
justify resource requests, target
scarce enforcement resources,
levels to gauge the extent to which compliance is improving or declining and
and develop other corrective
to effectively target its service and enforcement efforts.
measures for all aspects of tax
law enforcement;
Real progress in reducing the tax gap will require efforts beyond current
develop, in consultation with
enforcement. IRS and Congress will need to develop and IRS will need to
the Department of the
execute multiple strategies over a sustained period. Strategies could include
Treasury, new and innovative
simplifying the tax code or specific code sections, improving service to
solutions to improve
taxpayers, obtaining new sources of information to help identify and deter
compliance; and
noncompliance, and expanding the use of proven tools for obtaining high
continue to modernize its
levels of compliance, like additional withholding of taxes and third-party
technology that underpins
information reporting.
service and enforcement
efforts.
Further, IRS will need to leverage technology to better help taxpayers who
want to comply as well as more efficiently detect noncompliance. Technology
could reduce the costs of providing individualized service to taxpayers. In an
era of tight budgets, technology could also help increase the productivity of
enforcement staff.
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GAO-07-310 High-Risk Update
Related Products
Enforcement of Tax Laws
Tax Debt Collection: IRS Needs to Complete Steps to Help Ensure
Contracting Out Achieves Desired Results and Best Use of Federal
Resources. GAO-06-1065. Washington, D.C.: September 29, 2006.
Business Tax Reform: Simplification and Increased Uniformity of
Taxation Would Yield Benefits. GAO-06-1113T. Washington, D.C.: September
20, 2006.
Individual Income Tax Policy: Streamlining, Simplification, and
Additional Reforms Are Desirable. GAO-06-1028T. Washington, D.C.: August
3, 2006.
Tax Compliance: Opportunities Exist to Reduce the Tax Gap Using a
Variety of Approaches. GAO-06-1000T. Washington, D.C.: July 26, 2006.
Capital Gains Tax Gap: Requiring Brokers to Report Securities Cost Basis
Would Improve Compliance if Related Challenges Are Addressed. GAO-06-
603. Washington, D.C.: June 13, 2006.
Tax Compliance: Challenges to Corporate Tax Enforcement and Options to
Improve Securities Basis Reporting. GAO-06-851T. Washington, D.C.: June
13, 2006.
Business Systems Modernization: IRS Needs to Complete Recent Efforts to
Develop Policies and Procedures to Guide Requirements Development and
Management. GAO-06-310. Washington, D.C.: March 20, 2006.
Financial Management: Thousands of GSA Contractors Abuse the Federal
Tax System. GAO-06-492T. Washington, D.C.: March 14, 2006.
Tax Gap: Making Significant Progress in Improving Tax Compliance Rests
on Enhancing Current IRS Techniques and Adopting New Legislative
Actions. GAO-06-453T. Washington, D.C.: February 15, 2006.
Tax Gap: Multiple Strategies, Better Compliance Data, and Long-Term
Goals Are Needed to Improve Taxpayer Compliance. GAO-06-208T.
Washington, D.C.: October 26, 2005.
Financial Management: Thousands of Civilian Agency Contractors Abuse
the Federal Tax System with Little Consequence. GAO-05-637. Washington,
D.C.: June 16, 2005.
Page 80
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Internal Revenue Service Business
Systems Modernization
For additional information about this high-
risk area, contact David A. Powner at
(202) 512-9286 or pownerd@gao.gov, or
Steven J. Sebastian at (202) 512-3406 or
sebastians@gao.gov.
Why Area Is High Risk
What GAO Found
The Internal Revenue Service’s
IRS has long relied on obsolete automated systems for key operational and
(IRS) highly complex, multibillion-
financial management functions, and its attempts to modernize these aging
dollar Business Systems
computer systems span several decades. A long history of continuing delays
Modernization (BSM) program is
and design difficulties and their impact on IRS’s operations led GAO to
critical to (1) the successful
designate IRS’s systems modernization and its financial management as
transformation of the agency’s
separate high-risk areas in 1995. In 2005, GAO noted that, despite progress in
manual paper-intensive business
establishing management controls, in acquiring foundational system
operations, (2) fulfillment of its
infrastructure and applications, and in addressing several financial
obligations under the IRS
management deficiencies, including deficiencies in controls over budgetary
Restructuring and Reform Act, and
(3) providing the reliable and
activity and property and equipment, both BSM and financial management
timely financial management
remained high risk. Since resolution of IRS’s most serious remaining financial
information needed to better
management problems depended largely upon the success of BSM, GAO
enable IRS to justify its resource
combined the two issues into one high-risk area.
allocation decisions and
congressional budgetary requests.
IRS has made further progress since 2005 in addressing GAO’s concerns about
Despite progress in improving
the management of BSM. For example, IRS (1) delivered releases of key
modernization management
automated systems associated with processing various individual returns for
controls and capabilities and
single and head-of-household taxpayers and accepting electronic returns for
addressing long-standing financial
select businesses and tax-exempt organizations, (2) made progress in
management weaknesses,
addressing high-priority program initiatives and significant risks and issues
significant challenges and serious
risks remain.
affecting its systems, and (3) developed a high-level modernization vision and
strategy to address program changes and provide a modernization road map.
What Remains to Be Done
In addition, IRS implemented the initial phase of several key automated
financial management systems, including a cost accounting module that it
While IRS has made progress in
populated with data; developed a methodology to allocate costs to its business
reducing risk with systems
units; and improved the reliability of its property and equipment records. IRS
modernization and financial
has also taken corrective actions related to aspects of financial management
management, improvements made
that are not dependent on automated systems, such as further improving
have not been sustained long
physical security over hard-copy tax receipts and related data.
enough to provide confidence that
the program is fully stable. In
addition, many challenges remain,
However, GAO recently reported that while some project releases were
including (1) improving processes
delivered within cost or schedule commitments, others continued to
for designing, developing and
experience cost increases or schedule delays. In addition, critical
delivering modernized IT systems;
management controls and capabilities have not yet been fully implemented or
and (2) developing and utilizing
institutionalized. Further, the outdated legacy financial management systems
cost-based performance measures
IRS continues to rely on are not integrated with supporting records for several
to assist in measuring the
material balances, do not provide adequate audit trails for those balances, and
effectiveness of programs over
cannot provide current information to support decision making. IRS is taking
time.
action to resolve these issues and to address GAO’s recommendations related
to BSM and financial management. However, more remains to be done to fully
address the problems that have affected past systems modernization efforts
and that continue to affect IRS’s ability to successfully modernize its
operational and financial management systems.
Page 81
GAO-07-310 High-Risk Update
Related Products
Internal Revenue Service Business Systems Modernization
Financial Audit: IRS’s Fiscal Years 2006 and 2005 Financial Statements.
GAO-07-136. Washington, D.C.: November, 9, 2006.
Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Management Reports. GAO-06-560. Washington, D.C.:
June 6, 2006.
Management Report: Improvements Needed in IRS’s Internal Controls.
GAO-06-543R. Washington, D.C.: May 12, 2006.
Internal Revenue Service: Assessment of the Interim Results of the 2006
Filing Season and Fiscal Year 2007 Budget Request. GAO-06-499T.
Washington, D.C.: April 27, 2006.
Internal Revenue Service: Assessment of the Interim Results of the 2006
Filing Season and Fiscal Year 2007 Budget Request. GAO-06-615T.
Washington, D.C.: April 6, 2006.
Business Systems Modernization: IRS Needs to Complete Recent Efforts to
Develop Policies and Procedures to Guide Requirements Development and
Management. GAO-06-310. Washington, D.C.: March 20, 2006.
Business Systems Modernization: Internal Revenue Service’s Fiscal Year
2006 Expenditure Plan. GAO-06-360. Washington, D.C.: February 21, 2006.
Financial Audit: IRS’s Fiscal Years 2005 and 2004 Financial Statements.
GAO-06-137. Washington, D.C.: November 10, 2005.
Business Systems Modernization: Internal Revenue Service’s Fiscal Year
2005 Expenditure Plan. GAO-05-774. Washington, D.C.: July 22, 2005.
IRS Modernization: Continued Progress Requires Addressing Resource
Management Challenges. GAO-05-707T. Washington, D.C.: May 19, 2005.
Internal Revenue Service: Status of Recommendations from Financial
Audits and Related Management Reports. GAO-05-393. Washington, D.C.:
April 29, 2005.
Management Report: Improvements Needed in IRS’s Internal Controls.
GAO-05-247R. Washington, D.C.: April 27, 2005.
Management Report: Review of Controls over Safeguarding Taxpayer
Receipts and Information at the Brookhaven Service Center Campus.
GAO-05-319R. March 10, 2005.
Opportunities to Improve Timeliness of IRS Lien Releases. GAO-05-26R.
Washington, D.C.: January 10, 2005.
Page 82
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Modernizing Federal Disability Programs
For additional information about this high-
risk area, contact Robert E. Robertson at
(202) 512-7215 or robertsonr@gao.gov, or
Daniel Bertoni at (202) 512-7215 or
bertonid@gao.gov.
Why Area Is High Risk
What GAO Found
In January 2003, GAO designated
GAO’s work examining federal disability programs has found that the major
modernizing federal disability
disability programs are neither well aligned with the 21st century environment
programs as a high-risk area
nor positioned to provide meaningful and timely support. In particular, SSA’s
because of challenges that continue
and VA’s disability programs are based on definitions and concepts that
today. For example, despite
originated over 50 years ago, despite scientific advances that have reduced the
opportunities afforded by medical
severity of some medical conditions and have allowed individuals to live with
and technological advances and the
greater independence and function in work settings. Furthermore, as both
growing expectations that people
programs experience unprecedented growth in the number and complexity of
with disabilities can and want to
claims filed each year, they continue to face ongoing challenges to make
work, federal disability programs
remain grounded in outmoded
timely, accurate, and consistent decisions. Although SSA and, to a lesser
concepts that equate medical
extent, VA have made some progress toward improving their disability
conditions with work incapacity.
programs, significant challenges remain.
Moreover, just as the disability
•
Programs are grounded in outmoded concepts of disability.
programs are positioned to grow
Disability criteria have not been updated to reflect the current state of
rapidly with current demographics,
the Social Security Administration
science, medicine, technology, and labor market conditions. SSA has
(SSA) and the Department of
stated that it is in the process of moving from a “disabled for life”
Veterans Affairs (VA) face difficult
approach to one that helps individuals with disabilities return to work. To
challenges in providing timely and
this end, SSA has drafted an action plan for modernizing its disability
consistent disability decisions.
programs that includes removing barriers and disincentives to work and
Modernizing federal disability
providing work supports earlier. These efforts could potentially shift
programs remains a high-risk area
SSA’s disability programs toward enhancing the productive capabilities of
as solutions are likely to require
program beneficiaries. VA’s approach to modernization rests largely upon
fundamental changes, including
implementing recommendations, if any, that could arise from a review of
regulatory and legislative action.
the appropriateness of VA disability benefits now being conducted by a
What Remains to Be Done
congressionally appointed commission. The commission is expected to
report to Congress in October 2007. As these agencies proceed with their
While SSA and VA have taken some
plans, one challenge they face is to coordinate their modernization efforts
actions in response to prior GAO
with other programs providing disability assistance.
recommendations, GAO continues
to believe that SSA and VA should
•
Agencies have difficulty managing disability programs. Both SSA
take a lead role in examining the
and VA still have lengthy disability claims processing times and have
fundamental causes of program
limited assurance of the accuracy and consistency of disability decisions.
problems and seek the regulatory
While SSA has begun to implement (1) an electronic disability processing
and legislative solutions needed to
system aimed at eliminating delays caused by the handling of paper claim
transform their programs so that
files and (2) a comprehensive process improvement initiative aimed at
they are aligned with the current
making decisions earlier in the process, it is too early to measure the
state of science, medicine,
success of these actions. Similarly, in its budget justification for fiscal year
technology, and labor market
2007, VA identified several steps it plans to take to improve the timeliness
conditions. Moreover, these
of its disability decisions, including moving toward an electronic file
agencies should continue to
develop and implement strategies
system. However, it is not clear whether VA will be able to achieve its
to better manage the programs’
planned improvements.
accuracy, timeliness, and
consistency of decision making.
Page 83
GAO-07-310 High-Risk Update
Related Products
Modernizing Federal Disability Programs
Social Security Disability Programs: Clearer Guidance Could Help SSA
Apply the Medical Improvement Standard More Consistently. GAO-07-8.
Washington, D.C.: October 3, 2006.
Social Security Administration: Agency Is Positioning Itself to Implement
Its New Disability Determination Process, but Key Facets Are Still in
Development. GAO-06-779T. Washington, D.C.: June 15, 2006.
Veterans’ Disability Benefits: VA Should Improve Its Management of
Individual Unemployability Benefits by Strengthening Criteria, Guidance,
and Procedures. GAO-06-309. Washington, D.C.: May 30, 2006.
Social Security Administration: Administrative Review Process for
Adjudicating Initial Disability Claims. GAO-06-640R. Washington, D.C.: May
16, 2006.
VA Disability Benefits: Routine Monitoring of Disability Decisions Could
Improve Consistency. GAO-06-120T. Washington, D.C.: October 20, 2005.
Computer-Based Patient Records: VA and DOD Made Progress, but Much
Work Remains to Fully Share Medical Information. GAO-05-1051T.
Washington, D.C.: September 28, 2005.
Federal Disability Assistance: Wide Array of Programs Needs to Be
Examined in Light of 21st Century Challenges. GAO-05-626. Washington,
D.C.: June 2, 2005.
Veterans’ Disability Benefits: Claims Processing Problems Persist and
Major Performance Improvements May Be Difficult. GAO-05-749T.
Washington, D.C.: May 26, 2005.
VA Disability Benefits and Health Care: Providing Certain Services to the
Seriously Injured Poses Challenges. GAO-05-444T. Washington, D.C.: March
17, 2005.
Social Security Administration: Better Planning Could Make the Ticket
Program More Effective. GAO-05-248. Washington, D.C.: March 2, 2005.
Vocational Rehabilitation: More VA and DOD Collaboration Needed to
Expedite Services for Seriously Injured Servicemembers. GAO-05-167.
Washington, D.C.: January 14, 2005.
Page 84
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Pension Benefit Guaranty Corporation
Single-Employer Pension Insurance
For additional information about this high-
risk area, contact Barbara Bovbjerg at
Program
(202) 512-5491 or bovbjergb@gao.gov.
Why Area Is High Risk
What GAO Found
The Pension Benefit Guaranty
Recently enacted comprehensive pension reform legislation addressed many
Corporation (PBGC)’s single-
GAO concerns about the financial condition of PBGC’s single-employer
employer program insures the
program, although the program remains high risk because of its large deficit
pension benefits of over 34 million
(see figure) and uncertainty about the future of the DB system. The Pension
participants in more than 28,000
Protection Act (PPA) included provisions aimed at shoring up DB plan
private defined benefit (DB) plans.
funding, such as raising the funding targets DB plans must meet, reducing the
The program’s financial condition
period over which sponsors can “smooth” reported plan assets and liabilities,
has declined from a $9.7 billion
and restricting sponsors’ ability to substitute “credit balances” for cash
surplus in 2000 to an $18.1 billion
contributions. Other reforms also may increase PBGC revenues by raising flat-
deficit as of September 30, 2006.
PBGC-insured plans had
rate premiums, expanding variable-rate premiums, and introducing a
cumulative underfunding of $350
termination premium for some bankrupt sponsors, while limiting PBGC’s
billion, including $73 billion in
guarantee to pay certain benefits. Congress also clarified the legal status of
plans sponsored by financially
hybrid cash balance plans, potentially encouraging sponsorship of such plans.
weak firms. While Congress passed
a major pension reform law, the
While these measures should help, PPA’s overall impact on the single-
program remains exposed to the
employer program’s deficit is unclear. PPA did not fully close potential plan
threat of terminations of large
funding gaps, and it provided funding relief to plan sponsors in troubled
underfunded plans in weak
industries. As a result, PBGC may be exposed to additional terminations of
industries and of sponsors
large underfunded plans. In fact, PBGC projects that PPA may lower
voluntarily terminating or freezing
contributions and raise claims relative to previous law, and the Congressional
their DB plans. GAO placed the
program on its high-risk list in July
Budget Office forecasts large continued losses for the program. PPA is also
2003.
unlikely to reverse the long-term decline of the DB system or help PBGC make
up its current deficit, as stricter funding requirements and higher premiums
What Remains to Be Done
may lead sponsors to terminate or freeze their plans. These challenges facing
the DB system, coupled with Social Security’s financial deficits and
Although recent comprehensive
uncertainty about the adequacy and risks of defined contribution plans, raise
legislative reform contains
concerns about the future retirement security of American workers.
measures to improve plan funding
and shore up PBGC’s finances,
Congress may need to carefully
monitor its effects on PBGC’s
programs and on DB plans, and
may need to take additional action
to safeguard the private pension
system’s role in national retirement
security. In the longer term,
Congress will also need to consider
even more broadly how the risks
and responsibilities for retirement
security should be shared among
individuals, employers, and
government.
Page 85
GAO-07-310 High-Risk Update
Related Products
Pension Benefit Guaranty Corporation Single-Employer
Pension Insurance Program
Private Pensions: Opportunities Exist to Further Improve the Transparency
of PBGC’s Financial Disclosures. GAO-06-429. Washington, D.C.: March 27,
2006.
Private Pensions: Information on Cash Balance Pension Plans. GAO-06-42.
Washington, D.C.: November 3, 2005.
Private Pensions: Questions Concerning the Pension Benefit Guaranty
Corporation’s Practices Regarding Single-Employer Probable Claims.
GAO-05-991R. Washington, D.C.: September 9, 2005.
Private Pensions: The Pension Benefit Guaranty Corporation and Long-
Term Budgetary Challenges. GAO-05-772T. Washington, D.C.: June 9, 2005.
Private Pensions: Revision of Defined Benefit Pension Plan Funding Rules
Is an Essential Component of Comprehensive Pension Reform. GAO-05-
794T. Washington, D.C.: June 7, 2005.
Private Pensions: Government Actions Could Improve the Timeliness and
Content of Form 5500 Pension Information. GAO-05-491. Washington, D.C.:
June 3, 2005.
Highlights of a GAO Forum: The Future of the Defined Benefit System and
the Pension Benefit Guaranty Corporation. GAO-05-578SP. Washington,
D.C.: June 1, 2005.
Private Pensions: Recent Experiences of Large Defined Benefit Plans
Illustrate Weaknesses in Funding Rules. GAO-05-294. Washington, D.C.: May
31, 2005.
Pension Benefit Guaranty Corporation: Structural Problems Limit Agency’s
Ability to Protect Itself from Risk. GAO-05-360T. Washington, D.C.: March 2,
2005.
Page 86
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Medicare Program
For additional information about this high-
risk area, contact Marjorie Kanof at (202)
512-5055 or kanofm@gao.gov.
Why Area Is High Risk
What GAO Found
Since 1990, GAO has designated
Medicare’s design, coupled with rising health care costs and the coming
Medicare a high-risk program. It is
retirement of the baby boomers, presents fiscal and other challenges that
a program vulnerable to improper
demand a strong management response. CMS has made some progress in
payment and mismanagement, in
meeting key challenges it has the authority to tackle, but further action is
part due to its sheer size and
needed to increase Medicare’s efficiency, integrity, and effectiveness.
complexity. In 2005, the program
covered over 42 million elderly and
Reforming and refining payments. Medicare faces financial pressure from
disabled beneficiaries and had
growing spending in key areas, such as for physician services, while CMS
estimated outlays of over $330
continues to have difficulty in obtaining maximum value for dollars spent.
billion, while its most recent
estimate of improper payments was
Nevertheless, in the past 2 years, CMS has taken promising steps in areas
about $11 billion. In 2006,
where it has authority to refine how it sets or updates Medicare payment
Medicare added a new prescription
rates, such as for hospital services, durable medical equipment, and certain
drug benefit that is estimated to
drugs and devices supplied in medical facilities.
cost about $1 trillion in its first 10
years. Absent reform, the
Enhancing program integrity. Medicare’s November 2006 estimate of its
program’s spending growth will be
national rate of improper payments was 4.4 percent—the lowest since
unsustainable over time—
measurement began in 1996. However certain providers—such as suppliers of
increasing from an estimated 3.2
durable medical equipment—continue to receive improper payments at a
percent of GDP in 2006 to 7.3
higher rate. CMS has acted on some of GAO’s 2005 recommendations to
percent by 2035. While
fundamental financing reform is
increase oversight of suppliers and is implementing quality standards for them
not within the authority of the
that will be overseen by accreditation organizations.
Centers for Medicare & Medicaid
Services (CMS)—the agency that
Improving program management. In 2005, CMS successfully began a
administers Medicare—it has broad
multiyear effort to reform its contracting practices by instituting competitive
responsibility for setting payment
procedures to select its Medicare administrative contractors. CMS has also
rates that encourage efficient
taken steps to strengthen its processes for managing investments in
delivery of services and control
information technology, but still has limited capabilities to do so. Further,
spending, safeguarding the
GAO found weaknesses in CMS’s information security controls that could
program from loss, improving its
make sensitive, personally identifiable medical information vulnerable to
management, and overseeing
unauthorized access. In addition, the start of CMS’s new Medicare
patient safety and care.
prescription drug benefit was not smooth. Prior to implementation, GAO
What Remains to Be Done
warned of potential weaknesses in CMS’s approach to enrolling the 6 million
beneficiaries eligible for both Medicare and Medicaid. Subsequent problems
CMS has implemented many GAO
led several state Medicaid agencies to continue providing drug coverage to
recommendations, but further
these beneficiaries until their enrollment issues could be resolved. In
action must be taken to refine
addition, call centers sponsored by the agency or private drug plans fell short
Medicare’s payment methods and
in providing accurate and complete information to callers inquiring about the
the collection of data used as a
prescription drug benefit.
basis for setting payment rates;
address integrity weaknesses;
improve its management of critical
Overseeing patient safety and care. CMS has implemented important
functions, such as ensuring the
improvements to state and federal oversight activities of nursing home quality
accuracy, usefulness, and clarity of
since 1998. Nevertheless, despite 8 years of effort, CMS has not implemented
information provided to the public;
a more rigorous inspection process that is critical to ensuring that annual
and address quality-of-care
inspections do not overlook serious quality-of-care problems. On the other
shortcomings in services provided
hand, CMS is acting on GAO’s 2006 recommendations to strengthen its
to beneficiaries.
oversight of clinical laboratories.
Page 87
GAO-07-310 High-Risk Update
Related Products
Medicare Program
Information Security: The Centers for Medicare & Medicaid Services Needs
to Improve Controls over Key Communication Network. GAO-06-750.
Washington, D.C.: August 30, 2006.
Medicare: CMS’s Proposed Approach to Set Hospital Inpatient Payments
Appears Promising. GAO-06-880. Washington, D.C.: July 28, 2006.
Medicare Physician Payments: Trends in Service Utilization, Spending,
and Fees Prompt Consideration of Alternative Payment Approaches.
GAO-06-1008T. Washington, D.C.: July 25, 2006.
Medicare Part B Drugs: CMS Data Source for Setting Payments Is Practical
but Concerns Remain. GAO-06-971T. Washington, D.C.: July 13, 2006.
Medicare Part D: Prescription Drug Plan Sponsor Call Center Responses
Were Prompt, but Not Consistently Accurate and Complete. GAO-06-710.
Washington, D.C.: June 30, 2006.
Clinical Lab Quality: CMS and Survey Organization Oversight Should Be
Strengthened. GAO-06-416. Washington, D.C.: June 16, 2006.
Medicare: Communications to Beneficiaries on the Prescription Drug
Benefit Could Be Improved. GAO-06-654. Washington, D.C.: May 3, 2006.
Nursing Homes: Despite Increased Oversight, Challenges Remain in
Ensuring High-Quality Care and Resident Safety. GAO-06-117. Washington,
D.C.: December 28, 2005.
Medicare: Contingency Plans to Address Potential Problems with the
Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug
Coverage. GAO-06-278R. Washington, D.C.: December 16, 2005.
Information Technology: Centers for Medicare & Medicaid Services Needs to
Establish Critical Investment Management Capabilities. GAO-06-12.
October 28, 2005.
Medicare: More Effective Screening and Stronger Enrollment Standards
Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.:
September 22, 2005.
Medicare Contracting Reform: CMS’s Plan Has Gaps and Its Anticipated
Savings Are Uncertain. GAO-05-873. Washington, D.C.: August 17, 2005.
Page 88
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights Medicaid Program
For additional information about this high-
risk area, contact Kathryn G. Allen at (202)
512-7118 or allenk@gao.gov.
Why Area Is High Risk
What GAO Found
In 2003, GAO designated Medicaid
Congress and CMS have taken important steps to improve Medicaid’s fiscal
a high-risk program in part because
integrity and financial management, but the program remains high risk due to
of growing concerns about the
concerns about the program’s size, growth, and diversity, as well as the
quality of fiscal oversight, which is
adequacy of fiscal oversight. The program remains at risk due to concerns in
necessary to prevent inappropriate
several areas:
program spending. Medicaid, the
federal-state program that covers
Financing methods that leverage federal funds inappropriately. For
acute health care and long-term
more than a decade, some states created the illusion that they had made large
care services for about 56 million
Medicaid supplemental payments to certain government providers in order to
low-income individuals, consists of
more than 50 distinct state-based
generate excessive federal matching payments. In reality, the states only
programs that cost the federal
temporarily made payments to these providers but then required that the
government and states an
payments be returned. CMS has taken steps to improve its oversight of
estimated $298 billion in fiscal year
Medicaid financial management activities, including its efforts to oversee
2004. The program accounts for
states’ financing methods. However, several oversight weaknesses have not
more than 20 percent of states’
been addressed. For example, CMS has not developed a financial management
expenditures, exerting continuing
strategic plan for Medicaid, incorporated the use of key Medicaid data
pressure on state budgets. The
systems into its oversight of states’ claims, or clarified and communicated its
federal government, by a formula
policies in several high-risk areas, including supplemental payment
established in law, can pay from
arrangements.
half to more than three-fourths of
each state’s Medicaid expenditures.
Waiver programs that inappropriately increase the federal
The Centers for Medicare &
government’s financial liability. The Secretary of HHS has authority to
Medicaid Services (CMS) in the
waive certain statutory provisions to allow states to test new ideas for
Department of Health and Human
achieving program objectives. Each waiver program must be “budget neutral”:
Services (HHS) is responsible for
It should not be approved if it would increase the federal financial liability
overseeing the program at the
beyond what it would have been without the program. Since the mid-1990s,
federal level, while the states
HHS has permitted states to use questionable methods to demonstrate budget
administer their respective
neutrality for waiver programs projected to increase federal costs. For
programs’ day-to-day operations.
example, GAO earlier reported that HHS’s rationale for approving four states’
waiver program spending limits as budget neutral was unclear and not
What Remains to Be Done
documented.
A GAO recommendation to
Congress to limit Medicaid
Inappropriate billing by providers serving program beneficiaries.
payments to government facilities
Medicaid is vulnerable to fraud, waste, and abuse by providers who submit
to the costs of providing services
inappropriate claims, which in turn can result in substantial financial losses to
remains open. HHS has not acted
states and the federal government. There has been a wide disparity between
on GAO recommendations to
the level of staff and financial resources that CMS has expended to support
develop methods to better ensure
and oversee state activities to control fraud and abuse, and the amount of
the budget neutrality of Medicaid
federal Medicaid dollars at risk of fraud and abuse. The Deficit Reduction Act
waiver programs. And CMS has not
acted on recommendations to
of 2005 (DRA) created the Medicaid Integrity Program and appropriated funds
develop a Medicaid financial
to fight fraud and abuse. As required by DRA, CMS issued a comprehensive 5-
management strategic plan, identify
year plan in July 2006 that outlined CMS’s organizational structure and initial
needed systems projects, and
activities to begin implementing the Medicaid Integrity Program.
improve guidance to states in
certain areas.
Page 89
GAO-07-310 High-Risk Update
Related Products
Medicaid Program
Medicaid Third-Party Liability: Federal Guidance Needed to Help States
Address Continuing Problems. GAO-06-862. Washington, D.C.: September 15,
2006.
Medicaid Financial Management: Steps Taken to Improve Federal Oversight
but Other Actions Needed to Sustain Efforts. GAO-06-705. Washington, D.C.:
June 22, 2006.
Medicaid Integrity: Implementation of New Program Provides
Opportunities for Federal Leadership to Combat Fraud, Waste, and Abuse.
GAO-06-578T. Washington, D.C.: March 28, 2006.
Medicaid Financing: States’ Use of Contingency-Fee Consultants to
Maximize Federal Reimbursements Highlights Need for Improved Federal
Oversight. GAO-05-748. Washington, D.C.: June 28, 2005.
Medicaid: States’ Efforts to Maximize Federal Reimbursements Highlight
Need for Improved Federal Oversight. GAO-05-836T. Washington, D.C.: June
28, 2005.
Medicaid Waivers: HHS Approvals of Pharmacy Plus Demonstrations
Continue to Raise Cost and Oversight Concerns. GAO-04-480. Washington,
D.C.: June 30, 2004.
Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver
Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.
Page 90
GAO-07-310 High-Risk Update
January 2007
HIGH-RISK SERIES
Accountability Integrity Reliability
Highlights National Flood Insurance Program
For additional information about this high-
risk area, contact Orice Williams at (202)
512-5837 or williamso@gao.gov.
Why Area Is High Risk
What GAO Found
GAO placed the National Flood
The NFIP, by design, is not actuarially sound. It subsidizes insurance rates for
Insurance Program (NFIP) on its
about 26 percent of policies, primarily for certain high-risk buildings
high-risk list in March 2006 because
constructed before NFIP flood plain regulations were established in their
the NFIP will unlikely generate
communities. Although policyholders with subsidized rates on average pay
sufficient revenues to repay the
more than nonsubsidized policyholders (because the risk of loss is higher),
billions borrowed from the
the subsidized rates may be only 35 percent to 40 percent of the true risk
Department of the Treasury to
premium. Nonsubsidized policyholders pay premiums based on the average
cover flood claims from the 2005
historical loss year. However, total collected premiums will unlikely be
hurricanes. And it is unlikely that
sufficient to pay all expected flood losses over time. In January 2006, FEMA
NFIP—a key component of the
federal government’s efforts to
estimated an annual shortfall in premium income of $750 million because of
minimize the damage and financial
the policy subsidies. This shortfall is compounded by the losses associated
impact of floods—could cover
with subsidized properties that have had repeated flood losses (known as
catastrophic losses in future years.
repetitive loss properties). Although repetitive loss properties represent only
Estimated claims for Hurricanes
1 percent of NFIP insured buildings, they account for 25 percent to 30 percent
Katrina, Rita, and Wilma far
of all claims losses.
surpass the total claims paid in the
38-year history of the NFIP. The
In addition, the program is not structured to build loss reserves like a typical
insufficient revenues highlight
commercial insurance company, and it does not build and hold capital.
structural weaknesses in how the
Instead, it generally pays claims and expenses out of current premium
program is funded.
income. When it has insufficient income to pay claims, the NFIP has authority
to borrow from Treasury. Between 1990 and 2003, the NFIP had to borrow
The Federal Emergency
from Treasury during three extended periods to cover flood losses. Each
Management Agency (FEMA) is the
time, the NFIP was able to repay, with interest, those borrowed funds. As
Department of Homeland Security
shown below, the unprecedented losses from the 2005 hurricanes greatly
agency responsible for managing
exceeded losses of previous years. It is highly unlikely that the NFIP, as
the NFIP. FEMA has taken some
currently funded, could generate revenues to repay Treasury, particularly if
steps to address these issues,
future hurricanes result in loss levels greater than the average historical loss
including reducing the number of
subsidized and repetitive loss
levels. From September 2005 to March 2006, Congress three times increased
properties insured, but still faces
FEMA’s authority to borrow from Treasury—from $1.5 billion originally to
complex challenges in addressing
$20.8 billion—to help pay for claims from the 2005 hurricane season. As of
these issues.
August 31, 2006, the NFIP has paid out $17.3 billion in claims for 2005 floods.
What Remains to Be Done
Flood Loss Payments by Year of Flood Event, 1978 through August 2006
Comprehensive reform will likely
Dollars in billions
be needed to stabilize the long-term
18
finances of this program. GAO will
16
continue to provide FEMA and
14
Congress with recommendations to
12
help both consider ways to
10
improve the sufficiency of NFIP’s
8
financial resources and current
6
funding mechanism, mitigate losses
4
from repetitive loss properties,
2
increase compliance with
0
mandatory purchase requirements,
’78 ’79 ’80 ’81 ’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06
and expedite FEMA’s $1.5 billion
Source: FEMA.
flood map modernization efforts.
Page 91
GAO-07-310 High-Risk Update
Related Products
National Flood Insurance Program
GAO’s High-Risk Program. GAO-06-497T. Washington, D.C.: March 15, 2006.
Federal Emergency Management Agency: Challenges for the National Flood
Insurance Program. GAO-06-335T. Washington, D.C.: January 25, 2006.
Federal Emergency Management Agency: Improvements Needed to Enhance
Oversight and Management of the National Flood Insurance Program.
GAO-06-119. Washington, D.C.: October 18, 2005.
Federal Emergency Management Agency: Oversight and Management of the
National Flood Insurance Program. GAO-06-183T. Washington, D.C.:
October 20, 2005.
Federal Emergency Management Agency: Challenges Facing the National
Flood Insurance Program. GAO-06-174T. Washington, D.C.: October 18,
2005.
Flood Map Modernization: Federal Emergency Management Agency’s
Implementation of a National Strategy. GAO-05-894T. Washington, D.C.:
July 12, 2005.
National Flood Insurance Program: Oversight of Policy Issuance and
Claims. GAO-05-532T. Washington, D.C.: April 14, 2005.
Flood Map Modernization: Program Strategy Shows Promise, but
Challenges Remain. GAO-04-417. Washington, D.C.: March 31, 2004.
National Flood Insurance Program: Actions to Address Repetitive Loss
Properties. GAO-04-401T. Washington, D.C.: March 25, 2004.
(450513)
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GAO-07-310 High-Risk Update
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